All Posts by Jim Thornton

Is your home priced under $417,000? If this is the case, then get an FHA Appraisal now.

What Will it Do for You?

Getting an FHA Appraisal will tell you the maximum mortgage amount an FHA lender can provide a prospective buyer. Approximately 50% of all buyers today are using FHA financing and an estimated 33% of homes are failing to close for reasons related to the appraisal amount. Therefore, getting an appraisal upfront before receiving an offer on your home will guarantee you are not part of that 33% of sellers that fail to close post-agreement.

Getting an appraisal is the best way to:
• Determine the appropriate asking price for your home.
• Protect yourself from losing money by underpricing your home.
• Protect yourself from overpricing.

Hiring a creative and flexible agent is perhaps the most effective and least often employed method of selling a home. At its simplest form, it’s is a combination of characteristics of the exclusive agency and exclusive right to sell agreements.

What You Should Know About Finding the Right Agent

To find an agent who is willing to offer more flexibility in the listing agreement, there are a couple of things that are important to understand. Traditional agencies operate on a “split commission” basis with their agents. The house covers most, if not all, overhead, training and marketing expenditures, and the agent agrees to split the commission when they are successful in helping people buy and sell homes. These commission splits are usually tiered based on performance and productivity.

These “house-agent split commission” agencies are the least likely to compromise on contractual points and relationship structure. When meeting with an agent from a traditional brokerage, they are not going to have the ability to negotiate something creative without checking with their broker or another decision maker first, and the more decision makers, the less decisions are being made. This is especially true when asking both a broker and their agent to potentially discount their commission.

Why Agents May Be Reluctant to Be Flexible

When an agent doesn’t want to do something differently, it’s easy for them to say, “My broker would never go for that,” or “Our company doesn’t allow us to discount the commission or offer exclusive agency.” They have some good reasons for this.

As we mentioned in an earlier post, every listing costs marketing dollars, time and effort that could be put toward listing homes on a traditional commission structure. So the first step for you to take is to reach out to companies that allow their agents to offer creative hybrid listing contracts that are negotiated between the seller and the real estate broker.

Where to Find an Open-Minded Agent

A recent phenomenon is the 100% agent commission agencies. These are the Re/Max and Realty Mark franchises among others. The agent receives 100% of the real estate commission for each transaction but pays a monthly desk fee to their company. Even if the agent has not sold a home in six months, the agent continues to pay a desk fee. The agents who choose to work for the 100% commission split companies tend to be more open-minded to a creative hybrid listing contract since their overhead is fixed each month. Additionally, they keep 95 to 100% of the commission on all transactions. This allows them to negotiate more creatively, achieving a win-win listing agreement with sellers. Their flexibility lies in the fact that they have 100% of the commission with which to negotiate.

As a seasoned Realtor, Jim, Sr. worked for a 100% company for approximately 18 years (Re/Max) and now works with Realty Mark. Realty Mark encourages agents to be creative problem solvers in their transactions and they offer a high tech paperless office environment, passing on the overhead savings to their agents in the form of lower monthly desk fees.

How the Internet Changed Real Estate

We’ve seen agents in both commission environments offering creative solutions to sellers. The new internet-driven real estate environment, where home sellers have unlimited access to real estate information, has left many agents realizing that they have to be flexible and creative in order to continue to be successful. Agents are going to have to give sellers more options at lower costs than the traditional 5% to 7% real estate commissions that are still being offered nowadays. Some agents have already adopted new options. In addition, they are going to have to get even more specialized, focusing on the things that great agents can do that home sellers cannot do themselves.

See our article on today’s buyer for more information about how the internet has changed real estate.

Hiring a flat fee broker to list a property in the MLS is a viable option. By offering compensation to any real estate agent who can list your home in the MLS to bring in a buyer yourself, you exponentially increase the odds of selling the home as approximately 80% of home buyers begin their search on the internet (NAR, 2012).

MLS > Realtor.com > Hundreds of Other Sites

The Flat Fee Philosophy is that by listing your home in the MLS, your home is exposed to agents with buyers as long as it meets their search criteria. Also, buyers who search online will see your listing as the MLS data is syndicated to hundreds of websites. Besides the MLS and sites syndicating MLS content, your home’s exposure will be a direct result of the sign in your yard or any other marketing tactics you decide to use paying out of pocket.

The Flat Fee MLS is a great way to go if:

1. you are willing to price your home competitively from the start.
2. you offer a reasonable buyer-side commission (typically 2.5 – 3.5%).
3. you are comfortable and skilled at buyer lead management.

Benefits:

• You pay a small listing fee ($300-1,000) upfront (instead of a seller-side listing commission).
• You have total control: you pick the price, you choose what types of marketing strategies you want to employ and you (typically) answer all inquiries.
• You have the opportunity to save the buyer-side commission if you sell the home yourself.

Risks:

• You have no access to agent support, feedback, advice on pricing or legal protection.
• Most sellers have no experience in buyer lead follow up, lead management or negotiation.
• The buyer wants to save the same commission you want to save.
• When you negotiate with buyer agents yourself, your interests are only represented by yourself.
• You might be leaving money on the table. Property negotiation skills are cultivated over years of experience. A good agent has an ability to know just what to say or how to handle a buyer’s objection by profiling those buyers.
• If your home doesn’t sell, you are out of the upfront fee.
• Many flat-fee MLS services hit you up for “additional fees,” such as:
Extending your listing from three months to six months (or from six to 12).
Updating the listing in the MLS by adding pictures or making changes to descriptions.
Putting a sign in your yard.

DIY with a Team of Professionals

By skipping a listing agent (and his/her commission), you are freed up to have control over the entire home selling process through your own efforts, and hire a team of even more specialized experts to handle the different stages of home selling.

Some team members you should consider including in the process are:
• Home Inspector
• Professional Stager
• Appraiser
• Real Estate Attorney

Pro Tip 1: Hold open houses yourself and ask the flat fee broker to agree to advertise the open houses on Realtor.com for free.

Pro Tip 2: You want your interests represented by a professional. After all, selling a home is often the largest financial transaction a person makes in their lifetime. Hire a real estate agent for a reduced commission (often 1%) or an attorney to do the paperwork (for $500 to $3000) once you and the buyer have agreed to terms and conditions of sale.

Even a good chunk of Realtors surveyed did not know the correct difference between Exclusive Right to Sell and Exclusive Agency.

Exclusive Agency vs. Exclusive Right to Sell: What’s the Difference?

Most real estate listing agreements are exclusive right to sell, meaning no matter who finds the buyer, the listing brokerage is entitled to the whole commission as originally negotiated. So even if you find the buyer yourself, whether it’s a family member, co-worker, friend or neighbor’s friend, you still pay the full commission.

The Path to Freedom in Your Home Selling Contract

Thankfully there is an alternative! An exclusive agency agreement guarantees your listing agent a commission when they or another agent sells the home. According to the Pennsylvania Association of Realtors,

An exclusive agency relationship is different. As an exclusive agent for the seller, the broker is obligated to be loyal to the seller by acting consistently with the seller’s best interests and by making a continuous good faith effort to find a buyer/tenant for the property[…] The broker is not going to get paid, however, if the seller finds his/her own buyer or tenant.

Sellers ought to keep in mind that most real estate agents who know the difference shy away from the exclusive agency transactions. After all, the listing company could spend thousands of dollars marketing a home and in the end not receive any compensation if the seller is successful in finding a buyer.

Pro Tip 1: Know the difference between an Exclusive Right to Sell and Exclusive Agency Agreement.

Pro Tip 2: Be prepared to handle an agent’s objections when asking for an exclusive agency agreement. If a Realtor says the cost to list and the risks are too high to offer an exclusive agency agreement, ask what it would take to reduce the typical costs associated with a listing. If your property isn’t included in their print advertising and “just listed” postcards are not sent out, then where is the cost? An agent may say that the company has a policy against offering exclusive agency. You can reply with, “So no one in your company has ever offered one before?” Another reply could be, “So you would rather risk us not listing with you than ask your broker to make an exception?” As a seller, you can get saucy about it by saying, “Part of the reason we’d like to hire you is your negotiation skills. Can’t you work something out with your broker, just this once?”

or Understanding the New Home Buyer

Home sellers must learn to become much more aggressive marketing combatants in the home selling wars.

US Residential Real Estate Landscape 2012

Every seller needs to know what is going on in their respective local and national markets so they can make educated decisions about when and at what price to sell their home. We talk about how to really learn your local market<link> (for free) in this article here. But on the national scale, what do these numbers mean and why are they important (or not)?

Knowing what’s going on in the national real estate market is important for a couple of reasons.  Besides the actual light it may be able to shed on the current economic situation and related housing market, the most important takeaway is understanding the answer to the question, “what are buyers thinking and hearing right now?” to help sellers think in terms of how to adapt to the rapidly changing and increasingly competitive landscape.

Some frequently quoted US Housing Market statistics today

Between media hype, big numbers, statistical estimates, and general US housing market news, buyers are scared. We’ve listed some (varying  and contradictory) macro level statistics being put out over the news and web. Here are some numbers you should take note of:

• Sellers are competing with somewhere between 1.5 to 10 million homes that are presently and in the soon to be future bank foreclosure pipeline.
• There are approximately 55 million mortgages in the US. An estimated 20% of all mortgages are in default now or soon to be so.  (That’s about 11 million)
• Including bank owned properties, homes presently in foreclosure and all mortgages that are thirty days or more late on their payments, there are over 2 million homes in the foreclosure pipeline
• There are up to 15 million properties currently in the foreclosure process. This figure includes bank-owned, foreclosure, and properties late on mortgage payments.
• There are 1 million houses in foreclosure that have not sold. Another 4 million more properties are seriously delinquent (Rick Sharga, SVP, Realty Trac).
  • Sharga says that at the current rate of distressed sales it would take more than nine years to sell all of the inventory.  This glut of distressed homes is contributing to the spiraling lowering of home values nationwide.

Okay, so what’s all this really mean for me as a seller?

These are the widely diverse numbers that five industry expert researchers claim are the distressed numbers home sellers are competing with when they try to sell their home. Whether you believe home sellers are competing with four million, fifteen million or some number in between, it is evident that the most conservative estimates listed indicates the housing crisis may continue for three or more years.

It’s not possible to grasp the extent or length of a down market. It is possible to understand buyer perceptions, fears, and market demand. These numbers are relevant because this is the buyer pool you are dealing with. Selling your home in today’s distressed environment requires home sellers to work harder than ever before to conclude the successful sale of their home.  Gone are the days of throwing a sign up on your yard or giving your friend’s Realtor a call and waiting for a sale. Outside of bank-owned properties and short sales, the homes that are selling are the ones with maximized exposure and smart pricing. The successful sellers are the ones adapting to conditions, participating in their home’s marketing program, and choosing well-positioned Realtors with the necessary web reach and lead management skills to move an offer to closing. If you’re currently in the process of selling your home, ask yourself, “Am I doing and utilizing everything I can to sell my home?”