Thomas Nogales Financial
List Your Home on MLS and Don't Pay more than a 2.5% Commission
You’ve made the decision to sell your house. There are three ways to sell it.
FSBO is fine if you have lots of time and know the market. Common sense suggests it’s often best to pay a little more to get better value. What you really want is the best price for your home, a timely sale, and no problems.
How the Traditional Real Estate Business Works
The usual brokered real estate transaction charges the home seller a 6% commission to list and sell a house. The commission is split 50/50 between the listing and selling brokers. In many locales the split is 60/40 so the selling broker will only get 2.4%. Agents call you directly for the appointment and only call the listing broker if there’s a question about the property.
When an offer is written, the buyer’s agent contacts the sellers agent who then discusses the offer with the owner. Once the seller accepts, the transaction closing process starts in motion.
As you can see, the listing agent signs up the seller and presents the offers. That’s about it and for that they get 3-3.5% of the sales price of your house. Doesn’t that sound a bit excessive?
The New Way to Sell Your Home
The Internet and modern technology have changed how most homes are sold. Potential buyers obtain information about homes over the Internet or via fax/email from their broker who’s electronically connected. Gone are the days when agents lugged around huge binders of listings and manned phones in a fixed office location. Nobody does business like that anymore. The Internet has sped up transactions and provides big cost savings. Many brokers though still try to get owners to pay the old, high, commission rates. The government thinks commission costs are too high. The Justice Department has filed an antitrust lawsuit against the National Association of Realtors over the group's Internet listing policy, saying it restricts competition from Web-based brokers.
There are now several national services and local independent brokerages that will list your house for a flat fee. For example, www.flatfeelisting.com has a network of brokers all over the country. You fill out a form and your property is listed on MLS for under $400. You can find other firms by doing a Google Internet search on the keywords “flat fee listing” and your city name.
What’s the downside to using a flat fee broker? Well, you have to do just a little extra work like set the offering price and fill out the listing information form. You’ll take the appointment calls from brokers and answer questions directly. For most sellers, $5,000 in savings is worth it.
There is absolutely no reason to pay 5-7% in commissions to sell your house.
Good market or bad, a high commission has nothing to do with the price your house sells for. The important thing is to be listed on your local MLS so buyers are aware of your property. You can get onto MLS by paying a flat fee for the listing service rather than the traditional percent of the sales price. You only pay a fair and competitive commission to the actual broker who sells your house. By eliminating the 3% listing broker fee and paying the selling broker 2-2.5%, you can easily save over $5000 on the average house. If your house is attractively priced, buyers will be eager to see it and brokers will be eager to show it.
Why Flat Fee Listings are the Way to Go
There are much cheaper ways to learn the asking price for your house and get negotiation advice versus paying a listing agent a 3% fee. That high fee doesn’t make sense for most sellers. The only reasons to use a listing agent are for complex commercial properties, out-of-state sellers, and similar difficult situations. Likewise, if you don’t care about saving money or are too busy to answer the phone, then list your house with a broker, pay their fee, and don’t regret it for a second. Otherwise, eliminate the middle-man and save the money.
Ask yourself, what’s the worst that can happen. You’ll throw in the towel, cancel the listing, and sign with a full service real estate company. You’re out $400 – big deal.
Although you may initially be concerned about handling some aspects of the home sale transaction, once you get involved you’ll quickly gain confidence in yourself.
Why Flat Fee Listings are Safe
Real estate sales are regulated by the individual States across the entire nation. Agents must take an exam to prove minimum competency and there are strict laws concerning the transaction process, fair housing laws, document filing, and general ethics. Most agents work as a sales representative for a broker who assumes some responsibility for the agent’s actions. Other participants in the business are lenders, appraisers, home inspectors, title companies, and county government. Each of these is regulated by the State, their industry, or by applicable federal laws. The real estate industry is probably most regulated consumer business in America.
Real estate agents generally represent the seller even if they’re working with the buyer. They are required by law to consider the seller’s best interests during negotiations. In some states a dual agency is permitted where the agent fairly represents both buyer and seller. Some states permit an agent to act as a buyer’s broker. The nature of the agency representation must be disclosed to the seller. Under no circumstances may the agent showing your home misrepresent the property, the buyer’s financial circumstances, or lie to unfairly induce either party to sign a contract.
The main dangers to the seller in not using a full service broker are pricing the house wrong and not professionally handling the negotiation process. There are effective ways to avoid these potential problems. Let’s first review the typical real estate transaction.
The Steps of a Real Estate Transaction:
1. Value of the property is determined by a real estate agent, appraiser, or the owner. Home is listed in MLS: (5-7% commission listing contract)
2. Agents show home to customers
3. Listing Agent presents offers to owner and helps negotiate contract terms
4. Accepted offer.
5. Appraiser confirms value of the property
6. Home Inspector verifies condition of the property
7. Lender commits to make the loan
8. Title company insures the property title
9. Lender and Title Company handle financial issues of the closing for buyer and seller.
10. Buyer and Seller sign closing documents. Title company files documents with the County
The job of the listing broker is to provide the seller with an estimate of the property’s value and advise the seller on presented offers. That entails only steps 1 and 3 from our list of 10 action items. The other work is handled by firms and paid for by the buyer or seller according to traditions in that community.
This listing broker’s advice includes an opinion on the contract amount, contract terms, and buyer’s capability to complete the transaction. Buyers must make their own decision on what constitutes a fair price but clauses in the contract will always protect the buyer’s lender with various inspections and appraisals.
How to get a Listing Agents Services for Much Less
The listing agent does provide value for the seller – no doubt about it. But, the seller can list the house in MLS and obtain the listing agent’s services for a much lower price. This process is called disintermediation or cutting out the middle-man.
How to Set the Value for the Property:
Option one is excellent but could cost $300-$500. Get the appraisers opinion on a fair listing price range. Option two is excellent. It’s only ethical to give the listing to one of those agents if you choose not to sell the house yourself. Option three may be a poor choice if you don’t know the contract terms of other sales, the features, or problems of those properties. An excellent free service is available at www.zillow.com. Enter your address to view recent neighborhood sales and get a rough estimate of value. This works better in urban areas than rural. But, you can even choose your own comparable sales to refine the valuation.
How to Negotiate a Good Contract
There are ways to protect yourself in negotiations.
When you don’t have a listing agent, the details of the sale contract will be explained to you by the buyer’s real estate agent. Most of the details are legal boilerplate. The details written in the blanks like price, occupancy terms, buyer's financing, and what’s included with the sale are what you must pay attention to. Here are your options for handling the contract:
Any of the three will work. Just ask questions of the agent presenting the offer and then take some time to think about it - if you need to. Don’t sign a contract if the offer states you have only a few hours to make a decision unless you’re sure of the deal. In a hot market, it’s not unusual for the buyer’s offer to severely limit a seller’s time frame for making a decision. If you need more time, make a counter offer on the time to accept – everything is negotiable. It’s your house, sell it on terms that make good and fair business sense. It’s perfectly acceptable to have a knowledgeable friend present when the offer is discussed with you.
Steps for a Successful Sale
Of course, you’ve spiffed the place up and rented a storage unit for all your clutter. Now, you’re ready.
Contact a flat fee listing broker. Don’t sign up with a service that doesn’t include MLS for a fixed fee. Brokers who only advertise in magazines, the classifieds, or among a limited number of agents won’t sell your house for the best price. You need MLS because it attracts all the brokers working with serious buyers.
Don’t believe that real estate brokers won’t deal with by-owner sellers. Not true. Most professionals do prefer dealing with knowledgeable peers but if you’re paying a good commission and are a reasonable person, they’re happy to work with you.
After the Contract is Signed
The buyer’s agent, the lender, and title company do almost all the work after the contract is signed. That includes finding a mortgage broker and title company. The title company handles all the escrow fees, ordering appraisals, inspections, and filing the legal documents. The seller simply needs to complete the documents supplied and provide access to the house for the post-sale inspections.
You can do it
Give it a try and save a lot of money.
Copyright 2005, Thomas Nogales Financial, LLC
Disclaimer:
TNF is not a registered investment advisor and nothing published by TNF should be considered personalized investment advice. Any investment recommendations made by TNF should be made only after consulting with your investment advisor and only after reviewing the prospectus or relevant financial statements of the company.