HOME SELLERS: Motivate your buyers by motivating their Realtors

Like many of my posts, I'm pretty certain that this will annoy a few agents.  No disrespect or judgement intended, but it is what it is; the truth as I see it. I write what I practice, and I practice what allows me to sleep peacefully, knowing that I've given my clients the very best representation possible. To say that sales commission doesn't motivate sales agents is naive.  Sales commissions were designed to motivate sales people.  It's that simple.

OK, so who truly decides which home a prospective home buyer is going to buy?  This seems like a pretty cut and dry question, but the answer might surprise you.

You may think it's the bread winner.  "I make the bucks! I make the call!" You may say "It's the Mrs., of course.  Happy wife...happy life!"  Perhaps a unique circumstance dictates which home a buyer is going to purchase.  You'd be surprised just how often those answer are just not the case.  More often than not, your buyers' real estate agent is the most influential person involved in the home buying process.  They are, after all, the resident expert with the experience and expertise to confidently guide home buyers toward the right home and away from the probable money-pit.


Here's a bit of background on sales commissions as they apply to real estate transactions.  In the areas I have served over the past 9 years, which include most are of the state of California, 6% is the standard sales commission paid buy the sellers at the close of escrow.  This commission is typically split equally between the cooperating brokers, with 3% going to each side of the transaction.  Listing Agents and Buyer's Agents both have their fair share of responsibilities, tasks, hurdles, and headaches that they encounter throughout the days, weeks, and months.  Some transactions are simple.  Some are complex.  It's my belief that, at the end of the day, it all comes out in the wash.  "But I worked so hard to get this one to close!  I deserve more!"  Yea?   No!  Maybe you made bad choices when screening your client.  Maybe the property you wrote on was a money pit.  Maybe you had a cash buyer with low expectations who's buying everything in site and all those transactions are simple!  It all evens out in the end.

So looking at the question posed at the beginning of this blog, what does it matter who the biggest influence is in the home buying process?  Because, and here comes the part that can make folks uncomfortable, it's very easy to see how (with a Realtor's personal income as a direct function of the sales price of the house and percentage commission to be received at closed) agents might encourage their buyers to write on one home over another, based solely on the commission being paid by the seller.

For example: Of the 57 homes sold in Redlands, California in November of 2015, 22 had the buyer's agents' commission at 3%.  The rest were 2.5% or lower, with a few as low as 1%.

As someone looking to sell your home, don't you want the market (meaning willing and able buyers and their agents) to be highly motivated to see your house as often as possible, with as much enthusiasm as possible?

Here's a guiding question.  If an agent is looking at what we call "Like" or similar properties; one is paying her 2% and another paying her 3%, which one is she likely to encourage her buyer to write an offer on?  The houses are truly similar and the only real difference is the commission she'll earn.  The truth is that the property that's offering only 2% might not be shown at all be this agent. As a home seller, if the commission you pay is more heavily weighted toward your listing agent, your home might not be seen by the entire market.  It's true.  "But aren't agents supposed to have their clients best interest in mind?" Absolutely! This agent might not feel that she is behaving unethically.  To her this home might be redundant. Now many agents will show both "like" properties. Some, however, won't.  After all, although sometimes agents are not treated as such, they are actually human beings.  After all, if you could perform identical tasks (a purchase transaction) and one task pays 50% more...which one would you pick?  On a $250,000 transaction, this would be the difference between $5,000 and $7,500 in gross commission earned.

There are exceptions to this rule, as there are to most.  But it's a safe bet that a relevant percentage of homes closing with a cooperating broker commission split that is out of balance (higher on the listing agent's side) likely closed at a price lower than they might have if the buyer's agents had been sufficiently (or equally) motivated. That was a mouthful. In short.  Lower commission for the buyer's agent means fewer showings...means less demand... means lower sales price...mean you, the home seller, net less proceeds; cash.

If you're meeting with a Realtor to discuss a possible listing, please discuss this topic. Don't be shy.  Don't let a real estate agent try to convince you that he or she needs $X to successfully market your property.  Unless you're selling true luxury real estate, that's just not the case.  If you are selling luxury real estate, the hefty commission you're paying will surely cover your agent's marketing efforts anyway.  So ask the question, "What percentage of the sales commission that we are paying your firm goes toward the incentive for our buyers' Realtor?" If your Realtor addresses this topic in a manner that leaves you with a comfortable understanding...game on! You've got a winner. If they hem and haw around the issue, keep pressing on until you have an answer that satisfies you.  If they give you a load of crap about advertising budgets...fire them before their hired.

#RESN

Should I buy a new home or a previously owned home?

Q: Should I Buy a New Home, or a Previously Owned Home?

A: This question's an easy one to answer:  It depends!  See!  Pretty easy!  

Ok, all kidding aside, my wife and I have owned 3 homes over the past 12 years. Two of those were new construction. That shows my personal taste. However, there's always two sides to the story, right?  I mean, you can't buy a new, 1907 Victorian home in Redlands, and you'd be hard pressed to find a brand new home in a with 90 year old oak trees. So what are the benefits of new construction, beyond that obvious ‘new home smell!’ 

Here is a list of reasons that might compel you to buy a brand new home as opposed to one that is pre-owned. 

• Choices - With little to no change in sales price, new home builders often offer choices as to colors, styles, and features of your home. No, these aren't “upgrades”, but they're still choices. Carpet color, tile, vinyl, counters, cabinets, etc.  You'll often have 3 or 4 standard choices in each category to choose from at no extra cost.   I don’t know many home owners who’d give you that flexibility.
• Negotiating Tools - Builders often use their own lenders. This gives you several opportunities to negotiate the price of the home, the terms of the loan, closing cost credits, and/or design center credits.
• Newly Finished Interiors - In my family, we had little-ones crawling and rolling around on the floors. It brought us peace of mind knowing that not just the carpet was new (and in a color we loved)...but the carpet pads and sub-flooring was new as well.  No smokers, no pets, no allergies, and no spills that are going to resurface 4 months down the road.
• Less Competition - Typically you're not going to compete with several other buyers for the same house like you might with a previously owned home. You'll likely have the choice of many new homes and models, or even the same floor plan on different lots.
• New Infrastructure - When you buy a 35 year old home, you've got 35 year old...everything else...attached.  Infrastructure: In new home communities, you've typically get new sewers, streets, lights, and more.
• No Home Inspections - Everything is new!  What's to inspect?  With pre-owned homes, you've got those anxious days between the time you write an offer and the time you receive your pest and home inspections.  New home construction likely allows you to skip this step altogether.
• No Appraisal Concerns - Yes, your new home must appraise in order for a lender to fund, even on new construction.  That said, it behooves the builder to price their homes accordingly.  Have I seen new homes NOT appraise?  In those cases the builder simply reduced the purchase price to the appraised value.
• FHA and VA eligibility - Virtually all home builders will sell to FHA and VA buyers!  These buyers are typically well qualified and committed to the process.
• No Additional Home Warranty Needed – Why not? It comes with one!  Wait...it comes with several: Foundation, Roof, Finish, Appliances...everything.
• Builders reputation – When you buy new construction, you've got a builder's reputation at stake, and they'll stand behind their product.  With pre-owned homes...the sellers’ have likely moved on, and you'll never see or hear from them again.

I could easily create a list that's just as long and just as compelling advocating the purchase of pre-owned homes.  In fact, I'm sure I will.  However, at this point in my personal life, and with a young family in tow, I feel very peaceful living in a newly constructed home and I'm always at peace when I help a client negotiate a deal with a home builder.