Andrew Wetzel's Musings

June 2, 2017

Call it a commi$$ion or a fee, it needs to be discussed and understood

Filed under: Uncategorized — awetzel @ 6:04 PM

I address the commission/ fee question a little differently than most Realtors based on what I hear and read.  While it is understood to be negotiable, there is some logic to how a broker determines their office fee and what they will accept from a specific client.  That being said, for me, it is NOT an arbitrary number that should be tossed around solely for the purpose of getting a For Sale listing or helping a buyer purchase Real Estate although some of them base their “hiring” decision largely on the number they are told.  I know it is an expense and often a large one but, if you compare Real Estate-listed sales with private sales, we more than earn our fee.  It is my opinion that most prospective clients, even those who have bought and sold Real Estate before, do not seem to fully understand what “the number” means so I explain it.  What they do next is up to them.

When I meet with a prospective seller and discuss the CMA (Comparative or Competitive Market Analysis) for their property, I show them what their “competition” is offering buyer agents to “show” and possibly sell their houses.  When sellers pick their price they pick their competition and that includes the compensation being offered.  Do they want agents to want to show their house?  Do they want buyers to want to see their house?  As I explain, the compensation offered a buyer’s agent is a “marketing tool” to try to achieve equal footing with the competition.  There may be other reasons why a specific house does not get shown or sold but I do NOT want it to be a question of commission.

The conversation leads to an explanation of the buyer representation contract and how commission is used there.  Assuming we are getting our buyer-clients to sign a contract such as we do with seller-clients, the contract specifies the length or term of the contract as well as what our fee is.  I agree to be paid by the listing broker as long as I am paid at least “X”.  Of course, the buyer is paying the seller who pays the listing Broker who offers the buyer agent a portion of what they are paid.  In the event that a listing broker would not pay me at least what my contract with my buyer-client specifies, the buyer-client agrees to pay me the difference.  Hmmm.

I explain to prospective sellers that my typical buyer-client will NOT pay “fair market value” for their house only to have to pull some of their hard-earned money out of their pocket to pay anything to me or any other agent.  In fact, every buyer I have ever worked for has told me not to show them properties that won’t pay my fee.  NOTE:  that is THEIR choice NOT mine.  There are ways to attempt to adjust the offered compensation and there are ways NOT to do it.  Fortunately, while I have never had to ask a buy-client to pay me anything, there have been houses they did not want to see and therefore did not buy.

There are times where a prospective seller is unwilling or unable to pay a requested fee.  Being unable is one thing, that could relate to what they owe or what they need to take from a sale to make a move, but being unwilling is a separate matter that needs to be fully discussed.  Many Real Estate gurus suggest telling the seller to add the amount in question to their asking price.  The house would still have to “appraise” and wouldn’t it be ironic if a seller said it would not work because it would impact their appraisal or make other houses more price competitive?

The final piece is an explanation of what we need to do if a house is not getting shown or not getting offers.  The MLS clearly shows a price reduction (you could literally reduce a house $1 and EVERYONE will be able to access that fact) but a raise in compensation is not so obvious.  Unless you look at a specific MLS printout, you will never see an increase in the compensation/ fee being offered.  Even worse, I discuss a possible initial reduction and, as I point out to the prospective seller, it always far exceeds the portion of the commission they attempted to save.

As with any “objection”, if a seller still wants to pay less, something is missing.  They are not understanding the market or they are not seeing our “value” as compared to another agent who may be offering their services for less.  We need to identify what the impediment is and remove it.  The answer may be to wish them luck and move on.  Tell them you would be happy to be their next agent if their plan does not work.

When markets are good, some sellers believe we should be paid less since less needs to be done to sell their house.  Perhaps BUT, the simple fact is that as long as we accurately portray what they are selling so that it can be found in searches, it is the price that will largely determine the level of activity and how long it may take to sell a house.  The reality is that we really earn our fee from the time there is some interest through to settlement.  No one can force a seller to sell or a buyer to buy so the best they can hope for is honest effort and good advice.  In fact, we trade our knowledge and time/ effort for a fee and we generally earn nothing if a house does not sell or, if it does, does not get to settlement.

Last point, frankly, an agent willing and eager to cut their own fee may be unable to negotiate the best price for their client.  There are so-called “discount brokers” as well as other “business models” and they can work in most markets but their clients need to understand what they are paying for and whether that “model” works for them.  One size does NOT fit all!

The process of getting a house on the market, working with prospects, negotiating contracts and doing all of the miscellaneous items required to get most properties to settlement requires a lot of knowledge and effort.  The same can be said for preparing a buyer to buy, showing them houses, discussing alternatives, preparing and negotiating offers as well as the details that accompany any sale and getting them to settlement also requires a lot of knowledge and effort.  Perhaps explaining the “process” can resolve most if not all questions about our fee.

This would all go away if we could reach a point where buyers directly compensated their own agents but that is a big leap away and most likely not to occur in the near future.


Dialogue with a Frustrated Seller

Filed under: Uncategorized — awetzel @ 5:13 PM

This is from my blogging archive but worth sharing (I think!).

Below is an email exchange with a seller-client of mine.  Specific details have been removed for confidentiality.  My point in sharing this is to give a dose of reality to my blog and the current market.  The seller is an intelligent person, we have a great relationship and the house is a nice house BUT, these are NOT “normal times”.  Real Estate is NOT rocket science and the solutions are usually obvious.

My seller wrote:  “I must admit that I am getting a bit depressed over the housing situation – but do appreciate your help.”

The situation:  this was an “expired listing”, in fact there were several prior agents.  I contacted the seller, we met, I reviewed the history and the seller’s situation and they hired me to market their house.  According to the seller, the most recent agent moved to an office out of the area during the listing period, they apparently lost interest as there was little interaction/ poor follow up after the move, the multiple listing service (MLS) printout (and, by default, the general Internet marketing) was poor (several critical details were missing making it difficult to “search” for the house.  By this I mean that the house was not coming out in the search results!) and the price was “above market”.  The seller wondered whether the poor marketing was the primary problem so they were reluctant to lower the price “too much” despite the market analysis I did.

I was “hired” and began marketing the home.  I provided the seller with my MLS write up, my property highlight sheet (available in the house for prospective buyers) and links to their listing on the major web sites.  The seller was pleased and felt that my efforts accurately portrayed the house.  I placed a “For Sale” sign in a better location as well (you literally could not see the prior one from the main road).  After becoming convinced that marketing was no longer an issue, the seller agreed to a significant price reduction a few weeks later.  By “significant” I mean that it “re-positioned” the house into a lower “price bracket” so that a different groups of buyers could find it in their searches.  There has been quite a bit of online traffic, few showings, no offers and no calls from the sign.

I replied:  “Pricing is especially critical today.  The buyer’s agent, the buyer and the lender’s appraisers ALL have to accept a price as “valid” so, even after getting an offer, many houses fail to appraise.  While prices may rise over time, “they” are saying it may take years for some areas to get back to where they were a few years ago (NOTE:  it is 2017 and I still find some areas struggling to get back to pre-2008 prices).  What would you do if you knew that were true in your case or, as some are saying, prices will fall even further?  Whether a seller adjusts their price to attract attention and a sale OR holds onto their current price is their choice.  The $64 question is what can a seller do with the money from a sale today and how does that compare (in terms of the “future value” of that money and the relief of not having to sell) to the continued costs of carrying a house into an uncertain future?  This is not an easy question to answer but there are too many sellers not selling while others are selling their houses and moving forward.  The market is difficult but not impossible.  At this point, I am confident I am marketing your house properly and that people can find your house if they are searching for what it offers.  My reports show that they are finding it online and the “For Sale” signage is very obvious on a reasonably well-traveled street.  Something is keeping them out.”

My thoughts:  “today’s buyer” has a great deal of information at their finger tips, many properties to consider looking at and most buyers are very discerning.  The best Realtor can only get a buyer to “know” that a house is available but they cannot force them to look at it or make an offer.  The best agent will not get an over-priced house to settlement if it goes under contract and the worst will not get an under-priced house to sell.  These can be very frustrating times if we all (I mean that in a “collective sense”) ignore the clear signals being sent by the market each and every day.  The hard part is convincing sellers not to take this personally.  If they need a certain price to sell and move, they need to do some homework and know their options.  If ego is involved, that can be costly if prices decline.  Today’s Realtor is so much more than a marketer:  most of my conversations involve listening to seller’s frustration about the market.  In my case, most of my clients literally wasted their time with other agents who should have been able to sell their houses!

One of my favorite slogans is “if you price your house low enough you will not need my services; if  you price your house too high, there may be nothing I can do for you”.

Thank you for reading.

Hire wisely!

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