Real Estate thoughts

A friend asked for advice on selling real estate. I’m no expert, but I thought I would write up some of my thoughts in a blog post for everybody:

  • The national average commission is 5%, though agents always ask for 6%. Do you want to do worse than average?
  • Of course, home prices have soared far beyond inflation, but the realtor cut remains the same. This is the power of the realtor monopoly, which many have tried to break. Someday somebody will. I think Google could do it.
  • A good realtor will usually get you 6% more than you will get on your own, which is how they justify their price. But that doesn’t mean a realtor couldn’t get you that same bump for far less if the market were more competitive.
  • Except in hot seller’s markets, open houses are not to sell your house. They are so the agent (or one of their associates) can meet new buyers, and try to sell them any house, not just yours. In hot markets, houses really do sell via the open house. (Also see below.)
  • A great story. A broker calls his agents in for a meeting. He asks them, “You’re listing a house and you’ve gotten one of the buyers you represent interested in it. Who are you working for?”

    One agent says, “The seller is the one you have a contract with, work for him.

    Another agent says, “The buyer is the one who decides to make the offer. Work for her.”

    A third agent says, “Actually, the law in this state requires that you try as hard as you can to represent the interests of both.

    The broker listens and then growls at them, “You’re all wrong! You’re working for me!”

  • In other words, the agent is working at making a sale happen. I’ve never met a seller’s agent who would not quickly betray their seller to make a sale happen. By “betray their seller” I mean tell the prospective buyer information the seller would normally never reveal, such that they will take less. Some would argue (validly) in some cases that this is in the seller’s interest too.
  • More often than you think, houses end up selling to friends and neighbours. A friend just listed a house and ended up with competing bids from the neighbour 2 doors down and another a few more doors down. People often love the chance to get a bigger house in the same location — no need to reclocate kids, learn new area etc. You need a neighbourhood that people love of course.
  • Because of that, consider doing one week of basic “for sale by owner” marketing to let neighbours and friends know you are selling. You will get swarmed by realtors wanting your listing, which is OK if you want them to compete over you. Otherwise tell them you’ve already picked the broker you will list with if the FSBO doesn’t work
  • You may still want an agent to handle your FSBO. There are agencies that do all the non-marketing part of real estate transactions for much lower fees, or you can talk a traditional agent into do it for far less as well.
  • As an alternate, ask for a clause in your contract that says if the house sells to a neighbour or to somebody in your circle of friends, the commission is much less. In general the commission should be much less if your agent also represents the buyer, which would typically be the case here. Threaten to do FSBO (and give the agent nothing) if they won’t accept this clause.
  • Zillow is really cool and useful.

You can negotiate lower commissions

Zip Realty will do full-service for around 4% by giving up a big chunk of their end. They can afford to discount by virtue of not having offices to pay for - their agents work from home or in their cars with a laptop.

Most other agencies will price-match. If you say "I was thinking of using Zip because their commission is X..." you'll find you can get that price or better from the agent you're talking to.

I sold my house in Mountain View through Zip three years ago and was generally satisfied with the experience.

Offices

A lot of real estate agents don't use offices any more, or perhaps they borrow one for the closing ceremonies. Indeed you can negotiate. As I noted, here in the bay area the houses cost 3 times as much as 15 years ago, and the realtors are not working 3 times as hard or doing 1/3 the volume because of it. When I bought in 1991 my realtor worked plenty hard for 1/3 of what they get today.

I think it's better to buy services a la carte. The negotiating/closing services (from the realtor, escrow service, title company and sometimes lawyer and surveyor) are pretty standard (though escrow and title insurance can be based on cost.)

During the boom, the "marketing" effort of a listing agent was trivial. List the house, run an open house. Many people come through on Sunday. Bids arrived tuesday, buyer selected (all bidding over asking) by end of the week. That time is over but boy were the agents making a killing then. Anybody can put you in MLS, but I presume that buyer's agents steer their buyers away from houses listing a low commission for them, or, if they are being monopolistic, from houses not sold by pals in the monopoly.

However, so far nobody has managed to use the internet to break that monopoly. Companies like zip face opposition wherever they go.

Your blog is so rediculous

Reidiculous to say the least....

Number 1 go ahead and try the for sale by owner - see how knowledgeable you are on the contracts and compare your days on market to those used by a true ful service real estate firm not these "claim to be ful service discunt firms".

Number 2 - Go ahead and use that discount broker: People need to realize that you get what you pay for. Lets see, customer service = none... real agents trying to reach the discount brokers can be nonexistant. They usually cannot answer any questions on the property. Most of the time they have office hours and never return phone calls from a potential buyer. These comments are all by my TRUE experiences.

Number 3 - I would never lower or match a commission. I work hard for my money and my time is worth every penny of the commission I earn.

Number 4 - Get the facts on commission breakdowns before you act like an agent gets 6%... Normally out of a 6% commission I end up with 1.6 % (2.4% goes to buyers agent, 50/50 split of the 3.6 % left with my company and that leaves me with 1.6%). Out of this 1.6 % I pay for marketing and my time to promote the property.

Number 5 - Remember these commission are gross not NET ! Even though you seem to think we are all crooks we STILL HAVE TO PAY TAXES

So get your facts straight before you go giving people advice on something you obviously are uneducated on.

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