Friday, March 28, 2008

Realtor fees...

I've been following the stock and commodity markets here and there for the last year. I'm certainly not a financial guru and I'm not investing in either at the moment. I'm attempting to learn a bit. In my browser (Firefox) I usually open a few tabs and keep them open for most of the day. One of those tabs has been and as it just so happens, they've been including many real estate related articles that have attracted my attention. You may have seen some links from my blog posts that will take you to an article on MarketWatch. (I am getting the feeling though that MarketWatch is the Fox News of Wall Street)

I found another this morning that is worth sharing. The writer seems to be answering questions from a 'mailbag' of sorts and addresses two in this article linked here.

The first question is about the building market, a fine read but nothing new.

The next question addresses Realtor fees. I'm going to break the question and the answer down in the following...

Realtor commissions

Question: I understand that the standard commission the seller pays a Realtor has been around 6%. We would like to sell our house but with the market downturn, we lost equity we had built up in our home, which makes the sale prohibitive if we are to pay 6%. Our home is worth $220,000 and that is what we owe. Do you see the 6% figure change with the market conditions? --Tatjana, Minneapolis.

It just so happens that my wife and I are closing on a home purchase in Minnesota and I've come to understand that the seller paid more for the home than he is selling it to us for. There are no Realtor fees being paid to anyone (not even a referral fee for me) for this transaction.

Sellers all over the country are in this predicament, not all sellers mind you... mostly sellers that have bought within the last few years. We've all heard by now that many sellers that are upside-down are simply walking away letting the financing institution that loaned them the purchase money to deal with it.

It won't be uncommon for sellers to have to bring money to the closing table themselves to close a transaction for property... with Realtor representation or without... during this current market for certain circumstances.

The seller above assumes that she can get the dollar amount she shared. She is saying selling at that number leaves her in a break even situation without hiring a Realtor. So I say, don't hire a Realtor.

Here is the author of the article's response...

Answer: First of all, there is no such thing as a "standard" commission. Sales commissions are negotiable, and everyone is free to charge whatever they want.

Bingo!! The answer goes on but this first couple of sentences seem to be mythical to many folks thinking of hiring a sales representative to market and successfully transact a property transfer.

That said, the truth is that most brokers charge the same rate, and most won't bargain. It's either take it or leave it. Most won't cut their rate, either, unless the property is so pristine that it will sell itself with little or no effort on the agent's part or the seller agrees to show the property himself whenever a possible buyer shows up at his front door.

Yeppers... most brokerages won't bargain. No need to... in my experience... most consumers don't negotiate. However, both sides have fault in this. On my side, we have to do a better job at explaining and justifying our fees... and on the consumer side, they have to do a better job at simply asking for explanations and justifications of fees they are about to agree to.

Of course consumers could pick up the yellow pages and call three or four brokerages and find out that each one charges a 6% listing fee with no offers to bargain. The consumer is going to be faced with a certain perception that leads to a reality... that really isn't all that certain.

The first question that should be asked of a broker is... "are your fees negotiable??" If the answer is no... hang up and move down the list until you hear the "yes" answer.

But -- and it's a big and important but -- there are plenty of brokers whose business model is different from their colleagues. Some charge a point below their competitors to set themselves apart. And then there are discount brokers whose fee is based upon the services you desire - the rate might be different if you do your own advertising, for example, or if you hold your own open house. And there are flat-fee brokers who charge a minimum amount to simply put your house into the all-important multiple listing service.

While I am not a broker myself, I am part of this new progressive group of professionals that does have a different business model. If you are a consumer... you can find pro's like me. The above is just a few examples out of probably thousands of different possibilities.

Realize, however, that you won't get full service with these companies. In other words, you get what you pay for.

Oh, that's nice and all -- but I disagree on the premise. First of all, someone define 'full service' for every consumer. You won't be able to... each and every transaction that I've been involved in since becoming a Realtor has been different. One size does not fit all. Yet all of the transactions I've been a party to... transacted basically under the same manner.

Put property on the sales market. Attract a buyer. Negotiate the sales agreement. Close the transaction. The fundamentals are the same, but there are many different ways to accomplish the fundamentals.

I hope you understand where I'm going with this. Full service is subjective.

You might also be interested to know that commissions are rising ever-so-slightly, not falling, largely because brokers maintain they have to work harder and spend more money in advertising and the like to sell houses in this market.

Maybe commissions are rising a bit... but profit margins are slimming... mainly due to marketing efforts (they cost money).

Profit margins you ask?? Don't tell me that just because I may collect 6% in fees for transacting a property transfer that you think ALL of that money goes into my next spending spree at Target (in Bullhead City).

It is taking longer to market a home and if your typical broker is advertising your listing then he/she is spending money to advertise in one form or another. Gone right now are the olden days (of 2005) when a broker put a listing on the MLS and received an offer on that property five minutes later via the fax machine. Back in that 'golden age' of sales, I noticed many listings were being taken for 5% or 4% on single family homes. Now... not so much.

Also, many brokers are charging so-called "administrative" fees because they say the volume of paperwork and legal requirements are such that their costs have multiplied over the years.

Well... could be. I'm wondering if the author here is referring to 6% plus 'administrative' fees?? I haven't seen that one as of yet. Sounds lame though.

I believe they should raise their commissions to cover these costs so sellers will know what they are paying, but most prefer to sneak in the fee when the seller is signing a listing agreement and doesn't pay much attention to anything other than the commission, if he pays any attention at all.

Whoah... loaded allegations there I'd say, but if true... that's bad -- really bad.

Most sellers don't even question the charge when it appears on the settlement sheet, if they notice it then. But they should, and unless they were told about it upfront, they should refuse to pay it. I have, even when the agent said if I don't pay it, the broker will take the fee out of his share of the commission.

Sucks for that agent then. The agent needed to explain the 'fees' up front in a clear and concise manner. Clients need to know what they are paying fees on and it is only up to us... the folks in the business to make sure our clients are in the know. I consider that a minimum for 'full service'.

I'm a lucky agent today. I'm closing on a home today (fingers firmly crossed as we speak, making it more difficult to type than normal). I was hired by a seller last May to list a nice home in a favorable area of Kingman. We entered the market at a then comparable price for the market.

We negotiated my fees well up front and it was clear to my client what he would be paying for if I successfully marketed and closed a transaction for his home. I believe that he would tell you today that he got full service at this time in this market with prices falling monthly. Yet today (if all goes well) he will save $4,100 in fees as compared if I had only offered a 6% commission rate.

My client had to adjust the asking price (down) to be in line with the market during the time I was marketing the property. My client finally received an offer he could agree to, and today we close (fingers still crossed though, taking nothing for granted).

I consider this transaction profitable for my business, I negotiated for a fee that worked for me... and for my client. The transaction would have been more profitable if I had closed on it closer to last May than at the end of this March... but that is and was my risk.

Th bottom line... consumers MUST negotiate fees, MUST feel as if they understand the fees, and MUST hold their broker accountable to those fees. I know that I've been writing here about sellers in this post, but the MUST's apply to the buyers as well.

If you've read this post, you cannot say that you don't know of a real estate professional that won't bargain or negotiate fees. You know of at least one. There are many out there and before too long my guess is the business model I use will outnumber the old fashioned 6% model.

How much will you pay in fees on your next transaction on a property?? The answer is totally up to you.

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