Are 6% Realtor commissions “customary” or “prevailing,” or the “average?” (hint=no). Do you get what you pay for? (hint=oftentimes no) This post is long but it uncovers the unspeakable… COMMISSIONS!
Why does it matter? Because on a $500,000 home each percent is $5,000! Any ignorance about commissions may lead to a royal ripoff. The trick is that less commission isn’t always more “savings”, but the flipside is also true, because a higher commission isn’t always followed with better performance. Knowledge is power.
Background: Ever wonder why there are nearly no Realtor blogs discussing commission structures openly? (probably not, but for the other 3 of you…) It all has to do with an AntiTrust price fixing case against a few Realtor brokers decades ago. (I just covered it in my AntiTrust Law class, this is my last semester at AU! for those that are curious followers.)
These brokers got together for a dinner at Congressional County Club in MD. The organizer was F0LEY, the then President of the Local Board of Realtors. He got up and said he was changing his firms rates to 7% from 6%. (insert tons of details here).
His excuse was the market was horrible and tons of homes were listing, but nothing was selling, so they were in dire straits. Ultimately, several were found guilty of conspiracy to raise commission rates in violation of the Sherman Act, an Antitrust law.
Fast forward 30 years, the Realtor community is still terrorized and instructed to NOT TALK ABOUT COMMISSIONS publicly with other agents. And to even get up and leave a room if somebody talks commissions. I have seen it, it is pretty funny when the word commission is mentioned and everyone freaks out and becomes a lawyer “You can’t talk about that!”
It got so bad that the Virginia Assoc. of Realtors’ legal counsel didn’t want to say “6% commissions” when teaching agents, so he referenced a number of hypothetical “chickens” instead of using actual percentages. He happened to use the number 600 chickens. Hum, if that isn’t a wink wink to the number 6, then I don’t know what is. (see Blog post on topic or video see minute 11:20) Gimme a break.
In my opinion, in the end, this chill effect & gag order has the opposite result. Instead of colluding to increase prices, the new silence solidifies what the consumers (and press) think is the “Normal” Realtor Commission. And the press make it worse with headlines like: “Chipping Away At Realtors’ Six Percent” (link). Or Wikipedia’s “The median real estate commission charged… 6%”. This is WRONG. (more…)
Scared of hiring a smaller Virginia, DC or Maryland real estate firm?
For those of you that might be thinking“What or who is Frankly Realty?”and are
scared to pick a firm that only uses experienced full-time agents (go ahead, crank call any firm and say you want to start in a week as a part-timer and see how excited they get!”), this testimonial is a must read.
Background: This seller had experience selling several properties using “long standing, reputable firms.” But her latest home was listed unsuccessfully by 2 big brand agents for over 300 days.
Then Frankly Realty agent Cathy Poungmalai got the listing. Cathy suggested and helped with light rehab,staged it, used amazing photos (with a main photo collage) and several other techniques leading to “never a shortage of buyers,” 4 offers and this unsolicited testimonial.
Here are the testimonial highlights:
“We’[v]e always used long standing, reputable firms”
Long time no post. In part because we just had a baby! Hartly Jose LLosa and have been settling into the new house on Lake Barcroft. (see more below).
Also I have been posting a weekly video column for INMAN news called the Wheel Estate Cam. The video blog is mainly broker to agent focused advice.
This is video #30 on the Fiduciary Duty of Realtors and it is particularly relevant to consumers buying real estate in Virginia, DC and Maryland. Also it gives you a glimpse into how we work.
American U. Law School Update: Just two light semesters left! (I overloaded the courses pre-baby)
Our House Update: We bought a house on Lake Barcroft in Falls Church, Virginia.
While it has had major money pit-type problems (see my 10 favorite upgrades), I absolutely love living on a 135 acre LAKE only 8 miles from DC. If you are considering buying on or near this secret gem (Lake Barcroft), let me know and I can take you on a private boat ride of the homes for sale (requires lender pre-qual letter).
More information (including Youtube videos & Twitter posts) on the LAKE… at what better domain than my new and raw LakeBarcroft.com
Cliche closing statement: I’m not posting as frequently here, but I am posting on Twitter @franklyrealty and Inman (above). And of course, you can still contact me for your Virginia, DC or MD real estate needs, and no.. I’m not too busy for you, see here!
Man o’ man do I have a pet peeve when I see a contract with “Home Inspection for Informational Purposes Only.” A wolf in sheep’s clothing?
What does “Info Only” mean? So if you find information about a $2,000 rotting deck… at least you have the information? Kinda “nice to know?”
Ok, this is kinda tricky to explain, so bear with me.
I feel strongly that ultimately the seller should pay for all (actually “most”) closing costs. But not in the way that you might be thinking. And this type of post will lead to the 101 hyper technical “but what if” scenarios (more…)
I hate the new appraisal system and non-local appraisers. (see video below)
Let me explain. The government came up with a brilliant idea to curb another housing meltdown!
Assuming (you know what they say: It makes an “Ass out of you and Ming”) most lenders and appraisers were fraudulent, they decided to put a great wall of china in between the lender and appraiser.
So instead of having a “reliable” and experienced local appraiser, they instead farmed out the process (and sometimes to a company they own) to a company that would then find an “independent” appraiser. 1 problem is, the appraiser has no accountability.
Also problem #2 is now another middle man has to make a cut, but the cost to consumer is the same. The result? The cost to the appraiser goes down. The result? NON-LOCAL APPRAISERS.
You know you are in trouble in Northern Virginia if your appraiser gets out of the car with a cowboy hat & boots.
So if you (Mr. Appraiser) don’t know the area, what are you going to do? Pick the wrong houses and appraiser more conservatively (they can only get in trouble if they appraise a place too high, so why not just make it come in lower. It also takes more work to come in higher). An appraiser’s job is not to be conservative or aggressive, but to be as correct as possible.
Recently we had a listing where a bank promised that they used local appraisers. The appraiser came from Purceville! Over 50 miles away! The appraisal made comments about Ballston and Rosslyn being where the jobs were. As if Clarendon was 2nd fiddle and not desirable. (If you aren’t from the area, like the appraiser, you wouldn’t know that Clarendon is the most expensive and nicest place in Arlington, see Arlington Rap )
Even before the appraisal system was mixed up, I would always warn my buyers “hey if it comes in higher than what you paid, don’t really celebrate. Sometimes appraisers like to come in higher, just to make you feel good, and oftentimes they aren’t really “real” in my book.” Why would I burst their happy dance?
Because I warn them that the flip side (a low appraisal) is also possible.
Just because an “appraiser” says something has a value of X, that doesn’t mean it is the “true” value. While some might argue there is no “true value” or “it is worth what somebody is willing to pay for it“, I’m referring to the other problems with appraisals.
1) BANK SALES IN COMPS
Appraisers usually include bank sales on the MLS. These are homes that are oftentimes underpriced, they get 7-20 offers and the all cash offer wins. NOT THE HIGHEST OFFER. So a $400,000 bank listing might get bid up to $415,000 with an “all cash” buyer, and 3 other buyers had offers in for $435,000. What is it “worth?” Well the appraiser says $415,000, but the market says $435,000. And this isn’t even going into whether a regular, properly marketed identical listing would sell for $450,000. So what is the “value?” of this $415,000 closed home?
For some people this means NEVER being able to buy a home. They live in areas that are full of investors buying with all cash (like WOodbridge). Those sales then drive down the price of a regular listing but not enough. The appraisal will still be low, and the 3% down FHA buyer doesn’t have the money to make the difference (yes, I got emails on this).
2) SHORT SALES
Similar to the above, but the seller has NO interest in trying to get full market price. Actually the banks expects to sell them for 5-15% off market price. The seller just wants a patient buyer, oftentimes an investor. And as I have written in all my other Short Sale posts, these deals will go 3-6 months and oftentimes never pan out. So yes they have to sell for less, to compensate the buyer for the hassle and high chance of never closing. Many buyers will not even look at short sales. So are these good comparable for an appraisal? I think not.
3) MARKET UPSWING?
Oh my! Could it be? Could it be possible that homes and condos in Arlington are actually selling for more than the low in June 2009? Yes. In reality they are (this is the first time I have said anything about the market going up), yet the appraiser is more likely to call the market “steady.” All you need is a small 1-3% increase for a $500,000 place to now be selling for $515,000, yet the appraiser won’t adjust for that.
4) LOW INVENTORY
Rarely will an appraiser adjust for low inventory. IE, Ain’t nothing else out there to buy in this price bracket. Good appraisers will see this and understand supply and demand.
SOLUTIONS TO LOW APPRAISALS?
So this is what I see happening. When a low appraisal comes in, the buyer oftentimes freaks out. It is the buyer agent’s job to warn them about this (see post above) and then discuss what they want to do. About 1/3rd of the time the buyer will walk (until it happens to the next property!), 1/3rd of the time the seller will just drop their price and the last 1/3rd get new appraisers or work it out.
1) DEMAND A LOCAL APPRAISER
Put it in the contract (as the lister) that you will only entertain a local appraiser. Maybe give it a 15 mile range. If the lender can’t do this, make the buyer get a new lender and new appraisal if somebody non-local does the appraisal.
2) GET A NEW APPRAISAL. CHALLENGE IT.
Either the buyer or seller can get a new appraisal. Yes, my buyers have hired new reliable and local appraisals. Why? Because the buyers have been to each home in the area for the last 3 months and they know the value. While a bank won’t flat out accept the new appraiser, it can be used to challenge the first appraisal.
3) PAY THE DIFFERENCE
While it might be painful, it might be the only way. Especially if you have gone through it a few times, if you start all over, it will likely happen again (unless you are willing to wait 3 months for a short sale to MAYBE close).
Appraisals falling short is occurring in about 50% of transaction. IT EVEN HAPPENED TO ME! The home I bought did NOT appraise. Yes, I paid well over the “appraisal” price. (yep soon that will be a good post, make sure to subscribe to the blog).
Thanks for hearing me out. Now I can warn my clients with a link to this post instead of giving a limited explanation to the appraisal problem. The goal is not to pressure a buyer to increase their price. I really hope this didn’t come off that way. Instead the goal is to explain the process and for buyers to not ignore their own perceived “value” and ignore their Realtor, when some $20 an hour newbie appraiser from West Virginia says otherwise.
UPDATE: Paul Todd, has a brilliant comment. You are brilliant! Paul says, when the appraiser calls, ask exactly where they are from. If they aren’t local, then refuse access and make the lender pick another appraiser. Wow, great idea.
Written by Frank Borges LL0SA- Broker Owner FranklyRealty.com and FranklyMLS.com
I’m really excited about this new feature for FranklyMLS.com . Normally I leave all the feature upgrades to franklymls.blogspot.com, but this one graduated to the main blog.
I’ve written a lot about Virginia short sales (don’t miss the older “SS 101” post) and a year and a half ago came up with the 1st MLS search that would scrub short sales (see post) and put a * next to their price (it would look at both the remarks and checkboxes).
But that wasn’t enough. I also gave some guidance on a “Top 10″ questions to ask a listing agent, as they are the key to getting short sales closed (in my opinion).
The most important question on that list was “have you ever closed a short sale.”
Well now you no longer need to ask them! (and they so frequently (more…)
Too frequently, I get an email from somebody that has been following my blog and tweets for months and is now ready to buy!
I get the details of this person’s dream home, including number of bedrooms, lot size and location (don’t get me wrong, most buyers still do their own searching). But then they end the email with a catch. “Oh, but the only problem is our maximum is $400k.” Meanwhile, homes in this area sell for $550k. What to do with buyers wanting the (more…)
A Brilliant marketing executive came up with the idea of promoting the “Starter Home” (not to be confused with the “starter wife”). Buy a small home or condo… stay in it for two to four years, use the increase in value, “equity,” and buy a bigger a house.
Problem is an assumption was made: Maryland home prices will go up! And why not? Real estate went like 60 years without 1 annual drop nationwide. It was a no brainer. But when people don’t think, bad things happen.
Inman News is the #1 organization tracking real estates practices and technologies (outside of the official Realtor association). In San Francisco last month they held their annual five “Innovation Awards” with five finalist in each category. I was shocked to be honored with two finalist positions. One was “Most Innovative Blog,” the other was “Most Innovative Web Service” for my wiki MLS FranklyMLS.com.
I “lost” both categories. I really wasn’t too bumbed. I was thrilled to be a finalist and I love the winner’s blog phoenixrealestateguy.com.
But then the overall “Innovator of the Year” award was announced. This category did not disclose the finalist and previously did not include finalists from the other categories.
“Drum Roll” (no really they said that)… Shit! I won. I know it ain’t the Oscars but it felt like it for a moment. Wow, they really like me.
So, I ran up. Didn’t say a word. Was in shock. Thinking “Do I say something witty or innovative?” Nah.
(side-note: Being so “innovative” and “green” oriented I refused the registration gift bag and 20 page glossy schedule and I stuck with the online schedule to save trees. Anyhow, the online schedule slatted the awards for 11am. The print version apparently said 9:15. For once in my life, (more…)
Are you better off buying in Virginia DC and MD AFTER the tax credit expires? Maybe.
Everywhere you turn (even CNN.com) you read about the $8,000 1st time homebuyer tax credit and how you need to “Buy Now” (anybody remember that NAR ad from 2006?). Gotta hurry up before the Dec 1st Expiration!
(Sidenote: that expiration means you need to CLOSE by then. If you are looking for a short sale gamble, and you want the credit, you better get it under contract NOW. And everyone else, don’t be an idiot and schedule your closing on the 1st. At least close a week early. There will be a backlog, and hiccups, and you might miss your tax credit.)
So Warren Buffet says whenever you see a herd running in one direction, you are supposed to walk the other way. (more…)
Cartus relocation company is a CROC! (that is an opinion, for more opinions Google Cartus sucks).
Actually many “relocation” companies that are supposed to help the employee are just fronts for making profit. And they have such a compelling pitch! How could an eligible buyer actually decide to bypass them?EASILY!
I’ll explain exactly why you might want to bypass your relocation company AND how you can use PART of their system to your benefit and ditch the other part.
Why am I picking on Cartus? Cuz I was robbed. I got this email the other day:
Hi, I’m moving to Virginia with my job in a month and my fiance and I are a big Frank fan! (more…)
Today I continued my research on the hunt for details on a possible upcoming influx of bank properties (due to a lift of the bank foreclosure moratorium) and to see if consumers are buying properties directly from the banks at the courthouse.
So, I went to the courthouse steps in Arlington Virginia to see today’s scheduled auctions. First of all, all 3 homes set to be auctioned off (more…)
A couple of weeks ago Fannie Mae and Freddic Mac (backing most home loans) lifted a Bank Foreclosure Moratorium. I was concerned that the recent 80% drop in bank foreclosure inventory might be a temporary blip with an oncoming tsunami of bank foreclosures.
After hours of dead end research. I decided to call my buddy… Jim Cramer from CNBC’s Mad Money (more…)
This is part 1 of a new series on picking a Realtor to list your home in Virginia. Make sure you subscribe to the blog.
Wow, do I feel for you! It is REALLY hard to find a good Listing Agent/Realtor… anywhere (not just Virginia).
How do I know? Because I’m going through it right now! I’m helping my brother pick a Realtor to sell his house in Texas (yep not doing FSBO since I want him to net more).
Overcoming his hesitations are EXACTLY like customers here. It is HARD to cut through the BS. Here are some typical questions he had and my answers. (He was amazed that I had a blog post for everything. Also I apologize for jumping around.)
1) I taught him to not fall for the oldest trick in the Realtor book… theBuying a Listing Trick (recommend a high price to win the listing, just to drop later, which nets the client even less). He got that, so he warned the agents he was talking to that he wanted real pricing and he would NOT pick based on the highest price.
2) When he mentioned staging, one Realtor’s reply was “Sure we can do that, or we can list, wait two weeks and then stage it. That might save you some money.” (more…)
I went to an Open House today for a $3Million+ “Auction” in Great Falls Virginia today. What a spectacle.
Funny how buyers think they are the only ones buying. As I pulled up, I was rerouted to the next street down to take the “shuttle!” About 20 Mercedes Benz, Lexus, and BMWs lining the road.
At the right price there are always buyers looking for “bargains.” In this post I want to unravel the new techniques in trying to move (sell) mansions and estates in Great Falls Virginia. It also relates to other areas as well.
System #1: Auction
Auctions are sexy. Make sure to get a bunch of people in a room and (more…)