Seller Strategy: Comps Lower Than Current Value

There has been a big shift in most markets across the country. Prices have halted their multi-year skid and have begun to rise, and in some locations, rise rapidly. Inventory has plunged as fence sitting buyers and anxious investors have snapped up what was available and an air of desperation colors conversations with buyers who probably should have gotten into the market a year ago and who now find selection limited, prices rising and interest rate fears on the horizon.

Congratulations! We’re in a Seller’s Market!

If you are with a real estate company with a competitive advantage in the listing arena (like, say, Help-U-Sell, where low set fee pricing draws sellers like a magnet), this is your moment! As your ordinary competitors scramble to find anything to show their backlog of buyers, you can put more and more properties on the market, properties that will sell and probably sell fast.

But here’s a problem: Recent history is littered with the debris of Short Sales and Foreclosures that sold well below current levels. The comps in your area really don’t reflect current values and your appraisers are, frankly, gun-shy about rising values. They are conservative and unwilling to risk overstating value.

So, your new listing really is worth, say, $325,000, and you have buyer who wants to pay $325,000 . . . but all the comps, some as recent as 4 months ago show much lower values. There’s a good chance the place will not appraise for the $325,000 sale price. What do you do?

Go ahead and list it. Use value-range pricing, like: $320,000 – $335,000 (this sets up a bidding mentality among potential buyers). State in the listing that all offers will be considered on a specific date in the future – say 2 weeks out. Collect offers and on the specified date, review them with the Seller. Counter any that seem promising, removing the appraisal contingency. What you’re essentially saying is: if the house doesn’t appraise for the value of the contract, the buyer agrees to make up the difference in cash. Of course, cash buyers will rise to the top of the stack, but they might not always represent the best option for the seller.

Consider this hypothetical example:

Seller A has a 3br, 2ba 1600 sq. ft. ranch that truly is worth $275,000. Unfortunately, the only comps close by are short sales and foreclosures with values between $240,000 and $260,000. You put the home on the market with value-range pricing of: $265,000 – $280,000, with all offers being reviewed 2 weeks hence.

Buyer B is one of several who submit offers. They have $75,000 cash from the sale of their previous home and want to put 20% down on the new home. They offer $277,000. One of the other bids looks pretty good and is for $279,000, so you counter all of the offers at $279,000 and remove the appraisal contingency.

Even if the appraisal comes in at, say, $270,000, Buyer B can get a loan based on that amount, putting 20% down ($54,000), make up the $9,000 deficit with cash and still have $12,000 left over from the $75,000 they had to start. They really want the house, so they agree to the terms and you have a sale.

NOW: it’s important to remember that different loan products behave differently and have different requirements. Also, local rules and custom vary. So this strategy may not be useful in all situations. Before you proceed, talk with your best lenders and real estate attorneys. Disclaimer, disclaimer, disclaimer. But do check it out. I can tell you that in my own inventory starved Southern California market, this strategy is being employed effectively today.

What Percentage Do Real Estate Agents Charge?

I check my stats and other metrics for The Set Fee Blog fairly regularly. It helps me to know what’s drawing visitors and what’s not. It’s also helpful to see what search strings people are using to find me on the web.

Today, I had the following as a search string:

“What Percentage Do Real Estate Agents Charge?”

Ok, so it’s not that unusual. In fact I’ve seen it in the results for this blog before. But today it just jarred me:

What a sad, stupid and unfortunate question!

Seventy plus years of REALTOR double-talk has trained the public to expect to pay a percentage of the sale price of their house to an agent when it sells . . . and that makes no sense whatsoever.

What does a percentage of you home’s value have to do with getting it sold? Nothing!

Think about it:

Here you are in your $350,000 house. Thankfully, you are not upside down. You have roughly $60,000 in equity. So you decide to sell, and list with ABC Realty**, who charges you (and every seller with whom they work) 6%*. When your house sells (for full price), that’s a commission of $21,000!

I’ll give you a moment to catch your breath . . . before I point out that that may be 6% of the sales price, but it’s 35% of your equity!

Meanwhile, your neighbor down the street also wants to sell, but his home is smaller. It’s only worth $250,000. He also lists with ABC and agrees to pay their 6% Commission. When the house sells for full price, the homeowner is going to pay $15,000 — still high, but not nearly as high as your $21,000 commission.

Now, here’s the question of the day: What did YOU get for the extra $6,000 you paid to sell your house through ABC?

More Advertising?

More Open Houses?

A better Sign?

Oh, maybe your agent worked $6,000 harder! Yeah, right.

What you got for the extra $6,000 you paid is this:

Absolutely Nothing

In almost every case it takes no more time, effort, energy, money or marketing to sell a properly priced $350,000 house than it does a properly priced $250,000 house. There are some situations in some areas where a market niche, say, luxury homes, might take a little more time and might require additional or specialized marketing. But these situations are rare . . . and $6,000 extra dollars to sell your $350,000 house? That’s absurd.

It makes no sense today, made no sense yesterday, and will never make any sense at all.

Come on: you don’t pay your dentist a percentage of your net worth when you have a tooth filled, do you? Of course not! There’s no relationship between the two things! Just as there is no relationship between the percentage based commission you are paying your real estate firm and the effort it will take to market your home and process the sale.

Smart Brokers – by the way, ‘Smart’ is a synonym for ‘Help-U-Sell’– Smart Brokers charge a set fee. Everyone pretty much pays the same thing no matter what the sale price is. It’s logical. The Broker works very hard to determine his or her hard costs of carrying a listing, then adds a reasonable profit to it, and . . . that’s it: the Set Fee the office charges everyone.

Here’s a little bit of scripting I actually heard in a REALTOR seminar some years ago. It’s what an agent is supposed to say when a potential seller is shocked by the high percentage based commission.

“I know it seems like a lot, Mr. & Mrs. Seller, but think about it for a moment. We’re getting 6%, yes, that’s true; but YOU’RE getting 94%! I think you’ll agree our commission is actually a bargain!”

I hope next time you need to sell, you’ll do the right thing and call a Help-U-Sell set fee broker. You’ll save a bundle (the set fee is usually thousands of dollars less than whatever percentage based commission you’re being quoted). And you’ll have the satisfaction of knowing that, finally, for the first time in your real estate life, you haven’t been taken to the cleaners!

*Commissions, whether set fee or percentage based, are always negotiable. They are not set by law or REALTOR rule. They are set individually by office Brokers. Price fixing occurs when different Brokers get together and agree to charge the same thing. That’s highly illegal. Different Help-U-Sell offices charge different Set Fees, because the carrying costs of marketing a listing vary from market to market, as do the number of days it takes a properly priced listing to sell.

**The “ÄBC Realty” referred to in this blog is fictitious and is used only for illustrative purposes. Any resemblance between it and any other “ABC Realty”, is purely coincidental.

Mega-Wow Marketing

If you haven’t seen them yet, Mike Paholke and the folks at Excel Print/Mail have a couple of great new marketing products. First are standard sized post cards Excel is calling ‘Rounds.’ I have called them ‘Arounds,’but it’s the same idea: When a new listing comes on the market (listed by some other office) in your target market, you quickly mail your marketing message to the neighbors. ‘Rounds work because when a new listing comes on the market or a new Sold sign appears, people tend to be more open to receiving real estate related messages. Since your message is the best one in existence (sell fast, save thousands), you have a high probability of achieving good results. Excel will fully customize the cards, print them and mail them to whatever radius you specify around a property. The cost is (get this) 25 Cents a card.

When you go to the Excel website you’ll notice upgrades to their card editor. Now there is GREAT flexibility in designing your marketing pieces. Every box, every photo, every bit of text can be edited. It’s great!

The other new product is called the Office Co-Op. It’s an 8.5″x 11″, two sided, card stock mailer. Again it’s fully customizable, but for me, the best content would be to emulate the old ETM: pictures and descriptions of homes for sale, sold and saves, testimonials and an Easy Way. Excel will print, bundle in lots of 200 and mail them for you for 27 Cents apiece! Now that’s a special price only good through February 27, so don’t drag your feet.

You can see these great pieces at Excel’s Website: www.husmailnow.com. Go there, create an account and get busy.

A special note to those of you who may have abandoned the idea of geographical target markets during the downturn: that may have been a good idea at the time, but you are going to drive yourself into inefficiency and non-productivity (not to mention grey hair) if you continue. These new products present a great opportunity to return to the basics you know work. Do your Market Analysis (McCoy will be happy to help you – he has so much fee time!) and then spend a little coin on building your business. You can dominate your target market by year’s end if you get started today.

Handicapping Your Career

Yesterday I visited the Museo de Filatelia en Oaxaca. If you take it by name only, it is a postage stamp museum. But that’s only part of it. It is an amazing facility, housing stamps and much more, in an 18th century building that has been remade contemporary on the inside. Remarkable!

What captivated me most were the actual letters Frida Kahlo wrote to her doctor. They were much more than doctor/patient: they had an intimate relationship, and often these are love letters. One 13 page+ missive presents Frida’s anguished questioning the news that her leg needed to be amputated. It was.

There are also a number of photos of the artist: using a device that enabled her to paint in bed as she lay in traction, the body cast she wore for awhile and painted in her iconic style, the mesmerizing portrait with those eyebrows and that little touch of a moustache . . . and make no mistake: she was a beautiful woman.

While she only produced about 200 paintings, they represent some of the most powerful and influential images in 20th Century art. In Mexico she is almost a Saint. In the Mercados, whole tiendas are set up to sell items with just her image or those of her paintings on them. It is rare that a tourist escapes without buying something Frida.

Here is a woman who suffered a horrendous accident as a girl, whose body was nearly destroyed. Her life was filled with pain and long spells where she was confined to bed, in traction or a cast of some kind. She lived only to age 47. But despite the pain, she produced.

There are similar examples in almost every field, every location: people overcoming remarkable circumstances to attain their full potential. I am remembering the Will Smith movie, ‘The Pursuit of Happyness.’ And Oscar Pistorius, the South African Double amputee runner. Autistic Temple Grandin, who has a Phd in animal science and is one of the foremost animal behaviorists on the planet. Stephen Hawking.

Almost all of us have handicaps to overcome in almost every aspect of life. And maybe that’s what life’s about: overcoming the handicaps that keep us from our full potential.

My question today is: What are your real estate handicaps and what are you doing to overcome them?

Are you stuck in a cycle of bad thinking?

  • Do you believe that 2005-2006 (the good old days) were normal and, when they return, you will once again be successful?
  • Do you believe that the problem is the market and not you?
  • Do you believe that your 75% split somehow makes up for the fact that you did only 8 transactions last year?
  • Do you think that it’s just too hard today and like Scarlett O’Hara, you’ll think about it tomorrow?

    • Are you mired in a self-created universe of scarcity?

  • Are you unwilling to expend the resources it would take to get the help you’d need to get to the next level?
  • Are you NOT marketing because you don’t have the cash?
  • Are you doggedly pursuing D level clients because they are the only clients you have?

    • Are you trying to pound your old skills into a new Universe (rather than pound new skills into you)?

  • Are you intimidated by new technology and unwilling to invest the time and effort to achieve a comfort level?
  • Are you still using the schtick you learned in that seminar 7 years ago, the script that sounded so good at the time but that hasn’t really produced for you?
  • Are you not (calling FSBOS, door knocking, doing a thorough market analysis, cold calling, etc.) because they just don’t work?

    • I could go on and on, but you get the picture. What’s holding you back? And what are you going to do about it? Frida was challenged by the fact that she had to be in traction or a cast for a long period of time. Her attitude was not: Ï am incapacitated, therefore I cannot paint. It was: I must paint, therefore I will design a tool that enables me to paint while in bed.

    The question really boils down to this:

    What do you want your life to be about? Your handicap or how you overcame it? Stricken with Parkinson’s Disease, Michael J. Fox could have stepped out of the spotlight and quietly waited for the inevitable, but he didn’t. Bill Clinton could have let the Monica Lewinsky scandal drive him into isolation and end his career as a Statesman, but he didn’t. (It really doesn’t matter what you think of Clinton or the scandal; the point is he didn’t let that become the story of his life. Neither did Richard Nixon after his famous, ‘You won’t have Nixon to kick around any more,’statement.)

    If you’re not finding a way around the obstacles that are holding you back, you are making a decision. It’s a decision to make the story of your life a Greek Tragedy about a flaw you could never overcome. Why not make it about how you became successful despite the challenges you encountered along the way.

    Frida Kahlo painting in bed

    Postscript: 2/14/2013
    Imagine my surprise, two days after I wrote this piece, when I opened my news channel and saw this: Pistorius Accused of Murder So much for heroes, I guess. I wonder how he’ll rise above this . . .

    Three Things To Remember On Your Next Listing Consultation

    (Note to self)

    1. Show up. That means come sharp, prepared, and ready to help these people make a good Decision (even if that decision doesn’t involve you getting paid). You are focused on them, not distracted by your own trials and tribulations, ready to bring the great wealth of knowledge you posses to bear on their project.

    2. Pay attention. Listen; really listen. Count your own punctuation: if at least 40% of your sentences don’t end in question marks . . .well, you are probably just doing a dog and pony show, aping some silly script you learned in a seminar. That’s not consulting. Listen to what they say, ask a follow-up question, and listen again.

    3. Tell the truth. Once you truly understand their situation and their objectives, present the options as you see them. If the house is not saleable, tell them. Then tell them what would make it viable. If they want to overprice, explore it first: why? and based on what? The answer might surprise you. Then tell them everything you know about overpriced listings. Bring out your stats and graphs. But stay focused on them: It’s about them making a good decision about price, not about you getting a listing you can turn quickly.

    (In my business life , at least 6 people have taken credit for those 3 rules. I hate to say this, but I think they may have originated with NLP (Ewwwww). No Matter: The Big Three have been very helpful to me, in real estate, and in life.)

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