What Does It Take To Sell A House?

I have been in the real estate game for 7 1/2 years. Which to a veteran real estate agent may seem like nothing. The thing is, we work with hundreds of clients a year instead of 20-30 like the average agent. This means in real estate terms I have 30-40 years of deals under my belt. What I have come to realize is that there is really two different markets of sellers. Similar to the home renovation market there is the Do It Yourself (DIY) market and the Do It For Me (DIFM) market. There are some distinct differences between these two groups which I will break down for you.

DIY Market

The DIY market, often refereed to as the FSBO or For Sale By Owner market is distinct in that sellers tend to feel they have the knowledge they need but do need access to some tools. There are extremes even within this market. The lion's share of this group feel they know their price range, have watched enough HGTV to be comfortable with the staging and just need to reach the buyers. They tend to look for the most inexpensive ways to advertise their home. Kijiji is a staple to this group. It has replaced print ads of days gone by, the classifieds of the 21st century. FSBO signs are common and they sometimes look to private sale marketing companies like PropertyGuys.com to increase their exposure as well as an avenue to get onto Realtor.ca. Typically they do most things on their own with little outside support and occaisionaly we see the true cowboy that has done their own blog dedicated to selling and want NO assistance from anyone, a true DIY person. What is distinct about this group is that they believe the key to selling is finding the right buyer. They feel they have everything they need except a buyer. 

DIFM Market

This market is distinct in the fact that they will pay what it takes for results. That is all they want. They have opinions on what services will provide the result, but if you can provide the result, they are willing to pay for it. The real estate industry have been exploiting this group for decades. They use fear based marketing and take tens of thousands of dollars in the home seller's equity. The industry is run like a cartel and often use the massive amounts of money pulled in to exploit fears in the industry to maintain control over what they deem as "their" market. The seller's big fear is of the unknown. They don't know what they don't know and fear that if they miss something it could be an expensive mistake.

Two Market Solution

So how does one company offer a solution to both of these distinctive markets? It lyes in first recognizing that both markets exist and validating that they are both viable markets. Agents typically scold the DIY seller and tell them they are stupid. The DIY seller tends to scrimp on spending anything and limit their knowledge and exposure. As with anything there are outliers that exist. Some people are true DIY and need very little help, others need someone to do EVERYTHING for them. The majority of people fall somewhere in the middle. The market typically breaks down leaning 10-15% towards DIY and 85-90% towards DIFM market. 

This is where we come in. At PropertyGuys.com in Cambridge we offer the FSBO DIY client what they want. Free exposure (on PropertyGuys.com) and inexpensive tools like open house signs and a listing on Realtor.ca. Everything they would want, from as little as free to as much as $500. The DIFM client is given what they need, results. Results are ONLY delivered when Product, Price and Exposure are in alignment. Our Real Estate Pro package offers all the tools including pricing from a licensed appraiser, exposure on Realtor.ca as well as local print and direct mail, legal advice and offer drafting 7 days a week, a real estate receptionist to answer calls around the clock and book appointments, access to local professionals to answer all their questions, heck even paid ads on places like Kijiji and Facebook! All this is backed up by the best real estate platform in the industry with big, bright photos, walk score mapping, visitor reports, inbox and an online offer maker to work out the deal with your buyers.

At the end of the day, selling without a real estate agent isn't for everyone. But the majority of people, DIY and DIFM, can get what they need from PropertyGuys.com. Set up an appointment to see where you fit. It will be the best 45 minutes you will spend to prepare for selling your home!

M

What A Home Buyer Needs To Know About Using A Real Estate Agent

I have had the two opposite ends of the spectrum come across my desk in the last 10 hours.

Last night while at a St Paddy's Day party I had a great chat with a local Cambridge real estate agent. One that I had yet to really meet, but was bound to eventually as our kids go to the same school. We had a great chat over the food table (where else would I be) about how she approaches sellers and how she coaches her buyers that are looking to purchase a home that is listed with PropertyGuys.com. It was refreshing to hear a proactive approach where she explains to her clients that she is getting paid by them, whether it is included in the asking price or not, and she advises them to pay her directly through the lawyer so they can better negotiate the purchase with the seller.  She doesn't call the seller to ask "Will you compensate me?" She calls and asks if she can show it to her buyers. She brings up commission if and only when they are discussing an offer. Usually she is able to say her buyers are paying the commission so they don't have to worry about negotiating the rate. An agent that is progressive and doesn't hide behind the numbers.

Today I hear from one of the clients I listed last week that were happy to report they had an offer. It turns out in their negotiations with the buyer's agent the agent wanted 3% instead of the traditional 2.5% a buyer's agent typically starts at.  Our sellers were very clear that if the real estate agent wanted 3% that his buyers would have to pay more for the house. The agent proceeded to advise his clients to put in a higher offer to maintain his high commissions. So I ask you this, who's best interest is this agent looking out for? Last time I checked taking money from unsuspecting people was thievery.

IF you are going to use an agent to buy a home I will give you a few suggestions.

• First, don't sign a Buyer's Representation Agreement unless it is specific to A house and for a short period of time (7 days). 
• Second, discuss commissions up front with your agent.
•  How are they getting paid? 
• Will the agent drop their commission if they can't negotiate a price that is acceptable to buyer and seller? 
• How much commission are you willing to pay?
• If you end up buying an agent listed house will they pay you back a portion of the commissions? 
• Third, know that if you are using an agent to buy a house, it is not free. You are paying more for the house because your agent gets paid through the purchase.

At the end of the day, you the home buyer decide if you want to use an agent. We coach PropertyGuys.com clients on how to interact with your agent and show them that if they maintain their bottom line (or more) and you are satisfied paying more because you brought an extra mouth to feed, why not entertain the offer?

M

Real Estate Commissions; A Black Hole For Your Money?

Where is your money going when you pay commissions?

It costs A LOT of money to sell your house with a real estate agent. The big question people should be asking is where does it all go. Your local agent is the first to yell I'M NOT TAKING IT ALL, and they are right.

So where does all that money go? First we need to look at what it costs to use an agent.

Selling price of average house: $400,000
Standard 5% commission: $20,000
HST on the commission: $2,600
Total cost to use a real estate agent: $22,600

OK so the obvious first thing is you are paying 13% HST on top of the real estate commissions. That $2,600 right off the top. That alone would cover your costs to sell your home without an agent. So where does the rest of the money go?

The Buyer's Agent

Your agent typically splits the commissions 50/50 with a buyer agent. That means that $10,000 is associated to the buyer's use of an agent and $10,000 is associated with your agent selling your home.

The Broker's Cut

Agents work for brokerages. The broker is actually who your listing is with and they take a cut of the commissions and then leave the agent with their portion. "Agent Splits" as they are referred to in the industry range between 95/5 and 50/50. Let's assume a 70/30 split because you have an experienced agent that has negotiated a better deal with the brokerage.  This means that your agent has to give $3,000 to the brokerage just for the right to do business through them.

This leaves your agent with $7,000 out of the $22,600 it cost you for them to run their business. Let's say a typical agent does 1 transaction a month. That would give them earnings of $84,000 in a year. Now what are their costs to do business?

Desk Fees, Admin Costs, Signage, Advertising, Lexus

These are all the costs that, as a business, the agent needs to pay for. Here is an infographic showing a breakdown a typical real estate agent in the US pays for. It wouldn't be much different for an agent up here. Let's be generous and say it costs $24,000 a year. That leaves your agent with $60,000 for doing one listing a month.

Conclusion

Your home sale results in paying $10,000 in wages, split between two agents; $4,000 to cover their business expenses, including their nice car; paying $6,000 to two different brokerages to manage the agents and have a nice hot air balloon on their building; and $2,600 to the government in taxes to help watch the industry to make sure they are not screwing you over.

How else could you spend that money? 

M

What Do You Get For Your Real Estate Commissions?

Would you spend $6,000 on a plain, old hamburger?

What the traditional real estate agent usually offers a home seller is a standard, plain Jane experience yet they charge you $15,000-$20,000 for it. The industry is trying to shove a value menu burger down your throat and charge you for the Cadillac of burgers.

At PropertyGuys.com, we offer you a nice juicy burger at a fair price, and we biggy size the combo.

It will leave you asking an agent why so much and...



M

How Do You Minimize Economic Impact When Selling Your House

I assume we have all heard the news from Blackberry by now. More job cuts, pending sale to a private equity firm, another failed software launch. Man that was a week!

I am sure there are plenty of people wondering what will happen, how will this impact the local economy, the local housing market. If even 1/2 of the job losses are here in Waterloo Region it will have to effect things, right?

It is no secret that I am not a fan of the traditional real estate agent model. Taking 5% of someone's equity for the work that needs to be done is darn near criminal in my opinion. It is sometimes justified by "market increases" and excuses like "well you are still ahead by $20,000". What happens when you loose your job, or worse yet you AND your spouse loose your jobs? That $15,000-$20,000 in real estate commissions could be the difference between pulling through and bankruptcy.

Selling the PropertyGuys.com way allows you options, at a time when you may not have too many. You have the option of selling at market value and pocketing the commission for yourself. The other option is if you are in a pinch and need to change things fast you have the ability to lower your price by that commission amount and have a competitive advantage over your agent selling neighbours. Most of our sellers land somewhere in the middle between these two options, with a win for both buyer and seller.

It would be a shame to see any negative impact from Blackberry bolster an already over inflated industry.  Look around at all the square signs in your community and know that $20,000 is more than just hot air, but then again, those balloons don't stay afloat by themselves.

Tied Selling in Real Estate

• 

  Are your hands being tied as a house buyer?

  
  

  So you think you have found the perfect house. From what you have seen online it is the "forever house" the two of you have always talked about.  After contacting the real estate agent that has it listed and going to see it you know it's right.  You sit down to crunch some serious numbers. It will be tight over the next few years but doable.  After running all the numbers and budgeting your costs to sell, including $1,500 for your PropertyGuys.com listing you decide that you will make the leap.  
  
  You contact the agent to tell them your intentions to put in an offer conditional upon sale of your home.  This is when the house of cards comes tumbling down.  You are told that not only do you have to list the home with an agent but that it also has to be within this agent`s office.

  
  

  As you go through a range of emotions from anger to panic to fear you wonder is this even legal?
  Here is what the Competition Act has to say about Tied Selling:

  “tied selling” means(a) any practice whereby a supplier of a product, as a condition of supplying the product (the "tying" product) to a customer, requires that customer to(i) acquire any other product from the supplier or the supplier’s nominee...

   Why would the competition act be the place where this is addressed? Great question!  You see when someone ties you to a specific product what they are in turn doing is limiting your options in the market and forcing you to pay their price.  This snuffs out the opportunity for another company to offer you a newer or cheaper or more efficient or ground breaking product or service.  The act of tied selling costs you, the buyer.
  
  If you come across this situation as you are searching for houses in the market make sure that the real estate agent you are dealing with knows that they cannot force this type of condition on you and that you would be interested in knowing why this type of Tied Selling is even in the agreement.  No doubt you will hear some mumbo jumbo about how they need to know you are serious about selling your home and that you have to do everything in your power to sell it blah blah blah.
  
  The quick and easy response to this is to plainly say that by adding $15,000 to your selling price works against not only his client's best interest but also the laws of economics.
  
  Have a story where you were pushed into this type of situation?  Please, share some details with us.
  
  M

So Where Does All Your Money Go?

It seems more important today than ever!

A recent blog post on buzzbuzzhome.com has us look at the transaction of a home purchase from an economic standpoint. How does your home sale/purchase impact our economy?

It would seem that the national average "service and taxes" fee of $22,775 sits well with the traditional high fee real estate agents.

Imagine another reality...the $10.2 Billion spent on these services was reduced to a fraction and the average home owner had more equity, more accessible cash and less debt. What would our economy look like then?

M

What does "Discount Realtor" really mean?

Just who is getting the service?

Let's first understand what the traditional "high fee agent" (5%) break down looks like. Typically a 5% commission is split 50/50. Meaning 2.5% goes to the buyer's brokerage and 2.5% goes to the listing brokerage. This means in a $300,000 home there is $15,000 in commissions paid. Man, that's a lot of skin!

In a typical discount brokerage 3% Program the listing brokerage typically discounts their fees down to 0.5% and offer 2.5% to the buyer's brokerage or on occaision they do 1% and offer 2% to the buyer's brokerage. In one way the listing agents are not getting "their share" and may skimp on the service. The other, buyer's agents will prefer to show other listings where they get 2.5%. Same house as above and your still spending $9,000. Still more then a skinned knee!

A typical 1% Program the agent is not offering any commissions to buyer's brokerages and are expecting to work on behalf of both buyers and sellers. The real danger is that for buyer's to get the info they have to call your agent. Your agent now has a buyer looking to buy a home. Your home pays them 1%. Every other home listed with agents (High Fee or Discounts presented above) get your agent more money. Why would they push your home when they can sell the one up the street and make more money! It may only be $3,000 if it sells but unfortunately for you they sold one of the two above and made $7,500 so you sit with their boring old square sign on your lawn selling other peoples' houses!

Ever think someone was telling you one thing and then doing another?


M

Using an Agent is FREE for Buyers....

Not a chance!

I hear this regularly. In my opinion, this is one of the biggest fallacies in real estate today!

Just because you don't stroke a cheque to your realtor doesn't mean you are not paying for it. Think about it. If you are selling your house and using a real estate agent your first thought is generally "I need to get $X for my house". Then you figure what the agent is going to cost and tack it on top. Looking at it from that point of view....the buyer ends up paying the ENTIRE realtor commission as the seller has passed it on to you.

I prefer to look at it this way. The cost of selling the home is on the seller and the cost of buying is on the buyer (what can I say...I am a no nonsense kinda guy). In a standard 5% realtor assisted transaction the 5% is split 50/50 between the buyers agent and the sellers agent, 2.5% each.

In a Private Sale transaction the seller pays to market the home with services like PropertyGuys.com and the buyer is responsible to pay for any representation he chooses to use (buyer's agent). Now this can be negotiated into the purchase price, meaning the buyer pays more for the house than without the agent, or the buyer can pay for the agent themselves. We have seen this happen but it is for sure the minority. Our experiences tell us that less than 15% of private sale transactions have a buyer's agent involved and that the BUYER is the one paying for them, even if they are paid through the transaction!

Now what exactly is a "Buyer's Service Agreement"? Below an agent describes what "Buyer's Representation" is. Pay attention to the comment about paying the agent whether they are the ones who find you the house or not. This would mean once you sign the agreement you are on the hook even if they do NO WORK!


M

He Was That Close

I recently saw a video posted on my Facebook feed where a VP from Keller Williams (and best selling author) talks about why houses don't sell. Why some homes sit and others move. He explains a very basic principle, one that I have talked about many times here.

If you are priced too high for your market you won't sell.

He goes on to explain that if you are getting no showings it tells you you are OUT of the market. If you are getting showings AND offers than you are IN the market. If you are getting showings but no offers than you are in "No Man's Land". What he failed to mention is that the cost of your trusty Realtor is what has you stuck in "No Man's Land".

Drop your Realtor and join the IN crowd!

Here's the video (don't judge him for his lack of white board skills.


M

Survivor's Newest Song?

OK so I talk quite regularly about selling. A recent comment asked about sharing some knowledge for buyers.

The comment specifically was:

I know property guys have been really going well with sell your self but what about buying. Using an agent seems to be the only option and then that becomes a problem since they won't show private sales.

Let's first focus on the misconception that using an agent is your only option when buying. Stats show that 90% of people start their home search online, not with an agent. We find that buyers are more concerned with the homes than the sign on the lawn. They care which website it is on because they want to be able to get as much info as possible while doing their search. As pointed out by Levitt & Dubner in Freakonomics the hording on information on the public facing portal of the MLS (www.realtor.ca) forces you, the buyer, to have to call them. Information hording throws the balance of the power on their side. Sites like PropertyGuys.com work the opposite way. As a home seller you want to talk to qualified buyers, buyers that want to buy your home. To do this you have to give them all the information you can. Quality photos, virtual tours, Google maps (including street view), and all the information you can cram into a web page.

As for agents not bringing buyers to private sale homes, this is another misconception. I would estimate that 5 to 10% of the PropertyGuys.com homes sold here in the Waterloo Wellington area are sold to a buyer with an agent. We make sure to coach our clients on just how to deal with an agent assisted purchase. It is simply about knowing your bottom line and knowing your "agent" bottom line (bottom line divided by .975). This will allow you to account for the agent's 2.5% commission they "expect" for working with a buyer. When worked this way the seller is not paying for the agent they are simply allowing the buyer to pay for the agent as part of their purchase. Want to see how it works?

Private Home Seller Asking Price - $300,000
Private Home Seller Bottom Line - $290,000
Private Home Seller "Agent Bottom Line - $297,435.90

If a buyer comes in "sans agent" they have $10,000 in negotiating room. Buyers that choose to use an agent now have less negotiating room on the house,$2,564.10 to be exact. This means they are paying for their agent without having to cut a separate cheque. As a buyer are you keeping your eye on the dollars you are spending?


I pity the fool that pays commissions!

M

Looking Out For Your Financial Freedom?

How soon do you plan on retiring?

I don't care if you have your investments with a bank, an insurance company or an independent financial planner. Fact is, if your financial adviser is not discussing your choices of how to sell your home they are not working in your best interest.

Think about it. If you were to live in 4 houses in your life how much money could you waste on a real estate agent. Let's do the math, shall we.

Year 1 (Age 30) First Home - Modest townhouse selling for $225,000
Agent Commission 5% - $11,250
GST on Commission - $562.50
Total amount not invested - $11,812.50

Year 5 (Age 35) Second Home - Single detached selling for $300,000
Agent Commission 5% - $15,000
HST on Commission - $1,950
Total amount not invested - $16,950

Year 20 (Age 50) Third Home - Large family home selling for $450,000
Agent Commission 5% - $22,500
HST on Commission - $2,925
Total amount not invested - $25,425

Year 30 (Age 60) Fourth Home - Bungalow selling for $300,000
Agent Commission 5% - $15,000
HST on Commission - $1,950
Total amount not invested - $16,950

At 60 I hope that we are all ready to retire (if not before). All ready to buy a cottage on a lake in Northern Ontario and a condo in Palm Springs. So let's look at our investment profile....or more importantly what didn't end up in it. The total amount of commissions (including taxes) paid to real estate agents through your life was $71,137.50. That sure is a big number! But let's add in the aspect of lost interest into that figure over the 30 years and see what it is.

Using the Bank of Canada investment calculator over the 30 years at 6% interest the $11,812.50 from our townhouse would have been $67,844.99. The $16,950 from our second home would be $72,747.21 over 25 years. The $25,425 from our 3rd home would be $45,532.30 over the 10 years. Of course our $16,950 doesn't get invested because we just sold that place. So the total money not in our financial portfolio due to needlessly spending it on real estate agents is $203,074.50.

You always have other options...


M

Would GARP Ever Work?

Generally Accepted Realtor Principles....hmmmmmm

I recently read a blog post from a realtor in the US. As a CPA (US equivalent to Chartered Accountant) he looks at one of the glaring issues in real estate today. The deficit of rules, guidelines and standardization for realtors to follow.

In accounting there are the Generally Accepted Accounting Principles or GAAP. A standard set of rules and guidelines for everyone to follow. No questions of how a situation is handled. If you are not sure, you go to the GAAP and look it up. A great quote from the post is:

Ask any CPA any question, and their response should be, “Well, according to GAAP, Rule XYZ says that in that situation you must do 123.”

How is this handled in the traditional real estate world? Here is another snipit from the blog post:

let’s assume that you, as a licensed Realtor, receive multiple offers on a particular home you have listed. What do you do? What are your obligations, and to whom? Do you entertain both offers, or only one? Do you tell each agent that there is another offer? What if one of the offers is from an agent from your company? Does that impact your behavior in any way? What if one of the offers is from one of YOUR clients? How does that impact your actions?

Ask 10 agents, and you’ll get 10 different answers, I will surmise.

There are no clear, concise, precise, definitive instructions on this situation.

This lack of "regulation", in my opinion, is what separates real estate agents from what they think they are,highly trusted professionals, to what the public perceives them to be, on par with politicians, and car salespeople. Think Herb Tarlek from WKRP in Cincinnati.

If realtors had a GARP to follow they sure would weed out all the dead wood in the industry and the true professionals would be left standing in place with their head held high.

The other outcome of this would be with less realtors in the game the need for the high commissions would be gone as they would all get their fair share of the pie.

Do I ever think this would happen? When turkey's fly.


M

What To Do With All This BS?

Author’s Note: Due to a complaint about the legitimacy of information in this post I have double checked my sources and found the data to be accurate and made some notes below. I have also made some edits to help protect the home buyers/sellers involved as well some of the language has been edited due to individual interpretation of the specific words used.

I think I need a skid of these to deal with it all!

I hear all sorts of stories in this business. I recognize that they all start with a kernel of truth and through the art of story telling they get altered slightly. We all remember playing broken telephone as children, right?

I was out putting up the first of two sold signs in Cambridge last Friday when I came across a flyer blowing aimlessly on our client's door step. I am sure it fell out of the door jam or mailbox but there it was carefully avoiding my feet as it tried to get my attention.

I picked it up to see the same drab excuse of a flyer we expect from a (replaced Joe Schmoe with) ordinary agent. What popped for me was the PropertyGuys.com sign in the photo. (Using other people's trade marks in your advertising is not allowed and was a big motivator to this post. I have scanned and presented the flyer as it was found and included another company logo only to show the flyer in it's entirety.) When I read it in detail I knew it was a stretch of the truth at best. It is the exact opposite of everything we see in the market...so I did some digging.

Nothing is the truth except the truth, and here it is.

Address deleted
Listed with PropertyGuys.com on July 14 2008 at $267,900
Cancellation date deleted
Listed with Robert Wollziefer on Sept 30 2008 at $269,900 MLS® #0894383
Relisted with Robert Wollziefer on Dec 1st 2008 at $259,900 MLS® #0895294
Sold Date Jan 29 2009 for $255,000 (There was some question to privacy laws in publicizing the sold value of the property. This is already public information available through the Municipal Property Assessment Corporation aka MPAC)
Total days on MLS 121
Estimated commission paid at 3.5% $8,925 plus $446.25 in GST
Net amount client sold for deleted

Here are some points that Robert fails to point out in his marketing piece:
Details of the price drop of $8,000 in listing price and $12,900 to the actual SOLD price
(Deleted a comment regarding bottom line price client received after commissions payed).
Property was relisted after 60 days on the market

Here is (in my opinion) the absolute (replaced false with) misleading statement made:
"One day they received 3 offers and can now move forward"

As you can see from the truth above, they were listed for a total of 121 days with Robert (deleted “and not the 1 day he states”. It was brought to my attention that the client did in fact receive 3 offers in one day, the ad fails to mention that it took 120 days prior to that happening). The truth is they were listed twice as long with Robert than with PropertyGuys.com and needed to drop their price because it was price that was the issue not their choice of marketing. (Deleted language specific to the client and replaced with) One of the true benefits of selling privately is the fact that you are able to lower the cost of the transaction. Those costs can either be kept by the seller or used as a tool to lower their price, making them more attractive in the market place and sell faster.

Way to help them "Move Forward" Mr. Wollziefer, (grammatical error replaced your) you’re a gem!

Do you have a similar story? Leave a comment! Your story may help someone else avoid the "Rubber Lips"...


M

Who Pays Commission?

You can be sure it is not a PropertyGuys.com client!

This question gets debated all the time. It is often thought that the home seller is the one paying commissions because of the way the transaction plays out. In a traditional agent fabricated deal the commission bundle is directed by the listing contract between the seller and the listing agent. They set the amount to be paid to both agents involved in the transaction.

The buyer's role is to simply look at houses with their "buyer's agent" and decide on one that fits their needs and price range and have their agent draw up an offer. They have little, if any, idea as to the commission amounts involved. Why would they even care, their agent did a great job and negotiated $10,000 off the asking price!

In a previous lifetime I was a purchasing agent. I purchased mass amounts of auto parts for the repair industry from all over the world. An important factor needed in my cost calculations was the expense of procuring the item. If there was shipping costs on a product than the expense needed to be included in the net cost of the items. Take a disc brake rotor for your car. These are commonly bought in China. If the rotor was worth $5 but cost $2 to ship to Canada then the "landed cost" was $7. Let's say the rotor sells for $14 with a standard mark up of 100%. If they find an alternate source to purchase the product for $6 locally with no shipping costs than that same part would sell for $12 saving you money.

Think of home buying like this. The price that home seller receives after commissions are paid is the "landed cost". If the seller can adjust his cost by not having to pay the high costs of "shipping" (read "commissions") than the savings can be passed on to you the buyer. The costs of "shipping" (again read "commissions") are actually paid by the buyer because the seller is passing it through.

Now imagine the house having changed hands 5 times. How much cheaper could you have bought it if agents had not been in the equation?

Here is an agent with a "sideways" look at who pays the commission...


M