1 for 298!

Housing "Ahab" Finally Finds Her Moby Dick

Bay Area real estate has always demanded patience on the part of buyers. Many spend months scouring listings in hopes of finding "the one." Then there is Lidia Pringle. Over two-and-a-half years, Ms. Pringle personally inspected 298 homes in Marin County.

--"A Picky Home Buyer Pursues An Epic Hunt for 'the One'"; The Wall Street Journal (12/29/09)

My Realtor's take on Ms. Pringle's quest isn't surprise that she actually went through 298 homes.

The surprise is that she actually bought one.

In my experience, viewing that many homes -- in fact, a fraction of that number -- invariably takes one out of the "serious Buyer" category and into an altogether different one: "open house hobbyist," perhaps, or maybe "too-much-time-on-your-hands architecture buff."

Given that the upper bracket properties Ms. Pringle was checking out typically don't open their homes to the public, the likelihood is that she viewed most of those homes through Realtor-arranged private showings.

Poor Realtor(s).

Apparently, Ms. Pringle ditched the Realtor who'd arranged most of those showings and bought through one who showed her exactly one home, the one she bought.

Ahh . . . the agony (and the ecstasy) of working on commission!

P.S.: one of the things Realtors quickly realize is that sometimes, the harder you work for a client, the less they appreciate it. Realization #2: so-called tire kickers never kick the tires on the housing equivalent of Chevettes and Pinto's (remember those?); it's always Porches and BMW's.

4%!!

Realtor Pay-Out's Rise with Inventory

No, mortgage rates didn't hit 4% over the weekend.

Rather, that was the pay-out being offered on not one but two of the homes I showed over the weekend.

In fact, out of 8 homes I showed, fully half offered above the standard 2.7%.

Commission Primer

For those who don't know, "pay-out" refers to the commission offered to the Buyer's Realtor. By contrast, the listing commission is what the agent representing the seller gets.

In both cases, the Realtor further splits their half of the commission with their broker.

In fact, the convention -- at least in the Twin Cities -- is to split the commission 55-45 between the Listing Agent and Buyer's agent.

On a "full service" 6% commission, that works out to 2.7% for the "buy" side.

Fatter Carrots

So offering 4% instead of 2.7% is certainly attention-getting.

Why do that?

Most frequently, it is Sellers whose homes have lots of competition.

If your home is one of dozens that prospective Buyers are considering seeing, offering a fatter carrot to the Buyer's agent is one way to ensure that the Realtor shows your home instead of a competing home.

Does it work?

It can't hurt.

However, a scrupulous Realtor takes care to show the homes that offer the most to their clients -- not the ones they stand to make the most selling.

Just so my clients know that I'm "putting my money where my mouth is," my policy is to always provide them with what's called the MLS "Property/Agent Full" report.

Unlike the more abridged reports, the "Property/Agent Full" version shows everything that the agents see -- including the payout commission being offered to Buyers' Agents.

"Full Service," Defined

Attention to Detail + Hands On Role

What exactly do Realtors mean when they say they're "full service?"

It's certainly a fair question, because a full service commission in the Twin Cities these days typically ranges from 6% - 7%. By contrast, "discount" Realtors charge 5% or even less ("limited service" is actually a better label).

My full explanation takes about 90 minutes, which I cover as part of a formal listing presentation that I make to prospective clients.

Suffice to say, I play a "hands on" role -- starting weeks (and even months) before my listings ever hit the market, to well beyond closing.

That includes knowing all there is to know about both recently sold properties (the "comp's") and competing "Active" listings, so I can give expert guidance on pricing; suggesting cost-effective improvements to maximize the home's value; and building market awareness -- well before the home formally debuts on MLS -- both with other agents and the general public.

"Full Service" . . . in Practice

In fact, my input goes well beyond simply recommending value-adding improvements.

As an example from just this week, my client was in the process of painting their home -- at my recommendation -- to get it ready for sale. However, the paint colors they selected just didn't seem right.

I knew, because I was in daily contact with both the client and the painters.

As part of "full service," I asked two stagers I regularly work with to interrupt their schedules and come to the house, ASAP, to make suggestions from their color palettes.

Which they did. They both recommended near-identical colors, which my client OK'd, and the (waiting) painters immediately substituted.

Example #2

The second illustration of what "full service" involves was . . . today.

The key to my client's just-listed home is the Kitchen, and the Kitchen has a prominent light fixture with 3 halogen bulbs. Unfortunately, 2 of them didn't work.

Normally, my client would attend to that, but they timed their vacation to be out of the way the first week their home is on the market.

So, I went to the hardware store to find replacements. "Not so fast," the salesperson I talked to said. The bulbs were specialty bulbs, and I needed to go to a specialty store for replacements.

Which I did.

After I finished, I had just enough time to join my family on an apple-picking outing.

P.S.: And no, "full service" does not include getting my clients' dry cleaning, babysitting their kids, etc.

A Commisson By Any Other Name

Just Don't Call it a Commission

Other Realtors charge a commission.

I, on the other hand, prefer to call it a "reality fee" (a friend passed along the email, below, from an upcoming FSBO seller -- as in "For Sale By Owner").

Hello!

We are announcing the upcoming sale of our beautiful home. It will be available to see by appointment mid-July, possibly a little sooner. If you are interested in seeing the home yourself or know if someone looking to move into our area, please contact us.

We will be selling this home ourselves ask that our buyer use a lawyer or pay their own reality fees. There will still be traditional measures taken in the sale of our home such as a disclosure statement, walk-through, inspection, etc.

P.S.: my advice to FSBO sellers? In a word: 'don't.'

Just one mistake can more than offset any savings you hope to realize doing it yourself -- not to mention the time, inconvenience, etc.

As an example, I was showing a FSBO home to a client last year, and asked the Seller how long it had been in foreclosure. The owner was adamant that it was not in foreclosure -- in fact, the home was completely paid off!

I showed her the MLS printout showing that, in the box for financial status, "in foreclosure" had been checked.

Hmm, maybe that's why she hadn't had any showings the first three weeks her home was on the market.

The home finally sold 8 months later (not my Buyer), at a steep discount.

A Tale of Two Professions

Are Realtors Underpaid??

Consider the following parallels between these two groups of professionals:

--Both groups include highly skilled, highly trained individuals;

--Both are known to tackle cases with long odds and a high risk of failure;

--Notwithstanding the aforementioned risks, both get paid only if their client gets paid. If their client walks away empty-handed . . . so do they.

--Both can toil for months -- if not years -- on behalf of their clients, investing hundreds of hours of their time, and incurring thousands in out-of-pocket expenses, before they see a dime of compensation.

So who are these two groups?

Plaintiff's attorneys bringing class action suits -- and Realtors! (specifically, listing agents representing Sellers).

Unlike the former, whose contingency fees typically range from 25% to 33%, full-service Realtors typically charge a 6% - 7% commission. Which they proceed to split four ways (with their broker, the Selling agent (representing the Buyer), and the Selling agent's broker).

Realtors . . . one of the great bargains left!

Foreclosure Headache #7 (and #9, #17, #22, etc.)

Lack of Standardized Contracts
Creates Foreclosure Can of Worms

From a realtor's perspective, representing a Buyer trying to purchase a foreclosure can present an endless can of worms.

For starters, there's the issue of the house's condition. What is it?

Unlike a typical owner-occupied home, there are no disclosures, and the Buyer usually must agree to purchase "as-is." Since no one's home, literally, anything can -- and does -- go wrong. Because foreclosed homes in Minnesota are frequently winterized, one of the first issues to negotiate is how -- and sometimes even if -- the prospective Buyer can test the plumbing, heating, and other major mechanical systems.

A second hurdle is response time. Unlike a typical deal, where a sale negotiation can be consummated in 24-48 hours, with many banks the equivalent timetable is weeks (I've even heard of months, in a few cases).

However, undoubtedly the biggest headache associated with foreclosures is, shall we say, the "variety" of bank-required contracts (suffice to say, there are as many bank-required legal forms circulating as there are bank-owned properties). That lack of standardization not only creates a great deal of uncertainty, but can be time-consuming, and can present novel traps and pitfalls for Buyers (and their realtors) each transaction.

Not Just "Boilerplate"

One of the biggest advances in residential real estate the last few decades, at least in Minnesota, is the adoption of standardized purchase agreements and addenda. While the 20-odd page, single-spaced contract you signed when you purchased your home last year may have said "Edina Realty," "Coldwell Banker Burnet," or "ReMAX," the underlying document is the same in virtually every deal.

As Martha Stewart might say, "that's a good thing."

Unbeknownst to most consumers (and unfortunately, not a few realtors), the standard real estate contract is a dynamic, constantly evolving document.

In fact, each year, the purchase forms undergo a series of tweaks and adjustments to address new market conditions (like the prevalence of short sales now); conform with any new state or federal law; and to refine earlier language that has proved problematic.

That combination of standardization and constant updating greatly streamlines the deal process, by creating conventions for handling the complications and ambiguities that can be part of any transaction.

To pick just one example, consider the Financing Addendum.

The standard Minnesota form balances the Buyer's need for time to firm up their financing with the Seller's need for certainty. The compromise is to set a specific date by which the Buyer's lender is to provide a "Written Statement" to the Seller indicating that the Buyer has secured their financing.

What happens if the Buyer's lender doesn't do that? The Addendum explicitly addresses what happens to the Buyer's earnest money, the effect on the transaction, each party's relative rights, etc.

Custom Contracts

Now throw all that out and start over with the bank's required forms.

How much time is the Buyer allowed to line up their financing? How are they to communicate lender approval? What happens if they can't get it? Under what circumstances does the Seller get to keep the Buyer's earnest money -- and when do they have to give it back?

As they say, "read the fine print." And if the fine print happens to be ambiguous . . . prepare for some friction and (more) delay, at the very least. (As a general proposition, you can assume that banks are inserting/deleting language to increase their rights and limit their liabilities relative to Buyers.)

Similar issues can arise regarding the Inspection timing and the Buyer's ability to back out; the scope of Seller disclosures (usually, just disclaimers); and responsibility for any third-party claims on the property (delinquent taxes, contractor liens, etc.).

After navigating all these issues, and investing a few months of their time, Buyers (and their realtors) are as likely as not to discover that the Buyer's offer has been knocked out by another, higher one.

For all this aggravation, you'd think realtors would get a bonus, right? No way.

Not only is the typical foreclosure steeply discounted from the average market price (about $180,000 now), but the "payout" (the commission offered to the Buyer's realtor) is heavily discounted, too.

Realtors, Chauffeurs, & Investment Bankers

What Do Realtors Really Get Paid For?

[Note: this post is a companion to "Do Realtors Really Add Value?]

If all realtors did was chauffeur clients around, realtors should -- and would -- make what chauffeurs do: about $20 an hour.

But what realtors really do -- at least in their capacity as listing agents representing Sellers -- is actually much more strategic, and therefore valuable: they position the Seller's home in the marketplace, suggesting how to look at it, and yes, what to pay for it.

In politics, it's called defining your opponent before they define you. In real estate, it's about maximizing each home's potential, then presenting it to prospective Buyers in the most flattering (yet truthful) light.

Every house, even the most impressive, has warts and blemishes; likewise, even the humblest home has hidden virtues and at least a few redeeming features.

Price Imprimatur

Kim Pease, one of the best realtors in the Twin Cities (and a competitor), once advised me to think twice about holding price opinions (price opinions are a popular way for realtors to solicit input from colleagues on a house whose "comp's" (comparable sold homes) are tricky or unclear). If the realtor does their job correctly, according to Kim, realtors (and prospective Buyers) don't give the listing price a second thought, or if they do, it's an almost subconscious, "oh, yes, it's priced right."

By contrast, if you put a spotlight on price, you invite scrutiny and second-guessing. That's one of the reasons why homes that languish on the market forever get especially beat up on price.

Where the Freakonomics authors (realtor-scorners both) get it wrong is that they assume houses are widgets: fungible, interchangeable, homogeneous. In other words, a commodity.

To a talented realtor, homes are very much malleable and unique.

I like to tell clients that a listing is like an iceberg: the part below the surface is what happens before the first prospect walks through. It's not unusual for me to spend months working with a client getting their home ready for sale, directing value-adding home improvements, orchestrating the staging, working with my photographer and desktop publisher to get the marketing materials -- online and print -- just right.

Identifying and unlocking potential value, then correctly pricing and selling it isn't what chauffeurs do. It's what *investment bankers -- er, venture capitalists do.

*While it's true that underwriting a new stock issue typically involves a lot more zeroes than selling the average home, as a percentage of the entity value, home selling is much higher. How so? IPO's typically involve selling just a fraction of the company to the public; the "public slice" then establishes the value for all the rest. By contrast, there's no way I'm aware of to sell just 10% of a single family home.