Category Archives: Market Conditions

Average Commission Rate in Berkeley

You’ve heard the expression: “It’s not what you make. It’s what you keep that matters.” This is especially true in real estate. It’s not just the sales price that a Seller should care about, but also what gets deducted from the sales price. These are known as closing costs, By far, the single biggest deduction is the agent’s commission.

According to the local MLS, 612 homes sold in Berkeley in 2013, and the average commission charged was 5.34% with an average sales price of $841,000. Since the Realty Advocates commission is, at most, 4.5%, that means the average Berkeley Seller that didn’t list with us lost $7,570 off their bottom line.

Since our founding in 1986, Realty Advocates has consistently delivered the very highest sales prices on our listings along with the lowest commissions. Now that is VALUE! Check out our reviews on Yelp.com.

Freakanomics Friendly

 

I was at a party the other night, speaking with someone I just met about the North Berkeley real estate market, and whether houses were still selling quickly and with multiple offers. I stated that while general headlines are reporting on a market decline, North Berkeley is, with some exceptions, still doing very well. When the conversation came to the prospect of selling his house, he casually stated that if he did sell, he’d keep his house on the market longer and would get 10% more than everyone else. I had to chuckle-I immediately recognized this as a reference to the book Freakanomics, by Steven Levitt and Stephen Dubner, where the authors state that research shows that when a Realtor sells her own home, it stays on the market longer and sells for 10% more than her client’s homes.

I don’t have the book in front of me so I can’t check what “research” actually shows this. But I most certainly take exception. I’ve sold a few of my own homes and can not brag any such thing.

A house will sell over its asking price if the asking price is artificially low and it is sufficiently marketed. Deliberate underpricing is a very easy way to warp statistics to benefit the agent. Up until recently, this practice was practically epidemic (see “The Underpricing Epidemic”). It allows the agent to brag “my marketing efforts and negotiating skill produced multiple offers and a sales price 25% over asking.” Most people don’t seem to realize that, on its face, this is completely meaningless. Any idiot who underprices a house when demand is high will get the same result. The more interesting question is what would have happened if the agent priced the house at the number she really thought it was worth.

The authors big beef with Realtors seems to be around the notion of information asymmetry. We know more than the buyers/sellers and use this information solely to enrich ourselves, not our clients. They see the ever increasing availability of information on the internet as the beginning of the end of real estate brokerage as we know it. They even go as far as to equate the demise of the Ku Klux Clan with what will happen to Realtors.

Back to the party I was attending. My new friend was clearly impressed that I knew to what he was referring. It then gave me a chance to talk about how my real estate brokerage practice was different from most, and that I would not only sell his house for the absolute highest price the market would bear, but also charge him many thousands of dollars less in commissions.

He asked for my business card, but alas, after searching around in my wallet, I told him I’d have to got out to my car to get one. He said no problem-he’d take a walk with me. I guess I made a good impression.

Short Sale in a Changing Market

Boy, it is rough out there for anyone who bought a house in the last 12-18 months and now has to sell. Whether because of a job relocation, or simply to get out from under unexpectedly high loan payments, or a job loss, etc, a lot of sellers are seeing a big drop in their home values.

Some clients of mine bought a house last year for $1,382,000 but decided to move back to their old house that they had rented. We listed it for $1,399,000 but had no action. It wasn’t until we dropped the price to $1,349,000 that we got an offer for $1,300,000. After a few rounds of negotiations, we settled at $1,340,000. The sellers weren’t happy, but at least it wasn’t any worse.

Another client of mine didn’t do so well. She bought her house from another agent just 10 months ago for $599,000, with a $500k first loan and a $100k loan from her mother. But due to some change in life circumstances, she found the monthly payments too stressful. I listed it for $575,000 but there was absolutely no action. Then, the house right next door to it came on the market as a REO, a property owned by a bank after having foreclosed on the prior owner. . It wasn’t as nice a house architecturally but it wasn’t horrible. But it had almost twice the square footage and was listed for just $550,000. Bad news. So we dropped our price to $545,000 but still no action.

After commission and closing costs, even a $545,000 sales price would have meant the seller’s mom would have lost her entire $100k investment. But it was clear that the market in this neighborhood was really suffering. I gave the listing back to the seller, who relisted with a family friend for $499,000, subject to short sale approval. But now 4 weeks later, at a price 20% lower than what she paid, she still has no offers.

A Short Sale is when a lender agrees to accept less than what is owed on a mortgage instead of having to foreclose. Given the huge rise in foreclosure rates across the country, and the fact that home values have fallen, lenders realize that it is in their best financial interest to accept 80-cents on the dollar, or some other percentage, just to avoid the also costly foreclosure process.
(published August 2007)