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 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

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

]]> http://realtyadvocates.com/wordpress/2007/08/25/short-sale-in-changing-market/feed/ 0 http://realtyadvocates.com/wordpress/2007/07/23/a-happy-medium-between-high-commission-and-minimum-service-agents/ http://realtyadvocates.com/wordpress/2007/07/23/a-happy-medium-between-high-commission-and-minimum-service-agents/#comments Mon, 23 Jul 2007 19:13:14 +0000 admin http://realtyadvocates.com/wordpress/2007/07/23/a-happy-medium-between-high-commission-and-minimum-service-agents/ 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

(first published May 2005)

You know the practice: suggesting, or going along with a seller’s idea, that the best way to obtain the highest price in the sale of a house is to deliberately ask a price that is well below what you expect it to sell for. A more odious variation: agreeing to list a property at a price the seller has told you he would not accept. You figure this is pretty safe: everything gets bid up these days. The SF Chronicle recently dubbed this the “under-pricing epidemic.”

Sometimes this practice is blatant, as when the agent puts in the confidential remarks section of the MLS: “seller reserves the right to reject any and all offers.” Other times, it is hidden, as when offer day comes and you, the buyer’s agent, deliver the only offer. You are then countered at a price ten of thousands, and sometimes, hundreds of thousands of dollars more than the asking price. In essence, the buyer is being told to bid against himself.

Doesn’t anyone (at the very least, the listing agent) see what is wrong with this? Totally ASIDE from the human toll (disgruntled, disillusioned and desperate buyers, sometimes willing to pay anything just to get a house) and the negative image this casts on our profession (what about our duty to be “fair and honest and deal in good faith”), we may have an even bigger problem.

The issue is fraud. My dictionary defines this as “a piece of trickery; a trick.” Therefore, the agent who knowingly agrees to list a property for less than what the seller will accept is a party to fraud. Secondly, it is “false advertising,” a violation of real estate law. Business and Professional Code section 17500 states:

To Make or Cause to Be Made False or Misleading Statements in Unlawful

17500 It is unlawful for any person, firm,…with intent directly or indirectly to dispose of real or personal property or to perform services, professional or otherwise….to make or disseminate…any statement concerning that real or personal property…which is untrue or misleading, which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading, or for any person, firm…to make or disseminate….a plan or scheme with the intent not to sell that personal property…so advertised at the price stated herein. Any violation of the provisions of this section is a misdemeanor punishable by imprisonment in the county jail not exceeding six months, or by a fine not exceeding two thousand five hundred dollars ($2,500) or by both that imprisonment and fine.

In our office, we have made is a policy that the asking price on any of our listings is a price the seller will accept if that is “all” they receive. This hasn’t stopped us from receiving multiple offers and large overbids. But this is the doing of the market, not the result of a calculated ruse.

We know we have lost listings because of our pricing policy. We’ve heard that other agents dismiss a seller’s ethical concerns with the statement “everyone under-prices. It is expected.”

This has gotten out of hand.

Respectfully Submitted,

Brett Weinstein and Hal Feiger, Brokers, Realty Advocates

Postcript:

Within days, we had received many letters of support from fellow Realtors.  We also heard through the grapevine that any number of Realtors were quite upset with us. Guess who they were: the ones that deliberately underprice their listings to make their statistics look better (i.e. “my listings consistently sell for 20% over their asking price!”).

A few months later, the Berkeley Association of Realtors dedicated a lunch seminar to the topic, with the attorney for the East Bay Regional Data as the guest speaker.  While she conceded that the practice of deliberate underpricing could have some negative, nonlegal consequences,  she completely dismissed my interpretation of B&P Code 17500, saying in effect, that the prohibition against deliberate false advertising applied only to personal property, not real property. Therefore, according to her, it is perfectly legal to falsely advertise a house but illegal to falsely advertise a digital camera, for instance.

The bottom line, again, according to her, was that listing agents have the primary fiduciary duty to the seller to get the highest possible price, and that false advertising was a perfectly legal means to this end.

After the meeting, one agent who shared my view shook her head with disgust and said: “we should have known better to ask about ethical conduct from an attorney.” A moment later, an agent who did not share my view said: “nice try, Brett. Now get real.”

PPS:

Within about 6 months of this meeting (June ’06), the seller’s market juggernaut in our market area sputtered to an end. Now, even if one deliberately underpriced a listing, there would be a 50/50 chance that you still wouldn’t get a single bid, let alone one over the asking price.

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