Real Estate Transparency: Deliver or the Public Will
Posted on August 26th, 2007 by Jonathan Dalton
I’ll be the first to admit that I’m not fond of the word transparency when it comes to real estate. The concept is excellent and sells well to the general public. But unless this move toward transparency, toward letting the public see the real estate transaction for what it is, is accompanied by surrendering all of the dated ideas and preconceptions from the olden days, preaching transparency is meaningless.
Much of transparency focuses on the real estate commission. Are the buyers paying for their own representation in the purchase price? Is the seller paying the buyers’ agent? Are both sides paying since it’s a zero-sum game at the end of the day?
It’s been an impassioned debate but it leaves out the more important concept of what service has been rendered. My wife and I were speaking of my first experience with a Realtor. My ex-wife and I were driven to a new-build community one weekend, returned the next with the agent’s colleague in tow and never heard another word from either ever again.
No advice at the design center. No suggestion of getting an independent home inspection of the property. No discussion of a home warranty beyond year one. Not even a thanks for handing me a 3% commission check. Adios and vaya con dios, my friends.
At the time I didn’t understand how the real-estate model worked. But even if I had, if there had been actual service rendered for the cost, I wouldn’t have objected. I’m all about convenience. I’ll splurge on vacation for valet parking and bell captains and all the rest just so I don’t have to bothered with little details. Provide a service for me and I’ll gladly pay.
INCREASED CO-BROKES AND OTHER MISGUIDED INCENTIVES
Yesterday I was inundated with property flyers, just as most days. Here are a selection of the headlines:
- 5.5% Commission! Open House 8/26/07
- 6% Buyer Broker - Open House
- 4% Co-Broke and $29K Price Reduction
And I’m not even getting into the utterly ridiculous 12% co-brokerage offer that came through the other day - on full-price offers only, of course.
Transparency theory argues against such tactics, especially for those who contend the buyer pays their own commission with their mortgage. To my mind, the bigger crime here is the lack of courage to have the price reduction conversation the sellers need and instead attempt the useless soft-sell and push for a higher commission rate.
Why agents continue to recommend increased co-brokerage rates in lieu of dropping the price on a property is beyond me. Anyone in this industry who has spent more than 35 seconds talking to clients realizes buyers are driving the process more than ever. They are finding their properties on line. They are bringing these properties to their agent (if they are savvy) or taking their chances with the listing agent.
Sure, we still search the MLS for properties for existing clients but it’s as likely they’ll find the home they want on their own than it is we’ll find it for them. In many cases, we are earning our commission not for opening a lockbox and a front door but for the knowledge we have of a given area or our expertise in managing the real estate transaction.
Offering higher-than-average co-brokerage fees is an interesting, albeit overused, thought but it’s not going to cause me to bring a buyer to a specific home unless that home also is in the best condition for my clients needs and is priced competitively. That is what brings the buyers into homes, as this wise person ascertained with his flyer:
- $219,900 and seller pays $3K toward buyer closing costs
Tell a buyer up front you’re willing to negotiate to sell and they’ll come find you. It’s about that simple. Offer the higher co-broke as a seller, or take a client to a home advertised with the higher co-broke as an agent, and your clients will see right through you.
It’s exactly the kind of transparency you don’t want. Especially in a climate where buyers are spending more time online, not only learning about properties but also learning how the real estate commission structure really breaks down.
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Interesting blog article and just a bit frustrating to read as a homeowner who currently has a home up for sale.
Our scenario fits precisely with this article. As with all sellers, we have had to ower our price over the past months. We have tried many things including, offering to pay closing costs of the potential purchaser, in fact you could easily have been referring to our flyer as price was very similar.
Our situation is slightly different from many, we are not facing foreclosure and in fact have a great deal of equity in our home. We are simply looking to move up, and unfortunately signed a contingency deal with our builder nearby. Our new home is now about 60 days from completion and some of our upgrades are being held up until we can sell. With this in mind, we decided to reduce our price (what we feel is drastically). When we contacted our agent about placing the price at $200K, it was suggested to us that we put the home at $204K and add a “buyers broker incentive” to get looks.
Thinking that our agent knows what is best for us, we readily agreed and the change should come through next week, but I am concerned that we are running out of time to sell, and in fact, I personally felt that straddling the search feature online by pricing exactly at $200K could possibly get us offers.
Our home should easily appraise at around $223K, and earlier this year appraised at $235K, so we have felt the drop like everyone. It seems to be all about beating the market to its low point for sellers.
On the plus side, our builder has reduced our potential new home to us by over $75K, so any losses that we are taking by short selling our home should be erased.
It’s a frustrating position to be in and we are honestly pursuing a secondary option as we could easily convert this home to a rental unit and still afford our new home. Our issue with this is twofold however: we really don’t want to be landlords and secondly we think it is going to be some time before this market recovers.
My solution after reading this article is that, we will leave this home for sale at $204K for one week, and then we will remove this incentive and just place the home on the block for the originally suggested $200K.
That sounds like a good plan.
I recently had a relocation listing where the third-party relocation company insisted on raising to co-broke fee rather than changing the price. Needless to say, nothing happened with the change in the co-broke.
I’ve never liked the logic behind the higher co-broke because it assumes not that the agent will try to talk their client into that home but because it assumes the agent will be able to do so. And that’s just not the case.
If anyone gets the Jedi mind trick up and running, let me know.
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Dear Anonymous,
I disagree with your plan. Lower the price, don’t raise the co-broke. I think you’re simply wasting another week. Unfortuantely, the same media hype that helped our housing prices increase, is keeping buyers afraid of the unknowns of today’s market. Buyers today don’t realize they can get the same loans they could prior to 2005. They just can’t get no doc, 105% LTV loans based on their signature or as in the cases with illiterates, their “x”.
In any event, I do wish you good luck in selling your home. Cheers, Philip
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