Sell a Home: Full Commission Brokerage

The third of a three part series exploring an owner’s options when they decide they want to sell their real estate, and yet another Quail Hill WTF listing.

124 LATTICE Irvine, CA 92603 kitchen

Irvine Home Address … 124 LATTICE Irvine, CA 92603
Resale Home Price …… $1,199,000

{book1}

Honey I know, I know, I know times are changing.
It’s time we all reach out for something new,
That means you too.
You say you want a leader,
But you can’t seem to make up your mind.
I think you better close it,
And let me guide you to the purple rain.

Purple rain, Purple rain
Purple rain, Purple rain

Purple Rain
— Prince

Sell a Home Series

Some people — many people — can benefit from having an agent as a
leader and guide them to a closing. Yesterday, we explored the
for-sale-by-owner option and today we are going to look at utilizing a full-commission broker.

Today is the third of three parts where I examine the
conditions, circumstances and options owners face when they want to
sell their homes:

Sell a Home: For Sale By Owner

Sell a Home: Cash Listing Services

Sell a Home: Conventional Brokerage Listing

{book2}

The pros of using a full-service brokerage

Once an owner has examined the alternatives available to them, for better or worse most end up choosing to have professional representation by a real estate agent. There are several advantages of using a full commission broker including:

  1. The tasks are handled by a trained professional
  2. The MLS presentation is also professional which captures the interest of buyers
  3. Conduct the negotiation in a way that maximizes revenue
  4. Manage to documents necessary to complete the transaction.

These advantages are possible from using an agent, but not a guarantee. As we have noticed on many occasions here at the IHB, agents are not always well-trained and professional in their MLS presentation. Many agents have weaknesses in key areas just as professionals in any occupation have their good and bad practitioners. Picking the good agents from the bad is part of the problem.

The cons of using a full-service brokerage

When an owner is considering going full service, they need to fully understand the drawbacks. There are five primary problems with taking the conventional approach:

  1. The full-service brokerage is expensive. It is a full 6% commission, a number large enough to prompt people to go FSBO.
  2. Many agents are not very good, as we have seen on many occasions.
  3. Realtors are not trusted and respected by buyers.
  4. It is difficult to reach buyers outside the MLS.
  5. It is difficult to pick an agent from the crowd.

I will explore these cons in more detail in following sections.

People do not trust realtors

The general public’s opinion of realtors is not good. IMO, one of the main reasons they are held is such low regard is their tendency toward dissembling and their manipulative sales techniques. In other words, they have earned the scorn they receive. If realtors change their ways, perhaps attitudes will change, but neither seems very likely.

Exposure off the MLS is key

All properties on the MLS are on equal footing for exposure to buyers, and many agents are capable of marketing a property on the MLS in a way that piques the interest of buyers. Some agents claim to be the best in this area, but such claims are subjective at best and spurious at worst. How would you measure such a thing? Mostly it is agent puff and sales nonsense. Property exposure outside the MLS listing is the tangible and identifiable feature that sets the best agents apart.

Print media has been the traditional method of reaching buyers. It doesn’t work very well. Besides the high cost, it only provides a marginal improvement over the MLS for individual property display. On the MLS, the property may be one in several thousand a buyer may or may not find, whereas in a glossy magazine of print ads — which has a limited circulation — the property may be one in a hundred; a little better, but not much. This is one of the reasons the print media is dying.

With the dawn of the internet, very few people use print media to find property. The National Association of Realtors concluded that 84% of buyers use the internet for their property search. When owners are selecting a full service broker, they want the one that dominates internet market both on and off the MLS.

Broker websites

Any listing agent will provide an owner with an exclusive listing on their website. Including the owner, the listing agent and the listing agent’s mother, maybe five people will see it. Nobody goes to a small-time neighborhood farming agent because their website delivers buyers eyeballs to the listing, and it is very unlikely this showcase treatment has any effect. With the death of traditional media and the limited success of realtor websites, the neighborhood farming agent is at a disadvantage.

Keep this in mind when interviewing agents; neighborhood farming agents are good at knowing owners and sellers since they spend so much time and effort farming certain neighborhoods; unfortunately, sellers are more interested whether or not an agent can find a future buyer, not whether or not the agent knows all the owners in the neighborhood. If you go with a local farming agent, you may not receive top-notch exposure off the MLS.

National real estate portals

Most broker websites, Ideal Home Brokers included, are set up as MLS portals where people can search the MLS for the exact property they are looking for. When a property is displayed on a real estate portal page, it is one of thousands or more available to view. Some of these real estate portals get copious internet traffic, but they all fail to deliver eyeballs to specific listings. Even when thousands go to these sites each day, it doesn’t give an owner much exposure because there are hundreds of thousands of properties competing for visitors attention.

In many ways, owners are no better off on the heavily trafficked real estate portal sites. Perhaps five people will see a showcased listing on a small realtor website, but the number is only marginally higher on the big portal sites due to the competition for attention. On all MLS portal sites, buyers will not be presented with an owner’s property; buyers must find it on their own.

What is the best solution?

There is no perfect solution to real estate sales challenges. Some people can be successful going FSBO, but most will not. It may look less expensive, but it generally results in a lower net because (1) it is hard to find the right buyer, and (2) it is even harder to motivate them. Discount listings reach many more buyers because the property is on the MLS, but it puts the burden of marketing and transaction management on the seller. Some can succeed in this scenario and save money, and others cannot. The full-service brokerage is the most expensive, but it reaches the most buyers in the most effective manner.

All agents have MLS access, and some of those have the competence to market a property well. Identifying and picking from this group is tough because there are few ways of knowing in advance the service you will receive; however, there is an objective and measurable feature owners can use to select a brokerage: reaching buyers outside the MLS through a strong internet presence is the key differentiating factor determining which brokerage will deliver buyers and which may not.

Selecting an agent is difficult

As we have seen here at the IHB, many agents are not competent, and it can be difficult to know which ones are good and which ones are not. There is often very little differentiating those that are competent. Given this truth, two trends emerge:

(1) over two-thirds of owners list their property with the first agent they meet, and
(2) many sellers are not satisfied with their agent’s performance.

Real estate sales is a personal service business, and finding an agent the seller likes and feels comfortable working with is about the best they can hope for — if this agent is competent, it is a bonus. There ought to be a better way.

The best solution for most sellers is to use a full-service brokerage that presents their property well on the MLS and provides superior internet exposure of the MLS.

I don’t know where sellers might find that, do you?

124 LATTICE Irvine, CA 92603 kitchen

Irvine Home Address … 124 LATTICE Irvine, CA 92603

Resale Home Price … $1,199,000

Income Requirement ……. $247,135
Downpayment Needed … $239,800
20% Down Conventional

Home Purchase Price … $1,013,500
Home Purchase Date …. 12/21/2004

Net Gain (Loss) ………. $113,560
Percent Change ………. 18.3%
Annual Appreciation … 3.4%

Mortgage Interest Rate ………. 4.96%
Monthly Mortgage Payment … $5,126
Monthly Cash Outlays ………… $6,730
Monthly Cost of Ownership … $4,880

Property Details for 124 LATTICE Irvine, CA 92603

Beds 3
Gourmet Kitchen Award
Baths 2 full 1 part baths
Size 2,460 sq ft
($487 / sq ft)
Lot Size 8,038 sq ft
Year Built 2004
Days on Market 5
Listing Updated 11/23/2009
MLS Number S597009
Property Type Single Family, Residential
Community Quail Hill
Tract Oliv

http://www.pwhitrow.com/blog/images/original/kirk-phaser.jpgSTUNNING
Olivos Plan 2 in upscale Quail Hill featuring three generous bedrooms PLUS LOFT (could be converted to bedroom #4), two & one-half baths & 2 car attached garage. Has curb appeal that only a super-sized, corner lot can deliver, including mature Olive trees, custom flagstone hardscape, Zen-like rear yard water feature, patio cover & much more. INTERIOR UPGRADES include elegant wide-plank distressed hardwood flooring, upgraded carpet, designer paint, integrated surround sound speaker system, custom media built-in, Plantation shutters,multiple ceiling fans & security system. GOURMET KITCHEN includes solid granite counters & sit-up island, custom mosaic stone backsplash, stainless steel appliances including premium built-in refrigerator & large walk-in dry-foods pantry. Enjoy resort-style amenities award-winning schools.

These owners were typical Irvine borrowers. When the purchased the property for $1,013,500 back in 2004, they used a $810,000 first mortgage, and a 203,500 downpayment. The refinanced in 2005 for more money — $864,000 plus they opened a $179,600 HELOC. There is no evidence they spent it, but why cash out $54,000 if you are not going to touch the HELOC?

Since they have increased their mortgage, they are entitled to sell the property for more and pay off the debt, aren’t they?

30 thoughts on “Sell a Home: Full Commission Brokerage

  1. Freetrader

    Well, another $1.1 million Irvine listing that looks like a long-term storage unit. And it has only 3 bedrooms? Oh, I see, Quail Hill is “upscale”, well, OK then. Who wouldn’t want that?

  2. cara

    Franklymls.com in the DC area and Frankly realty in general do something that might be useful. Not just comparative market analysis, but comparative realtor analysis. They do this for you as a buyer when you’re looking to bid on a particular house, but it also works for picking a “good” agent. Simply search the MLS sales records for sales with that agent as the LA. Make a chart of the last years sales with DOM, number of price drops, and percent of list that the seller netted.

    for example:
    franklymls.com sold Royce
    This gives both LA and SA sales, so you have to sift through that to decide on his fitness as a LA.

    Given that the right price is the key ingredient in selling quickly these days, this gives you a good idea how much to trust your agent on pricing the property.

    Also check out the agents other listings and see how they’re marketed. Compare them both online and in person. IMO, you want the pictures online to be just good enough to pique a buyers interest, and then when they walk in in person have the place look even better rather than the constant over-wide angle lenses such that the place is always disappointing in person. It’s being physically in a house that pulls at heart strings.

    Does the California MLS keep the sold data and store the pictures of sold listings, or do they hide that information?

    1. Geotpf

      That data is now available on Redfin, which, IMHO, is the best site for SoCal and the other areas they cover. I think they had to sue the local MLSes to provide access, though.

      1. cara

        Will Redfin let you search it by listing agent? Or would you need to download all of it into your own spreadsheet? Not many sellers are going to go through that bother…

        1. Geotpf

          It mentions who the listing agent is/was, but I don’t think it’s searchable by that. In any case, they are a (discount) broker too, so that might be bad for business.

  3. lowrydr310

    Here we go again, someone selling EXACTLY five years after they purchased. 5yr OPTION ARM resetting, time to pay principal which the buyer probably cannot afford.

    Many of these homes featured here are truly awesome homes, very big and nice looking. Now why are so many people selling these wonderful homes after only five years living there? Doesn’t anybody want to stay put?

    Of course we know the real reason is most likely that the ‘owners’ couldn’t afford anything but interest payments on these homes in the first place.

    As Alice Cooper said, “we’ve still got a long way to go!”

    1. LongTime Reader

      That is when housing will hit bottom when no one thinks that housing is a trade like a stock or commodity.

  4. AZDavidPhx

    Anyone up for making some 2010 predictions?

    I think the rest of the year will be quiet as they want us to be out shopping and feeling optimistic.

    I think we will then see some nice bank failures in early 2010 which will rattle the consumer and trigger another stock market decline.

    I also say that FDIC will be on bailout money by this time next year.

    Unemployment continues to rise but at slower pace. Government will again extend benefits. Government will pretend to care about job creation and blame banks for not lending.

    FHA to continue issuing subprime mortgages to speculators and will be bailed out by tax payers later on down the road in 2011 or 2012. Government will inflate away the losses.

    Obama wants the war over in 3 years. That should clearly tell you when the money spigot gets turned on and the government’s time frame to inflate away all of its debts. Make sure you are not holding dollars when that happens.

    1. whatever

      > That should clearly tell you when the money
      > spigot gets turned on and the government’s time
      > frame to inflate away all of its debts. Make
      > sure you are not holding dollars when that
      > happens.

      So be holding real estate. Your debt value gets inflated away, so you are better off. If others can’t buy and interet rates go up then maybe you don’t have CapEx gains, but your “rent” stays steady while non-owners rent goes up with inflation.

      I was “property free” a month ago and was about to increase my gold and TIPS holdings on my portfolio, but decided to buy real estate instead.

    2. Lee in Irvine

      Here’s someone I follow and respect:
      —————————-
      November 30, 2009

      Reckless Myopia

      John P. Hussman, Ph.D.

      In my estimation, there is still close to an 80% probability (Bayes’ Rule) that a second market plunge and economic downturn will unfold during the coming year. This is not certainty, but the evidence that we’ve observed in the equity market, labor market, and credit markets to-date is simply much more consistent with the recent advance being a component of a more drawn-out and painful deleveraging cycle. Meanwhile, valuations are clearly unfavorable here, and even under the “typical post-war recovery” scenario, we are observing an increasing number of internal divergences and non-confirmations in market action.

      As Gluskin Sheff chief economist David Rosenberg noted last week, “Even if the recession is over, the historical record shows that downturns induced by asset deflation and credit contraction are different than a garden-variety recession induced by Fed tightening and excessive manufacturing inventories since the former typically induce a secular shift in behavior and attitudes towards debt, asset allocation, savings, discretionary spending and homeownership. The latter fades more quickly.

      “This is why people didn’t figure out that it was the Great Depression until two years after the worst point in the crisis in the 1930s; and why it took decades, not months, quarters or even years, for the complete transition to the next sustainable economic expansion and bull market.

      Read more here

      1. IrvineRenter

        That is a great article.

        “Mortgage applications for new home purchases hit a 12-year low in the middle of November (down 22% in the past month!), fully two weeks after the Administration said it was going to not only extend but expand the program to include higher-income trade-up buyers. Once again, there is minimal demand for autos and housing, and that is partly because the market is still saturated with both of these credit-sensitive big-ticket items after an unprecedented credit and consumer bubble that went absolutely parabolic in the seven years prior to the collapse in the financial markets an asset values. We are probably not even one-third of the way through this deleveraging cycle. Tread carefully.”

        1. newbie2008

          I thought the stock market and temp spike in house prices were due great easing of the credit market and inflation of the dollar by vast printing and spending. FHA house loan with 3.5% down at 4.9% interest sounds like easy credit to me.

          Banks borrowing at 0.25% to put into the stock market, sounds like a good interest rate and easy credit to me. Too bad non-financial business and working people can’t get loans at 0.25%. Try 18% on a credit card.

          US international companies are with increased profit in USD base on the currency conversion.

          As for higher US wages, it is the last item adjusted to inflation, but the first to be blamed for inflation.

        2. avobserver

          If someone tells you that there is $500 sitting on the other side of the I-5 for grab, but, in order to get to the money you will have to walk across the 5-lane freeway, blind folded, would you do it? Some set out to give it try, in the middle of the night, and collected the “easy” money unharmed, more followed and thought what an easy way to make quick bucks … then came the rush hour.

          Personally I think the year 2010 will be an inflection point for many who have been thinking this downturn represents a good opportunity to “buy on the dip” or make easy profit flipping. This will be the year the reality finally sinks in and penetrates many thick sculls that “this” time is different and the market is NOT coming back anytime soon, and worse – there is no telling how long this downturn will last. The ironic part is that all the “unprecedented” efforts taken by the gov’t and Fed (massive buying of MBS by Fed to drive down mortgage rates, first buyer tax credit, loan mod programs, etc) to “stabilize” the market will amount to nothing but drag the market downturn for many years, which sets the mother of all bull trap for flippers/knife catchers. Most of flippers are opportunists with short patience and a warped sense of risk. And 2010 may mark the beginning of a major shift of market psychology we have all been waiting for.

        3. tonye

          I think the automobile market is more stable than the RE market today.

          The big excesses in the auto market were flushed two years ago… mostly those were the folks that were trading “up” their cars and rolling their upside down debts into their new cars.

          That pretty much stopped last year along with the SUV craze. Chrysler is gone, GM is a shadow of its former shelf and the remaining automakers are mostly on stable ground at yearly sales run rates 30% below 2008 levels.

          The RE market is an entirely different thing, though.

    3. LC

      Are the banks going to finally start dumping shadow inventory? I think that 2010 will see some great bargains. And the government encouraging the last leg down.

    4. Chris

      “Make sure you are not holding dollars when that happens.”

      Ain’t gonna happen. Based on your scenario, credits will be destroyed (margin calls) and those debtors will need USD to pay the margin calls.

  5. jimfromJaxFla

    Question everyone…. I understand in April 2010 the FED will no longer purchase Treasury Notes… Is this true?? and won’t this will lead to higher mortgage interest rates… and LOWER HOME PRICES???

    1. Lee in Irvine

      Under normal circumstances, higher mortgage rates could place more pressure on home prices. However, if we were to have a large run-up in inflation, rising incomes could equal the rising monthly cost of housing due to higher interest rates.

      JMO … However, the Fed is not gonna stop monetizing debt in April.

  6. DT

    Is it possible for the buyer to pay the agent commission directly and reduce the purchase price of the house by 6%? The only thing worse than paying 6% commission is having to pay property tax every year on that commission for as long as you own the home.

    1. Sardina

      How do you add image to a post?

      Let’s try again

      [img]http://adimages.townnews.com/creative/columbiadailyherald.com/173795-1258151069.gif[/img]

  7. newbie2008

    Finally, one semi-mainsteam medium is being more than a BHO cheerleader. Maybe they didn’t think Americans could handle the truth or just trying to catch another round of easy money for WS.

    By: Diana Olick
    CNBC Real Estate Reporter

    Susan Walsh / AP
    I know recent monthly data has everyone thinking that the freefall in home prices is over.

    I don’t buy it.

    I’ve said it before, and I’ll say it now. Until the foreclosure crisis gets better, not worse, home prices will not improve overall.

    This today from Lender Processing Services:

    The November Mortgage Monitor report, released by Lender Processing Services, Inc. (NYSE: LPS), reveals a nationwide loan deterioration ratio higher than 3:1 – indicating that for every one loan improved, three more loans are deteriorating.

    and what’s worse:

    Foreclosure sales jumped in October, with the rate at 5.6 percent of foreclosures in inventory. The number of foreclosures on the market continues to stall as foreclosure timelines extend. Nearly 30 percent of properties that have been in foreclosure for 12 months have not yet been put on the market for sale – twice the level of the prior year. Foreclosure inventories continued to climb to record levels. October’s foreclosure rate stood at 3.14 percent, a month-over-month increase of 0.7 percent and a year-over-year increase of 85.1 percent.

    Mortgages

    30 yr fixed 4.89% 5.02%
    30 yr fixed jumbo 5.96% 6.07%
    15 yr fixed 4.48% 4.69%
    15 yr fixed jumbo 5.58% 5.75%
    5/1 ARM 4.18% 3.76%
    5/1 jumbo ARM 4.92% 4.03%
    Find personalized rates:

    Bankrate.com

    Mark Zandi, of Moody’s Economy.com, told Reuters today, “the housing crash is not over.” Zandi predicts home prices will not bottom until Fall of 2010, after falling 38 percent from their peak.

    Why?

    Foreclosures.

    “This lull in foreclosure sales has resulted in the price gains in the past few months,” he told Reuters. “Foreclosure sales will increase, and home prices will resume their decline by early 2010 as mortgage servicers figure out who will not qualify for a modification.”

    * Mortgage Applications Up as Rates Continue to Decrease
    * Slideshow: Hedge Fund Homes at a Discount

    Questions? Comments? RealtyCheck@cnbc.com

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