Wednesday, August 23, 2006

The advertising component of the listing fee...

This is another installment of how the listing fee that is negotiated between a seller and a listing broker may apply.

In 2004-05 this would have been a total waste of space. Why?? Because by the time I may have had a yard sign placed in front of the property and the listing placed in the MLS, it was likely that I'd already have appointments from buyers who wanted to see the listing. In other words there wasn't much advertising that was needed to be done because the market was so incredibly active with buyers looking to acquire property.

Of course that has all changed because of the shift in the market, a market where the buyers have a position of power.

In my last article about listing fees I used an example of a $600,000 listing, with a 6% listing fee that would equal a possible commission paid by the seller of $36,000. Yes, it still looks like a lot of money and it IS!! I've discussed that in normal practice half of the $36k gets paid to the buyers broker leaving $18k for the listing agent. I then went on to say that a portion of that amount is collected for expertise costs. It was explained that a fair amount that I would negotiate for if I was only handling the documentation and negotiation of a transaction on behalf of a seller would be $3,500. Now we are down to $14,500 remaining of the listing fee commission that I would normally collect.

Again I am facing a softer market for sales when representing a seller, so it is imperative to advertise the listing so that any potential buyer for the listing will be aware of the property I am representing on behalf of a seller.

There are many, many ways to advertise a property. First of all a listing placed in the MLS will automatically be listed on the public web site, where buyers who have an interest in purchasing property in a particular region or city can search for properties that could possibly meet their needs and buying criteria. Although it seems free, a seller actually pays for this advertisement through the MLS advertising fee. It's hard to see, but trust me it is there.

Other avenues of advertising also do not seem to have a hard cost. Currently I am becoming more familiar with other searchable web sites for the advertising of property ( for example). I am finding more and more of these types of sites all the time and since the greater portion of potential buyers begins their search for properties on the Internet it is very important to place listing information on those sites for greater exposure. Again this appears to be a soft cost, but it takes real time and effort to place those listing on those many sites. So I've put a hard cost to this practice to the tune of $200.

There may be a time when another web related company that acts as an MLS in our local area becomes a viable option for advertising listings and they may charge me a membership fee of some sort. My plan is to pass on this cost to the seller as an advertising fee, since I am not aware of any such marketing avenues that would produce interested buyers at the moment, I won't offer a guess for this service at this time.

I let my clients know that I'll put their property on my own personal web site as well, and will do so for free. I also follow up by saying that my site does not get the traffic that the other sites do, so I feel this is a fair because I usually only have a handful of listings promoted on that site and it would be unlikely that the right buyer will find and find the exact property they are looking for.

I also will post the yard sign and allow use of a lockbox for the term of the listing at no charge. The yard sign is a major tool to attract buyers interest who may be looking in a particular area of town and may not be searching the Internet for possibilites. But also having the yard sign in the front yard also promotes my business to other potential sellers. In fact I believe that yard signs are the best advertising for me personally to attract selling clients. The more they may see my name in front of homes for sale the more they are likely to at least contact me about a possible listing opportunity. So to me this is a win-win for me and the client so I don't consider the yard sign as a cost to the seller. (Many brokers and Realtors may disagree with me on this)

So we have the sign in the yard and the listings featured in multiple Internet real estate related websites, and at a very agreeable cost to the seller ($200) to this point. What's next?? More traditional advertising methods. Ones that I'd like to see go away over time because in my opinion they won't be worth the money spent.

Currently some of my listings appear in the local monthly real estate magazine (the Kingman/Golden Valley Real Estate Guide). Each page that I contract for has a set cost that I incur. When a client wishes to have their listing appear in that magazine they will pay $100 for a quarter page, $150 for a half page, or $200 for a full page of exposure in each month it appears. Normally a quarter page will do, but if I was listing a $600k home it is likely that the client (in my market) would like the best exposure meaning a full page. If I am in a 6 month listing agreement with a client it would mean 5 months of advertising to the tune of $1,000.

Another resource of advertising is in the local classified ads in the newspaper. Costs vary for this kind of ad, but I normally like to place a larger ad than what is found in the classifieds (other real estate agents also do this), it would include a photo and some description of the home. This ad would cost the seller $100 per day, and usually the ad would run in spurts of a week here and a week there. Maybe two weeks out of a month but more like one week. Because I could advertise in the newspaper right away I figure $700 a month times 6 months to the tune of $4,200 for the listing period.

How about the ever present open house event?? I am not a big fan of these types of events in general, another post for another day. However, sometimes a client will insist on my holding such an event. The cost for open house that I pass onto the seller at close of escrow is $400 per open house. All inclusive. So figure holding two of these events during the listing period for a total of $800.

Post cards are another more traditional method of advertising, more specifically 'just listed' postcards. I know many Realtors that have had success with this method and are loyal to it and do this for each and every listing. I never had much luck using postcards so it is not a staple of mine. Nonetheless the fee I would pass on to the seller would be $2 per post card. I haven't done this in so long that I'm not sure what is the correct amount or average amount of postcards to send out. In my smaller market, I'll say 50 so that would be a cost of $100 per run and it would be likely that I may do two runs throughout the life of the listing, so figure $200.

Now you might be asking if I'm adding some profit into my actual costs for the items listed above and the answer would be yes. But think about it this way, if you had listed with me for six months and I forwarded these costs to you, you would have a bill for...

$200 for internet exposure
$1,000 for ad in real estate guide
$4,200 for newspaper ad
$800 for TWO open houses
$200 for TWO runs of postcards

$6,400 would be the grand total for this marketing package. After splitting the listing fee of 6% of a $600,000 listing my commission was $18k. After my expertise costs were subtracted from the $18k that left $14,500. Now subtract the $6,400 spent in advertising and there is still $8,100... hmm... what to do with all this money?? Think the seller would like to add it to his or her proceeds?? You bet they would. Which is exactly why I would be willing to negotiate any and all aspects of the listing fee. Honestly the $3,500 for expertise costs and the advertising fee costs that I collect from a successful transaction leaves me, ME, with enough revenue for a profitable business.

A follow up to this later.

Related articles

Why 6%
The MLS and the client

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