Why Do Sellers Still List with Agents Charging 6% (or even 5%)?

This is a continually perplexing question for us, and one which probably has several answers. First, we think many sellers don’t realize that commissions are not fixed. The big real estate companies spend a lot of effort training their agents to focus on the service-side of their pitch and not on their fees. To support their rigid pricing structure, many agents will argue that if you pay less, you will get less. Its all a smokescreen, of course. There is no shortage of unhappy sellers who paid 6%. Loyalty is another reason, as sellers will often return to the agents who helped them buy their house initially. And although we certainly cherish the same long-term relationship with our former clients, we continue to work towards having sellers take a closer look at a comparable service that will cost thousands of dollars less.

Brett Weinstein

The typical home sale in Berkeley, Oakland and surrounding areas involves the seller providing a “disclosure packet” to prospective buyers before they make an offer.  There is no set requirement of what is contained in the packet, but it will usually include a pest control inspection, a natural hazard disclosure, and various statutory disclosure forms completed by the seller. 

The buyer then makes an offer “as-is” in regards to all the disclosed information, but still subject to their ability to inspect the property themselves during an inspection contingency.  At the end of the inspection period, the buyer can do one of 3 things:

1. They are satisfied with the results of their inspections and still want to buy the house per the original terms. The inspection contingency is removed.
2. They are not satisfied with their inspections and wish to back out of the transaction.  This can be done without penalty.
3. They still want to buy the house, but….

The “but” is that they want the seller to agree to a price concession based on information learned during their inspections. Here’s where the notion of “good faith” comes in.

If the buyer asks the seller for a concession based on information that was contained in disclosure packet, I would consider this done in “bad faith.” This takes a lot of nerve, and certainly will not please the seller.  Will the seller agree? Only if there is nothing better on the horizon, or he is desperate.

However, if the buyer is asking for a concession based on newly discovered info, something not covered in the disclosures, I consider this fair game, and done in “good faith.”

The moral of the story is that the more thorough the disclosure packet, the less chance for a buyer to discover something new in the course of their inspections. I’ll cover what constitutes a thorough disclosure in another post.

Brett Weinstein

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.

You can be assured we will be seeing a lot more of this in the months to come.

Brett Weinstein

In the SF Chronicle column known as “Surreal Estate”, on 7/22/07(http://sfgate.com/cgi-bin/article.cgi?f=/g/a/2007/07/20/carollloyd.DTL)
the author, Carol Lloyd, asked the very important question: “But can’t there be a happy medium between high-commission professionals and bootstrap DIY?”

Then she cites:

“Next week: Red Fin, FSBO.com, and Help U Sell: The changing terrain of minimum service agents and customer rebates.”

The happy medium she seeks is NOT The Redfin, FSBO.com or Help U Sell models. These require a great deal of involvement from the seller (i.e. holding their own open houses), or in Help U Sell’s case, only saving a seller money if the property stays off the MLS, thus greatly limiting its exposure. If paying a traditional realtor 6% is one extreme, then these models are only a step above the other extreme, total do-it-yourself.

The true middle ground is offered by a company such as mine: Realty Advocates. Based in Oakland, but servicing most of the East Bay and San Francisco, we offer a genuine middle ground between the 6%ers and the DIY. We provide the highest degree of service and professionalism while simply charging less in commissions (typically 3.5%-4.5%) Ours is a 21 year track record of success.

Brett Weinstein