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.
Irvine Home Address … 124 LATTICE Irvine, CA 92603
Resale Home Price …… $1,199,000
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:
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:
- The tasks are handled by a trained professional
- The MLS presentation is also professional which captures the interest of buyers
- Conduct the negotiation in a way that maximizes revenue
- 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:
- The full-service brokerage is expensive. It is a full 6% commission, a number large enough to prompt people to go FSBO.
- Many agents are not very good, as we have seen on many occasions.
- Realtors are not trusted and respected by buyers.
- It is difficult to reach buyers outside the MLS.
- 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.
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?
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
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
STUNNING 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?