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Archive for the ‘Selling’ Category

Rob Hahn has written an extremely thought provoking piece on the role that broker commissions play in the pricing of real estate. It isn’t what I originally thought when I read the title- I was expecting a “commission is just a markup” but it wasn’t about that at all. It did get me to wonder aloud, however, if there is a seller out there that would, in exchange for no commission, retain a broker and then just pay billable hours until the house sold.

I am in the field. Rob’s article is eye opening. If I were to charge $X per hour for my services, would the seller have the house sit out there speculating on a high price? Or would we skip months of messy rooms, denied showing requests, subjective speculation pricing and get serious? I think if they paid billable hours, the answer would be the latter.

Essentially, the commission I charge is categorized under the risk being proportional to the reward. Low risk, low reward. High risk, high reward. Which is why the broker fee line item in a transaction I broker is among the larger numbers. In forgoing the commission for billable hours, the seller essentially shares the risk. If the house sells fast, there is a huge savings. If it does not sell quickly, the seller could pay as much or more. Facing that reality, they would be far more likely to be proactive participants, keep the house clean, price realistically and accept all showings.

Less than motivated sellers often figure that they lose nothing if the broker fails to sell the home because commission is only paid at a closing (they actually do pay a hefty price in the form of a stale listing, but that is for another post). That explains overpriced listings, denied appointments and a host of other things that drive Realtors batty.

If the seller shared the risk and traded commission for billable hours, overhead would plunge- less time on market, fewer hours devoted to pushing overpriced listings, far smaller marketing budgets, and a more streamlined process. The only caveat here is that you couldn’t go half and half with some listings on commission and others not, because you’d have the worst of both worlds- the commissioned listings would not sell and the hourly deals would have their profit eaten by the overhead of the stale stuff.

Will sellers share the risk? Or, more likely, as much as they bristle at the line item of the commission, do they know it really is the price of they pay to have brokers roll the dice the way we do now? I believe in the power of market forces. An organically better idea would spread like wildfire if it truly had merit. Billable hours, while a great theory, will never work so long as the vast majority of sellers would see trading the commission for higher personal accountability as out of their comfort level.

 

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Every first of the month Ronnie, our administrative assistant, arrives at the office and begins the daunting task of addressing letters to several hundred homeowners whose listing expired at the end of the previous month. One of the good people who came off the market on November 30th called me and we met just this evening to see how I could help them sell. The details of why homes do not sell are not unfamiliar to me; price is certainly a big reason, but there are often other fatal mistakes the prior agent made that punctuate the home’s failure to sell. In this case, the home’s MLS data indicated as the size of the yard as “0 acres.” In other words, anyone who put the yard size in their search criteria would not find the house. Not good.

In discussing the options facing the home owners and what could be done to get the house sold, I was impressed with one of the seller’s concerns about the feelings of their prior agent. They didn’t get the job done, and they didn’t have my record in sales, but all the same she felt bad about letting them go after they tried so hard and were so nice.

I have to say, I wish more people cared about my feelings the way she cared for theirs. This is a woman with a good heart. I told her that this is business, not personal, but she was still kind of bummed about her old agent.

I wish there were more people like her. We spoke about it more, and the thing she acknowledged in our discussion was that it doesn’t take a cold and calculating person to make a smart business decision. You can still be a good person and do what is right in a business sense without being mercenary. Being good to people is important. That does not mean, however, that you subordinate your financial health and well being to appearing nice. If the right thing for her is to get a new, better broker, she owes it to herself to do so.

Selling a home is serious business. And it is not a vehicle for relationships. It is something some people do but once in their lives, and they owe it to themselves to have the best representation, even if their prior agents were cordial and nice. Huge money is involved, and there are no do-overs once a closing is over. I would say that all people should have a good agent, but good people especially deserve a good agent. I know of no other Westchester agent that sells more homes that previously expired with other brokers than myself. It is what we do, what we excel at, and how we grow the company in these rough times. When we do get started with this particular family, we’ll get them the results they very richly deserve.

 

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With a median home price hovering near $700,000, even a modest price reduction on a Westchester County home can be tens of thousands of dollars. I have to approach a reduction with the diplomacy of a funeral director but be as convincing as a physician imploring his patient to quit smoking.

No one could predict after the stimulus where prices would go, but it is clear that what few buyers we have are skimming the absolute cream off the top and leaving the rest. They even fight over the good stuff, creating an illusion of urgency in isolated precincts. Overall, sadly, median home price is an illusion; it is a metric of the value of those few, unique sought after homes that people watch even when they weren’t on sale. They needed nothing. They were priced to the bone for their category.

Money lost in a price reduction was never your money. It was an illusion. It didn’t exist. I find myself, more and more, explaining to mournful sellers that the $25,000 that went down the drain when they went from $624,900 to $599,900 was a paramour that never loved them. She never cared, Johnny. The baby wasn’t yours. She wanted to close the Copa and make sure you never worked in this town again. For God’s sake man pull yourself together, it was all an illusion.

You know, that sort of thing they cover day 2 in licensing class. Or not.

In 2005, 852 single family homes sold in Westchester County with a median price of $732,000.

In 2010, 424 single family homes sold in Westchester County with a median price of $715,000. 428 people got nothing.

The pool of able buyers has shrunken by an absurd amount. Millions of prospects have vanished due to either their own disasters or the new draconian lender underwriting guidelines. What few buyers remain are skeptical, drunk with options, terrified of making a mistake, have no confidence in the future, and are heavily invested in the group think notion that they must get a steal or they will be exposed to grave financial risk. You know, all those happy things perspective home buyers have always focused on.

Here’s the reality: If you are multiple listed, staged well, tidy, and have been on the market for 60 or 90 days with no offers or few lookers, the market has spoken; you need to reduce your price. You aren’t the McClotchkees down at the end of the cul de sac who sold in the first 30 days. They had something, or ten things, you don’t have. And the only adjustment you can make to the buying public is price. A feature ad won’t do it. A newspaper display ad won’t get it done. Busting your agent’s chops to chase down Gladys Pflarphlingston for feedback on a showing 2 weeks ago won’t do it. If you are on the MLS, I can show you how many people have clicked on you online and clicked off every week since we listed. You aren’t a secret. Quite the opposite: with public searches, serious prospects can tell me their opinion of your toothpaste.

If we are in showing condition with my marketing and you aren’t sold, the faster we address price the faster we’ll sell. The money you are asking for is not on deposit in the bank of buyer opinion.

Originally posted at: J. Philip’s Westchester Real Estate Blog: The Money You “Lost” in Your Price Reduction Wasn’t Real

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I was quoted three times in an article on the 2010 real estate market discussing how sellers have adjusted to falling property values.

“Look at it like the stages of grief,” says J. Philip Faranda, the broker-owner of J. Phillip Real Estate in Westchester County, N.Y. “In 2006 and 2007, it was denial; in 2008 and 2009, it was mourning; in 2010, it’s acceptance.”

Sellers slow to change

It’s not surprising that it would take some time for sellers to come to terms with the market’s rapid and drastic changes. It’s a learning process — a “price-discovery process,” in economic terms.

Sellers frequently concede they’re harboring unrealistic expectations only after having tried and failed to sell their home. (See “Are you the reason your home won’t sell?“) Or they’ve watched other sellers reduce prices repeatedly to get buyers to even look at their homes, then seen those sellers relinquish additional ground when negotiating.

Pride often prevents sellers from seeing foreclosures as the new competition.

“If a guy with a half-million-dollar house still thinks it’s worth $600,000, I can show him two or three foreclosures that are listed for $400,000 and $450,000 and ask him how he thinks I’m going to hypnotize people into buying his house for $600,000,” Faranda says.

The Internet has helped change expectations. A seller traditionally blames his agent when his home isn’t selling. But today, Multiple Listing Service and syndication agreements let sellers list homes for sale on a dozen or more Web sites (take a look around your neighborhood), so “all the old excuses of ‘you’re not advertising my house’ have gone away,” Faranda says.

The reporter told me that she found me on Active Rain, which is nice to hear. I post quite a bit on that blog. The link is in the sidebar. I also got a nice hate email, from some anonymous guy who told me what a bad person I am because I helped cause the economy to fail. His presumptiveness is secondary; I acknowledge his frustration.

My main point in the interview with the reporter was that, once listed, a home becomes virtually ubiquitous, and, therefore, the main reason any home doesn’t sell is price.

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Marie Graham, in addition to being a friend, is the founder of the Refreshed Home. Her specialties include interior design and killer staging for getting your home sold. On Saturday, January 30th at 10 am, she’ll be putting on a workshop on how to stage a home for sale optimally, and I will be in attendance. I am encouraging my seller clients to check it out. The event will be in the conference room of the Ossining Public Library at 53 Croton Ave.

What sellers need to understand is that buyers in this market are very choosy and the competition for their attention is brutal. A home that is not attractive or set up to it’s full potential can have it’s chances hurt for selling in a timely fashion for the most the market can bear. People buy with their eyes in many cases.

If you are for sale or are considering it, you should make this event.

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Generally, not up. There may be pockets of improvement, as all markets are local, but we aren’t on solid ground. We haven’t grown out of the recession yet, and there are questions as to whether the gigantic spending the administration is doing will sabotage or foster prosperity. Les Christie of CNN/Money rightly observes that rising rates, foreclosures and the eventual end of the tax credit will continue to suppress prices. I agree.

There are no arguments to the contrary. Money markets are still a shambles, the public is either unemployed or freaked out, and inventory is being pelted daily with cheap REOs. While New York is not as bad as Las Vegas or South Florida, we aren’t immune either- I see more short sales and distress now than 18 months ago. It has to cycle out before we’ll see sustainable, general improvement.

Buyers are in the driver’s seat.

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Every year, I literally sell dozens of homes that expired unsold with a previous broker. Perhaps no other broker/agent in Westchester or the Hudson Valley sells as many expired listings as our team. We didn’t “give the homes away.” Oftentimes, when a home does not sell there are other challenges than simply price.

  • The marketing could be sub par.
  • The online exposure could be low.
  • The photos could need improvement.
  • The agent’s follow up skills and “hustle” could be lacking.

It is a jungle out there. Your home is competing with the highest inventory of homes ever, bank-owned foreclosures, short sales, and distress situations where they need to sell. It is a beauty contest and a price war. Our team averages a sale a week by making sure our listings stand out from the crowd. Our marketing machine is nothing short of incredible, and the results are undeniable.

We do what other brokerages either cannot or will not do to sell more homes faster, for more money and with fewer headaches.

Did your last agent average a closing  per week?

If not, we should speak. Fill out the form below, or call 914-723-8900 anytime for fast answers.

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