Avoid misunderstandings, part one – sellers …

The first misunderstanding that can arise is what the agent actually does and what they do not do.  In talking with potential customers it is clear that the vast majority of people do not understand what a real estate agent does or how they get paid.  This can many times lead to misunderstandings and even disputes.  When I became a Broker and started my own business I decided to try and make some of the issues clear to my customers and at the same time provide some legal protection for my new company.

 

Sellers:

 

The issues are a little less confusing for sellers simply because they sign a listing agreement and the fee is in that agreement.  The problem is most sellers do not read the entire agreement.  Most listing agents provide a Competitive Market Analysis (CMA) and many times the listing agent’s services are listed in this document that contains the CMA.  Sometimes the list includes things the agent really doesn’t do for one reason or another.  Many times the list is boilerplate from the broker and each agent can do these things or not.  In some cases the verbiage is confusing or misleading to the customer.  For example I have seen things like the following in these documents:

 

• Hold open houses
• Advertise in the local newspaper
• Advertise on the internet
• Report to the seller and keep them up-dated on all activities
• Etc,

 

What the above actually mean is somewhat subject to interpretation.  The key here is no specific information like how often or when is provided.  If you set the customers expectations that you are entirely focused on them and you are working 40 hours a week to get their property sold they may feel you are doing these activities each and everyday.               

 

The other issue is some agents tend to overstate how much influence they have on getting the property sold.  In fact all agents have some impact on this factor, but in general the price and the real estate market in the area are the two biggest factors.  Beautiful flyers, daily ads and other marketing activities by the listing agent will not overcome a listing price that is too high if the market is flooded with property for sale.

 

There is an old saying that goes, “Under promise and over deliver.”  I don’t totally agree with this but many agents tend to over promise what they or their company can actually deliver.  This is one reason many people think of real estate agents the same way they think of used car salesmen. 

 

My listing presentation includes market factors and a description of Market Ratios.  Market Rations are a simple way of providing information about what kind of real estate market exists in you area; is it a buyers market, a sellers market or neither.  The impact of the market is a major factor in selling any property and in how much the seller can expect to get.   This is an important factor and it helps the seller understand the market their home is facing; what their property has to compete with the why list price is critical to getting the property sold.

 

The issue of how and when the commission is paid is an important issue that many times is not discussed.  I think this is a mistake.  I include a one page explanation of how real estate agents get paid and where the commission goes.

 

I’ve seen graphics that show two brokers and two agents and the split commission between these four people 50%, 50% and 50%.  But even here this may not be the case with a desk fee office or some other commission agreement.  I explain that the commission is split between the listing and the selling office.  Each office has an agreement with their agents on how the agent gets paid.  I also say,” Most real estate companies (Brokers) do not hire agents and the agents are not employees, the agents are independent contractors.  Each Broker determines how to compensate their independent contractor agents.”     

 

A sample of my services page is as follows:

 

• Provide a CMA and assist the seller in establishing a list price
• Place the listing in the MLS, with 12 color pictures, a map and a description of the property so 25,000 agents (MLS members) and thousands of potential buyers can view the property on-line from their PC on my Webpage and others
• Have a FOR SALE sign installed on the property with color flyers
• Install a lock box on the property so agents can show the home when the sellers are gone
• Advertise the property at least twice a week on Craig’s List, Seattle Back Page and other online sites where buyers look for homes
• Run an ad once a month in the local newspaper (optional)
• Hold one open house per month for agents and the public (optional)
• Email the flyer to local agents to make them aware of the property
• Mail to 200 homeowners in the neighborhood to inform them the property is For Sale – they may know friends who want to move into this area
• Respond to all inquiries from the For Sale sign, web ads and other sources and answer all questions
• Respond to all inquires from other agents and answer all questions
• Provide a weekly report on the number of times the property has been shown and the number of inquiries from all sources (provided by email only if the seller provides an email address)
• Meet with the seller after 30 days to discuss the activity and the market to re-evaluate the market conditions and the list price  
• Receive all offers, confirm the potential buyer is pre-qualified for financing by calling the lender and confirming the letter included with the offer (final authority for making the loan is not the responsibility of either agent)
• Present all written offers and help the seller decide the response, accept, make a counter offer or reject the offer
• Assist the seller in negotiations, once the inspection report and form 35R is presented by the agent for the buyer, if there are items to be repaired or replaced
• Assist with all paperwork including reviewing the escrow closing statement and attending the escrow closing alone with the seller
• Be diligent in trying to get he property sold

 

The optional items above are at the agent’s discretion.  The agent will determine when and if these things will be done.  The National Association of Realtors has statistics that show the listing in the MLS and the FOR SALE sign, along with the list price are the factors most responsible for getting a property sold.

 

Frankly in the Seattle area over 80% of buyers look on the internet for homes.  I have run ads in the local newspapers and in the real estate magazines and had little or no response.  This may vary by location so I don’t make any blanket recommendations, but spending money just to convince the seller you are trying to sell the property is a worthless activity in my opinion.  In some areas open house is a joke because they draw no visitors.  It is the agent’s responsibility to educate the seller about their market.

 

In today’s real estate market the sellers more than ever need an agent who will educate them as to the market conditions.  In the Seattle area prices have not come down much but the inventory has grown and the activity level has fallen drastically.  Sellers must understand they must list their property at the right price or it will not sell regardless of what the agent does.  The list price is the single biggest factor in getting a property sold.

 

More on how to avoid misunderstandings for buyers later…  

 

    

 

 

 

 

 

 

 

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Sellers – Wrong time to sell

If you are considering selling your home you should ask yourself a few questions and then put off selling if at all possible.  Why would a real estate broker advise anyone not to sell?  All the indicators are negative for sellers at this time.  The number of homes available to buyers is running 10 to 15 homes per qualified buyer and the days on market before a home sells increases everyday.  Most listing services have an inventory to 8 months to one year.  Many homes have been on the market for over 6 months and they will be on the market for another 6 months if they don’t lower the asking price by 10% to 20%.

 

Most qualified buyers are not buying because they feel housing prices will fall further.  I am working with two buyers who will not even make a low offer on a home because they are afraid they may suffer a major loss if the real estate market crashes.  They don’t want to buy a home for $400,000 and find out it is worth $350,000 a year later.  They maybe right.  They are looking for a steal or they will not make an offer.  The credit crisis has eliminated many potential buyers with more restrictive qualifications and there is no 100% financing that makes any sense.  Appraisers after over appraising thousands of homes are now playing by the rules and with homes over priced the deals may die because they just won’t appraise at the selling price.

 

Homes in the King and Snohomish County area are still too expensive and sellers are not being realistic about what their home is worth in this market.  Until all these factors force the prices down sellers will have a very difficult time selling their homes. 

 

The traditional reasons for selling are loss of job, divorce, death in the family, relocation, a major reduction in income, need a larger home and need a smaller home.  There are certainly other reasons, but these are at the top of the list.

 

If there is anyway to stay in your home for another year or so you should consider doing this.  If you can’t you should consider renting your home and waiting to sell.  Renting is something many can’t afford, but if your mortgage payments are low enough to allow you to rent and cover the mortgage payments with a little left over for miscellaneous expenses you should consider this.  Even if there is a negative cash flow you may want to consider this if you can afford to carry the payments for a year or so. 

 

I just met with an older man who can no longer afford his monthly mortgage payments and he wants to sell.  His home is not in good shape and needs up-dating and repair.  He would not be able to get much for the home if he sells now.    We discussed his options and he has a friend who could move into his lower floor and pay rent.  He is also asking his fellow workers if they know anyone who wants to rent a bedroom and full bath with their own small family room; they would have to share his kitchen.  He would be far better off if he can make this work and wait for the market to turn around.

 

For those who have run out of room and need more space because they have children, you may want to consider adding a room or two to your existing home if possible.  Builders are looking for this kind of work and they may make you a great deal on an addition?  This happened to me 20 years ago when my second son was born.  Adding two rooms turned out great because when we sold we got all our money back and then some for the addition.  The real estate market was better then, but when we looked at selling and buying a bigger home or expanding our existing home, the cost was actually less to add two rooms when we figured the cost of selling and moving. 

 

If you do decide to sell be realistic about pricing.  Ask several agents to give you a market analysis of your homes value.  Take a long hard look at the list of competing homes, those currently for sale.  Look at them using the local MLS on your PC and compare them to yours objectively.  If the competing homes have been remodeled and your home hasn’t, you need to be priced much lower.  If they are larger, you need to be priced much lower, etc.  All agents are honest and hard working, but some agents are afraid of offending people with a low market valuation.  If you have friends ask them to look at the competing homes on line and then compare your home with these homes and give you their opinion as to the comparative value of your home.  In this market your price is the single biggest factor in determining if your home will sell.

 

Finally, look at all your costs of sale.  Included in these are real estate fees (4% to 6%), excise taxes, pro-rations and title insurance and escrow fees.  You can get a discount if you use the same company for both title and escrow.  You may want to use a broker who charges less in real estate fees.  In this market you should ask for a discount even if you are using a friend as your agent.  There are many options here.  The average cost to sell is about 10% of the purchase price when you include excise taxes, pro-rations, real estate fees and title and escrow.  If you can reduce these costs by 2% to 3% of the purchase price (that is 20% to 30% of your selling costs) it represents a major cash savings.  If you don’t understand any of this, drop me an email and I’ll send you a quick overview of sellers closing costs and a short list of companies that offer discounts. 

 

Knowledge is power – sellers take the time to get knowledgeable and look at all your options before you decide to sell in this market.   If you can wait don’t sell now.

Things you must do to sell your home

In todays buyers market, with many more homes for sale than qualified buyers, you need to make sure you price your home at or near the bottom of the price range.  Your home will be competing with 10 to 15 like homes in your price range.  Even a small difference in price will put you at a disadvantage.

If at all possible you need to paint, carpet, up-grade old appliances and even stage the home to get the attention of buyers.  The home must be in move in condition or you need to be at a lower price than the competition.

You need to look closely at all the factors buyers look at; neighborhood, type of home, the condition of the home, size (dollars per sq ft), amenities, the yard, etc.  If your home is lacking compared to the competition in any of these areas you need to lower the price to compensate.

The hard true fact is it is a buyers market and to sell you must be competitive.  Many homes are sitting on the market for months and this makes it harder to get them sold.  Many homes simply will not sell close to the listed price.

How long will this last?  No one knows for sure, but many experts says for at least a year.