Jan. 31, 2007 - It is sometimes hard to charge less than you can
On three different occasions this year, I charged less than the client was willing to pay. This was a little hard for me, but I felt inclined.
One client said, "you really earned that 3%", and it was probably true. But that person had so much bad luck every step of the way before I arrived on the scene, I just wanted to see her happy...truly happy. And she was.
Every time a house took longer to sell, it was because the price was pre-set before I arrived on the scene. In all cases I gave the seller a break, about $18,000, because it was such a tough pill to swallow for them to sell the house at what the market would bear, that I felt the extra money would give them something to be truly happy about. In all cases that worked.
It is often fairly easy to do a good job. It is often fairly easy to do a much better job than someone else. But making it my goal to leave people really and truly happy at the end, has brought me great joy this year. Being very good at what you do, and having happy clients, is a reward all of its own.
One thing I learned this year is that there are many different types of ways to approach a real estate purchase or sale, and many different fee arrangements to go with.
The lowest fee that I charged was $3,000 for house that sold for over a million dollars. The buyer had happened upon the house which was not for sale. The seller only needed to be out of the room so that the buyer could formulate their offer with a disinterested 3rd party. I acted as a "transaction broker" representing neither part, and charged a $3,000 flat fee.
Oh, no, I forgot. The lowest price I charged was zero. I represented the seller and the buyer happened in just as I was receiving an offer from another agent. He was shy and thought that since I had one offer, he should "wait and see what happens" . He and his girlfriend lived the house and I threw in the 3% buyer agent fee so that they could get it. He thanked me so much from beginning to end that I had to keep reminding him that he wasn't my client :) Very nice fellow. Worked at Boeing. Needed no help except for writing the offer.
I charged the seller less than 2% total for both sides of the transaction. They had the place pretty much set up when I got there, so I only had to move a few things around and bring in one truck load of accessories. They were trying to sell it on their own with MLS4U before I came and had lost 6 weeks in the process. They really needed to get to their new jobs out of state, so we just sold it in 4 days by giving the buyer the 3% buyer agent fee. Because they were moving to such an expensive place, I priced my services in between their MLS ONLY option and the going rate.
All in all it was a quick and easy sale for them once they gave up trying to do it all on their own. The did have to pay the MLS ONLY fee, as those types of services have to be paid for whether they are successful or not. But in the end, they ended paying even less for full service than the would have if they were successful at the MLS only option.
The highest fee I charged was a full 3% on a property that needed ten days of staging to get it ready for market. It sold rally fast but was in the $200,000 range, and there is always more room to negotiate when the sale price is highest.
So for the most part, Under $400,000 usually involves some cash toward closing if the property sells quickly or the buyer finds a home quickly and is well qualified for financing.
People who are buying at a price of $800,000 or more, usually pay 1% to 2%, depending on the difficulty involved in finding their new home. And those who are both buying and selling can usually save 1% off their purchase and another 1% of the sale of their home. 3% being the guildeline from which to negotiate.
And always, if the seller is offering an agent bonus...that bonus goes to the buyer.
Jan. 31, 2007 - People who trust no one, are not to be trusted
It is really very true that the most distrustful people, are those who are not to be trusted.
I had a client this year that asked twenty "what if "questions for every single topic that came up in the real estate transaction. She saw a problem behind every word, and an obstacle at every point of the way. She called me late at night. She called me almost every day on her lunch break. This went on for months and months, long before they even started looking for a house and before they listed their home for sale.
The spouse was SO exceptionally nice that I persevered for their benefit. Several times he begged me not to fire them because the wife was being so very difficult.
In the end, I had to sell the house twice. Every time I turned around I discovered something wrong with the house, and it was obvious that the owner knew all along and was hoping no one would notice. I brought in my handyman and fixed everything that was wrong and proceeded. But the first buyer just didn't trust the seller because of this, and I had to sell the house a second time.
Whenever I meet someone who doesn't trust others, I wonder whether or not I should trust them. Had the situation not been so very difficult, I would have given them a break on the commission. But this situation turned out to be the ONLY client this year who I did NOT give a break on the commission. Some people just make things a lot harder than they need to be, and they only hurt themselves in the end by being that way.
Jan. 31, 2007 - Why I gave the nice young couple $13,000
This isn't the real couple, who I gave the $13,000 to, but I think they demonstrate the point. From the minute I met them, I knew they were going to be a joy to work with. They were pleasant and happy and we all really got along so well. Even before we went out to look at property, at our very first meeting sitting at the table, I took out a piece of paper and made some calculations based on our discussion. I said, "I' am going to give you $12,000 toward your closing costs" (turned out to be closer to $13,000 at the end.)
They were very surprised. They had already hired me, and couldn't understand why I offered them something they didn't ask for. It was just a gut feeling. I knew they wouldn't argue with me when I asked for the key to their townhome so that I could stage it while they were away. I knew that they weren't going to play stupid mind games, trying to beat every last dime in order to save a penny.
It was a little scary, because I prefer to make these commission negotiations at the end, when we really know how much work was involved. But somehow I just knew, I trusted my gut, and I was correct. We became great friends and I enjoyed them so much it wasn't like working at all. We even gave them some furniture for their new home and painted out the garage on the old home to sell it, in addition to staging it.
Sometimes the best way to negotiate a fair price for the service, is to not make it so hard on the agent, by asking a lot of irrelevant questions. By being reasonable in your expectations and above all...just being good and nice people who are a pleasure to work with.
Jan. 31, 2007 - Why I wrote the buyer a blank check
It was the day of signing. I had already given the buyer $900.00 toward their closing costs on the small house they were purchasing at a very modest price. I had already bought them a washer and dryer. At the last minute there was a lien in the buyer's name and escrow couldn't close unless he paid it off. He insisted he had already paid it, but there was no time to convince the lienholder to remove it before they signed the final papers. Escrow couldn't proceed with the lien unpaid and the amount of the lien was somewhat undetermined.
A delay was just not in the picture. The seller had already moved out, the buyers had already given notice on their apartment. I turned to the closing agent and told her to take the amount from my commission. She was flabbergasted. We didn't know the exact amount of the lien, but we did know it was less than the commission. The Escrow Company agreed to continue with the signing and closing on that basis. The buyer and the escrow company worked very hard to have the lien removed. So I didn't have to pay off the lien.
If the buyer was paying off the lien, I really don't think escrow would have worked as hard to get it removed. They probably would have felt that was the buyer's problem and not theirs. By offering to pay the lien myself, the escrow company worked differently. They did feel like it was their job to get the lien removed and pay me the commission due.
I will never forget the look on the buyer's face when I "wrote him a blank check" so that he could get his new home and move into it on time. Even though I didn't have to pay it, he greatly appreciated the fact that I was willing to do it, and that by offering I managed to get him out of a very tight spot.
Jan. 31, 2007 - Why I bought the buyer a washer and dryer
When the seller listed the home, he did not include the washer and dryer. While I represented the buyer and not the seller, I did have a few words with the seller who was present during the showing. He mentioned that he was selling the house due to a divorce, and had no idea where he was going. He also mentioned that he might just rent an apartment.
The buyer was very disappointed that they were not going to get the washer and dryer that was in the home. I told them that there was a good chance that when the seller finally figured out where he was going, he not only wouldn't need the washer and dryer as he now thought, but wouldn't be able to bring them to where he was going anyway.
About a week before closing I asked, and yes, the seller did not need to bring the washer and dryer to his new home. Rather than simply asking him to leave them,, or offering that the buyer pay for them, I bought them for the buyers as a house warming gift. The buyers were thrilled, the seller was happy to be paid a fair price for the washer and dyer and everyone was very happy.
Often agents will be some expensive house warming gift that the buyer really doesn't want anyway. I keep my eye out and my ears open for an opportunity to give the buyer something that they really want. Maybe they won't remember me when they wash their clothes they way the might if I bought them a big pink lawn ornament :) Maybe they won't even remember that I bought the washer and dryer for them. But I DO know one thing for sure...it wasn't wasted money and they will definitely use the gift time after time.
Even the nicest of people sometimes need someone to step in and hammer out a few details. There is no way for a home buyer and a home seller to totally agree on everything every step of the way.
Every once in a while a consumer call s me to write a contract and be a go between for just a few days until both parties have agreed on all terms in writing. In these cases, the buyer nad seller have usually met each other before contacting me. The buyer doesn't want the seller to write the contract, they can't share an attorney and they don't want to hire two of them, They already agree on one thing. The buyer want the house and the seller wants to sell it.
If the buyer has 20% or more for a downpayment and good credit, the buyer and seller can usually get to the end without any assistance, as long as someone steps in just for the "writing of the contract" phase and for negotiations back and forth until there is a final contract.
I have used a fee of $3,000 for this service this year. Everyone was happy, it all worked out fine, the only complication was that even though the house was not listed for sale, someone happened by and noticed what was going on and submitted an offer of their own. So we had two offers on the table for a house that was not for sale. Since the other offer was from a builder who was going to tear the house down, it put some stress on the first buyer. The first buyer did get the house, the seller was very happy with the price which was more than they expected.
Some will say maybe the seller could have gotten more money for the house. As a consultant, that is not my call and that is not a service I was asked to perform. Since the house was over a million dollars, and the total fee to both parties was only $3,000, the seller didn't want to take the chance that they might get more, because they would have to get over $60,000 more at full commissions, just to break even.
So the seller felt that bird in the hand was worth more than two in the bush, and the buyer was very happy to beat the builders to a home in a prime location. There was no second round to the negotiations, as the home inspection was done for the buyer's information only, and not as a contingency to the purchase. Since the other offer was from someone who was going to tear it down, the buyer who was going to live in it couldn't expect the seller to make repairs as they could have gotten the same price from someone who wouldn't be asking for repairs.
There are many different uses of a "consultant flat fee" vs. a percentage commission. This is just one way that I have utilized this method in recent history.
Jan. 13, 2007 - Why is his rate lower than my rate?
Now THIS is "transparency"!! Of course transparency can give you a headache...but this is what transparency looks like.
Study the relationship of credit score to rate. LTV to rate.
People ask "what are interest rates today" and think about buying a home, as if they are #1 down there at 5.875% interest rate only to find that THEIR RATE is more like #2 or #3 at 8% or more.
Interest rate is only the rate you see quoted all over the internet, if your score is above 660 and you have 20% down or are willing to pay MI.
1. PURCHASE: 664 CREDIT SCORE, STATED/STATED , 30 YEAR FIXED NO PREPAY WITH A RATE OF 5.875%. NO ESCROWS WITH AN 80% LTV. CLOSED 1/9/07
2. PURCHASE: 603 CREDIT SCORE , STATED INCOME , NO RESERVES , 90% LTV , 3 MONTH SELLER SEASONING , 8.625% 2/28 ARM WITH NO MI AND NO ESCROWS , CLOSED 1/5/07
3. REFINANCE: 438 CREDIT SCORE , BK 13 BUYOUT/FORCLOSURE BUYOUT , 70% LTV CASH OUT. ROLLING 1X120 MORTGAGE HISTORY AND 6 MONTHS BEHIND ON TRUSTEE PAYMENT FOR BK. 2/28 ARM NO PREPAY 10.99%. CLOSED 1/5/07
I "lifted" this off of a site of a lender in Bensalem, PA. I would link to it, but the blog was just started and has only one entry. So I'll come back later when he adds a few things and link to the actual site. I hope he keeps this up every week, because this is really interesting detail, for those who like to know the real why of things.
If you don't "get it", don't feel bad. Even I don't know what "3 month seller seasoning" means. Seasoning is usually about the downpayment funds and is buyer seasoning and not seller seasoning. If the lender requires 3 month seasoning...it usually means the buyer needs to have the downpayment monies in his account for 3 months, and not have deposited them last week. Maybe it's a typo and he meant to say 3 month buyer seasoning. I'll have to ask him when he gets his blog underway.
Before you, as a buyer, go to see homes, there is already a mechanism in place for the agent who opens the door for you to get paid. This is why agents may want you to sign a contract to work with them, but they do NOT rely on you to agree to pay them.
The payment for the services afforded you is already in place. You can choose to know what that is, or you can choose to feel that the service is free. By and large the buying public likes the idea of thinking it is free.
Most buyers do not talk about commissions, do not care what the agent is getting paid and simply look at houses and then buy one. That is how it has always been.
I do not urge you, the buying public, to get into a conversation about commissions in order to rock the boat with regard to the money exchanged. I do it so that you will be sure that your agent understands that he works for you and is paid by you. Most do not. You pay the commission as part of the sale price, so make it your business to know what you are paying AND make it your business to make sure the agent knows he works FOR you AND is paid by you.
When the agent thinks you are not paying him, and you are getting something for nothing...it will bite you in the butt somewhere along the line. So don't step into a house with an agent until you understand what you are "stepping into".
ARDELL
DellaLoggia
On Seattle Real Estate including Kirkland, Bellevue, Redmond, Green Lake and most areas around Lake Washington North of Downtown Seattle.
Phone: 206-910-1000 - Mailto:Ardell@RainCityGuide.com
You can find many great Seattle real estate agents and loan officers on ActiveRain.com ARDELL DellaLoggia is a proud member of the ActiveRain Real Estate Network, a free online community to help real estate professionals grow their business.
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