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May 19, 2017November 23, 2021

Consumers changing real estate agent commissions

Consumers have most likely complained about real estate agent commissions since the advent of real estate brokerage. However, before the turn of this century, most did not question the real estate agent commissions they paid because they chalked it up to the cost of selling a home. Times have changed, such that having a conversation about commissions and compensation is a common topic when agents and consumers first meet.

Real estate agent compensation is evolving as fast as the industry. The US Bureau of Labor Statistics (bls.gov) reports the median annual wage for real estate sales agents was $44,090 in May 2016 (The lowest 10 percent earned less than $22,230, and the highest 10 percent earned more than $112,570). The BLS states:

“An agent’s income, therefore, often depends on economic conditions, the agent’s individual motivation, and the types of property available. Income usually increases as agents become better and more experienced at sales. Earnings can be irregular, especially for beginners, and agents sometimes go weeks or months without a sale. “

Before the turn of this century, there was more conformity in real estate agent commissions because most agents were not negotiable in the compensation they charged. However, modern agents have adjusted their business models and are open to negotiate how much they will be paid.

There are also many real estate broker compensation structures from which you can choose. Some brokers offer limited services, and some offer fee-for services, which includes a MLS placement service. Some fee for service brokers offer à la carte services, where you can choose specific services for which you want to pay. Most “full service” agents still charge a percentage, but the percentage can vary from agent to agent. Full service agents can also vary on the extent of the “full” service they provide; however, many will be open to negotiate their commission rate. Regardless of model, get the agent’s services in writing and hold your agent accountable.

The increased market pressure on agent compensation is actually good for the consumer. It doesn’t only lower the cost of the real estate transaction, but it also increases the quality of services. This was the finding of an empirical study by Panle Jia Barwick and Parag A. Pathak (The costs of free entry: an empirical study of real estate agents in Greater Boston; The RAND Journal of Economics; Vol 46, No. 1, Spring 2015, p.103–145). Their study investigated three scenarios that are chipping away at the traditional real estate agent compensation models: lower commissions, commissions based on break-even costs, and improved information about agents’ past performance.

Barwick and Pathak found some interesting outcomes from their research. Besides concluding that there are consequences for fixed real estate agent commissions, they also discovered that the easy entry into the industry (i.e., the ease of getting a real estate license) reduces the quality of service. Furthermore, the increased competition among real estate agents caused by easy entry into the industry is not beneficial to a home selling or time on market. They also concluded that

“…lower commissions reduce transaction costs, which might lead to a more liquid housing market, improved asset allocation, and better housing consumption. Flexible commissions also provide a channel for consumers to choose services tailored to their preferences.”

Their results suggest

“…that a 50% cut in commissions would result in 40% fewer agents, social savings that amount to 23% of industry revenue, and 73% more transactions for the average agent.”

Realtors should embrace the discussion about compensation and real estate agent commissions with their clients. It offers the agent an opportunity to demonstrate their accountability. It also promotes transparency and the services we Realtors provide, and builds the trust that is lacking in the industry.

Original published at https://dankrell.com/blog/2017/05/19/changing-real-estate-agent-commissions/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

April 21, 2017December 13, 2022

Curb appeal can boost home sale price

If you want to increase the sale price of your home this spring, you will no doubt focus on the interior. But how does the home’s exterior look? You’d be surprised about the amount of necessary cleaning, decluttering and repairing around the exterior of your home. But don’t skimp on the exterior home preparations before your sale – research conclusively shows that improving your home’s curb appeal can increase the sale price by as much as 8 percent!

An empirical study conducted by Chen, Evans-Cowley, Rutherford, and Stanley (An Empirical Analysis of Effect of Housing Curb Appeal on Sales Price of Newer Houses. International Research Journal of Applied Finance. 2013, Vol. 4 No 11, p1407-1419) was the first to demonstrate the relationship between a home’s sale price and curb appeal. The authors also discussed how home buyers’ preferences in a home’s exterior influence the home’s sale price. Besides curb appeal, they suggest that the home’s architectural elements could also be important in the final sale price. The idea that today’s modern designs are more desirable, and likewise costs more money, is only transitory; such that today’s designs could become trite and tired in twenty years.

The study used a seven-point “attractiveness” scale to determine how respondents viewed the attractiveness of a home’s exterior. They concluded that there is a relationship between a home’s exterior attractiveness and the home’s sale price. In fact, they reported that a one-point increase in their scale corresponded to an 8 percent increase in the home’s value!

Home buyers make assumptions about your home’s interior based on the appearance of the exterior. An unattractive exterior can repel home buyers before they even see the beautiful and updated interior. Attract home buyers and boost your home sale price by focusing on cleaning, repairing, and “finishing” your home’s exterior.

Basic landscaping can make a huge difference in your home’s attractiveness. Having too many plants, or letting them grow too much can make the home’s exterior appear crowded and unkempt. Make sure your lawn is full but manicured throughout your listing. Properly trimmed trees not only look tidy, but allow home buyers to see your home from the street. Appropriately placed and trimmed shrubs and flower beds can accent the home’s architectural design.

Check your home’s siding. Replace and repair any missing or broken siding pieces. Freshen up siding by power cleaning, or painting. Even if your home has artificial materials as siding, inspect window frames and fascia boards; these areas are often neglected and may need urgent repair.

How does the deck look? Unless you maintain the deck regularly, chances are it may seem dull and tired, and may need to be re-treated. Even if your deck is made of artificial decking, check the railings. Hire a licensed contractor to repair and secure the deck as necessary.

How about the sidewalks and patio? The sidewalk and patio can be easily cleaned by power washing. Cracks in the sidewalk and patio are not only unsightly, but can be a trip hazard. Cracks are typically caused by rain and water runoff, but can be repaired. Consider also sealing the sidewalk and patio to prevent further water damage.

Finally, consider finishing the exterior to make your home more appealing and cordial. Much like staging the home’s interior, you can use similar principles to increase the exterior’s attractiveness; such as placing appropriate chair(s) and potted plant(s) on the porch, deck or patio.

By Dan Krell
Copyright© 2017

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April 6, 2017July 14, 2019

Listing agent secrets

Listing agent secrets.

There are a number of topics that your listing agent probably won’t discuss with you, or can’t properly explain. Here are several listing agent secrets that you need to know:

Your agent won’t sell your home

listing agent secrets — Agent secrets (infographic from nar.realtor)

Your home will likely sell to a home buyer who is represented by a buyer agent. This notion is supported the 2016 National Association of REALTORS® Profile of Home Buyers and Sellers (nar.realtor), which reported that 88 percent of home buyers used an agent to buy a home. The remaining 12 percent of home buyers purchased through other means, including with the help of the listing agent, or even a FSBO. Although your listing agent may claim to have sold the most homes in the neighborhood, the truth may actually be that they are only facilitators. The listing agent secret is that the buyer agent who actually “sells” the home is labelled the “selling agent” by the industry.

Buyers are not finding homes in print

Print advertising no longer is the means of selling a home. More information from the 2016 National Association of REALTORS® Profile of Home Buyers and Sellers indicate that having a nice spread in a magazine, or posting open houses in the local paper is probably a sales ploy to get your listing. The Profile reported that home buyers reported how they found their home as follows (nar.realtor):

Internet: 51%
Real estate agent: 34%
Yard sign/open house sign: 8%
Friend, relative or neighbor: 4%
Home builder or their agent: 2%
Directly from sellers/Knew the sellers: 1%
Print newspaper advertisement: 1%

Bigger is not better

Another one of your listing agent secrets is that the larger your agent’s brokerage or team, and having a high number of homes actively listed may actually be detrimental to your home sale! An empirical study by Shiawee X. Yang and Abdullah Yavaş (Bigger is Not Better: Brokerage and Time on the Market; The Journal of Real Estate Research; 1995, Vol. 10, No. 1, pp. 23-33) reported the following results:

The amount of agent’s commission is not indicative of your home’s time on market;
The size of the listing firm does not affect your home’s time on market;
Homes listed and sold by the same firm (i.e., dual agency) does not reduce time on market;
The more active listings your agent has, the longer your home may sit on the market because they do not devote to the time to your sale.

Yang and Yavaş suggest that the larger the listing firm, the more incentive to “cheat” days on market by circulating new listings within the firm before entering it in the MLS, which also increases the chances of a dual agency situation. “Private placement,” or pocket listings can have similar dual agency results.

Dual agency could cost you

One of the biggest listing agent secrets is dual agency. Chances are that your listing agent doesn’t totally understand dual agency, and therefor may not be able to explain how it affects your sale and potentially your sale price. The Maryland Real Estate Commission’s “Understanding Whom Real Estate Agents Represent” disclosure states:

“The possibility of dual agency arises when the buyer’s agent and the seller’s agent both work for the same real estate company…The real estate broker or the broker’s designee, is called the “dual agent.” Dual agents do not act exclusively in the interests of either the seller or buyer, and therefore cannot give undivided loyalty to either party. There may be a conflict of interest because the interests of the seller and buyer may be different or adverse.”

One of the listing agent secrets is that dual agency may not be beneficial to you, and can even lower your home sale price. There are a number of empirical studies that indicate conflicts of interest and other issues that arise out of dual agency. But a study by Joachim Zietz and Bobby Newsome (Agency Representation and the Sale Price of Houses; Journal of Real Estate Research; 2002, Vol 24, No 2 pp. 165-91) found that a home’s sale price drops about 3.7 percent when the listing and buyer agents are from the same firm. They stated:

“…the fact that buyers may obtain a lower price by engaging a buyer’s agent from the same ﬁrm as the listing agent raises the issue of whether or not the listing ﬁrm is shortchanging the seller. The evidence appears to suggest that the agency relationship between seller and listing agent may be compromised.”

By Dan Krell
Copyright © 2017

Original published at https://dankrell.com/blog/2017/04/06/listing-agent-secrets/

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February 25, 2017June 3, 2020

Protect your valuables when selling your home

Preparing your home sale is more than just deep cleaning, decluttering, and minor repairs. Prepare and plan how to protect your valuables during the sale.

I often write about preparing your home for a sale. Of course, that preparation is to make your home sell quicker and get the best price. However, preparing your home is more than just deep cleaning, decluttering, and minor repairs. Preparing and planning how to protect your valuables will not only keep the prying eyes of nosey home buyers focused on your home’s spaces – it can also thwart would-be criminals.

Homes for sale are prime targets for thieves, and your home is not an exemption. Don’t make it easy for them. It may sound obvious – use common sense. However, you’d be surprised how many home sellers don’t lock up their valuables. In my many years of selling homes, I have seen how home sellers can be careless by leaving credit cards, cash, medications, and financial statements on counters and desks. There was one instance where the owner left their gun cabinet open!

And theft doesn’t only occur during open houses. Your possessions can go missing at any time. Anyone can have “sticky fingers,” even rogue real estate agents (agents have been arrested for stealing from a listed home). A Washington State agent was caught stealing prescription medications last year. Another agent faced criminal charges for stealing jewelry.

Additionally, criminals take the opportunity of an open house (and even virtual tours) to stake out your home; only to strike at a later time. So think about laying out your expensive china just to stage your home.

Yes, thieves are looking for anything of value in your home. Besides jewelry and cash, they will take anything they think they can personally use or sell. Medications are a commodity to thieves; and anything with personal identification can be used in ID theft.

I am often asked, “Should I install surveillance cameras?” A few years ago, a home with surveillance cameras was not typical. Seeing the cameras often turned off home buyers because they felt “creeped out” and didn’t like the idea of being watched. However, in today’s cyber-world, where surveillance cameras are nearly everywhere, surveillance cameras have become increasingly commonplace. Before you go out and install cameras in your home, you need to understand the legal implications by consulting with an attorney or privacy legal expert.

Don’t just put away your jewelry and other items of importance, lock them up! If you’re not one of the millions of home owners who has a safe or strongbox, there are other options such as storing items in other locations (safe deposit boxes; someone else’s home; and even a rented storage unit).

Burglar alarms are a mixed blessing. Besides deterring crime, real estate agents often set them off; which can be a nuisance and possibly result in a fine for you (more info on false alarms and fines can be obtained from the Montgomery County Police False Alarm Reduction Section).

If you haven’t already deployed crime deterrents in and around your home, consider using interior and exterior lighting. Exterior lights can help identify night time visitors, as well as possibly deterring would-be thieves. Consider using timers or motion sensing lights. Motion sensing lights will activate the light when people approach your home.

Would-be thieves casing your home look for easy entry points. Lock up your ladders and secure your shed so as not giving criminals the tools to get inside.

And although you may be told that lockboxes are fool proof, only allowing agents in your home – it’s the user that is the weak link. Careless agents sometimes leave doors unlocked or open, or do not fully close the lockbox, leaving the key free to be used by any passerby.

Your agent can be part of your protection plan. Consider having your agent accompany all showings. Additionally, have more than one person during an open house. This can not only help protect your valuables, but the direct agent contact may be influential in your home sale.

For more information on protecting your valuables, check out Montgomery County Police’s brochure “Home Security, Safety Tips to Keep Your Home and Valuables Safe.”

Original published at https://dankrell.com/blog/2017/02/25/protect-your-valuables-home-sale/

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January 12, 2017January 13, 2017

Best home sale?

As the housing market strengthens, consumer confidence in real estate increases. Along with a stronger home sale market comes the increase of for-sale-by-owners (FSBO). The obvious upside to selling a home on your own is to increase your net. And a study conducted in 2009 may support your FSBO yearnings. But is FSBO the best home sale?

Research conducted by Hendel, Nevo, and Ortalo-Magné (2009; The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com; American Economic Review; 99:1878-98) found that homes that sold on a FSBO website sold for as much as homes that were listed in the MLS. However, homes that sold on the MLS did so with significantly fewer days on market. The authors also found that a significantly higher proportion of home buyers bought homes listed on the MLS. The research concluded that “FSBO attracts a particular type of seller…” A FSBO seller is very patient to wait for someone to pay for their higher priced home.

The research conclusion about sale price is contrary to annual surveys reported by the National Association of Realtors. For example, the National Association of Realtor’s 2015 Profile of Home Buyers and Sellers reported that the average home sale price for a FSBO was $185,000, while the average home sale price for an agent assisted home sale was $240,000. Of course, the 2009 research indicated that homes that did not sell on the FSBO website were promptly sold on the MLS. Besides being limited to a specific market, excluding “failed” FSBO sales from their data set could have skewed results and could explain 2009 study’s conclusion about sale prices. From NAR’s Field Guide to Quick Real Estate Statistics:

For Sale By Owner (FSBO) Statistics

FSBOs accounted for 8% of home sales in 2015. The typical FSBO home sold for $185,000 compared to $240,000 for agent-assisted home sales.

Most difficult tasks for FSBO sellers:

Getting the right price: 18%

Preparing/fixing up home for sale: 13%

Understanding and performing paperwork: 12%

Selling within the planned length of time: 3%

Having enough time to devote to all aspects of the sale: 3%

Going FSBO sounds simple and maybe the best home sale; but going it alone is not for everyone. Selling a home is much more than putting a sign in the yard – especially if you are demanding top dollar. Take your efforts up a notch to increase the probability of realizing your sales goal. Among the many tasks that are essential for a successful home sale, consider a basic marketing plan. Attract more buyers with professional high quality photos. Prepare for buyers to visit your home by decluttering and making minor repairs. You should also have a contract ready in case there is no buyer agent. Even though you are selling FSBO, you still have to comply with federal, state, and local disclosure laws. Be prepared for the details of the transaction, which include: negotiating home inspection repairs; providing sale comps to appraiser; dealing with the buyer’s lender and title company.

If going FSBO is intimidating, consider hiring a real estate agent that offers à-la-carte services. The agent can assist you in many areas of your sale, only charging you for the pieces you need. You can even pay a flat fee for a MLS placement of your sale.

If you’re like many FSBO’s, you’ll realize the value of a Realtor. Real estate agents are housing and marketing experts that can assist you in setting a realistic sale price. Besides freeing up your time, experienced agents can facilitate offers and are expert negotiators. They know of latest home sale trends and are aware of any new legislation that can affect your sale.

The best home sale

You may find selling FSBO attractive. But selling a home is in the details that are executed throughout the transaction. The best home sale may actually be through a Realtor. The research supports the notion that hiring a Realtor can provide a more successful and satisfying home sale than doing it FSBO.

As I wrote about FSBO’s in 2005:

How much money can you realistically save? …there as been a trend of negotiated commissions, so actual savings for a FSBO have been reduced….Additionally, FSBO’s are contracting and paying commission with more Realtors and their homebuyers in this environment of limited home inventory. In the end, the FSBO’s savings from Realtor commissions may be marginal.

… there are some real negative aspects of selling your home FSBO, such as time, expense, and contractual obligations.

How much is your time worth? Selling a home requires the application of time to tasks. Among the many tasks of selling a home, the top things that a FSBO may do include (and is not limited to) preparing the home for the open house, contacting the paper to advertise, putting up signs, meeting potential homebuyers, and negotiating contracts. The time quickly adds up.

Selling your home FSBO is supposed to save you money right? Well, there is a bit of expense that is necessary. A FSBO must have signs in the yard, as well as directionals (the small arrow signs) to point homebuyers in your direction. Additionally, you might consider paying the local paper for advertising, as well as paying for an internet advertisement (although there are many websites that will allow you to post for free). Another expense may be to have your attorney to prepare and review the contract…. It seems that the expenses also quickly add up.

…even FSBO’s are responsible to adhere to certain federal and local laws pertaining to the sale of real estate (i.e., equal housing, lead paint, Maryland disclaimer-disclosure, etc). This is the one area that FSBO’s get themselves in trouble because of the lack of knowledge and expertise. There is an increased liability potential.

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