Three Mistakes Devouring Home Selling Profits Today.

Market conditions are fluid. We’re all familiar with seasonal, supply and demand, and consumer confidence changes that swing the pendulum of advantage between buyers and sellers of goods or services. 

We consider today, 9/21/2021, to be a Seller’s Market in the Madison, WI area. But that’s a large geographic area, and within that area are thousands of mini-markets with more or less potential to increase your profit and decrease risk when you put your home up for sale. 

Profit. 

We hear about people paying over the asking price to get offers accepted. Those offers increase the profits of home sellers beyond their expectations. Would you care to know even when you get a bid over the asking price, you may not be getting the maximum profit available? How much, you ask? I will show you:

  1.  Promise to Pay a Set Commission to a Buyer Agent. Ninety percent of sellers in a non-scientific review I made recently reported that they paid a buyer agent a 3.0% commission to represent the buyer who purchased their real estate. Three percent is a high-water mark that’s been around for decades, with few exceptions. The most costly mistake home sellers make is promising to pay a set fee of 3.0% when they sign a listing contract, which is well before the day they see any offers. Homeowners who offer 2.0% to a buyer agent and reserve their opportunity to negotiate a higher rate will most likely increase their profit by decreasing their selling expenses. A four hundred thousand dollar house has at least $4,000 of commission to negotiate in favor of the homeowner. 
  2. Agree to fees that the seller always pays. Offer to purchase forms and contingencies are pre-written for convenience. Buyers and sellers have some expenses related to financing, closing, and transferring ownership. In a regular or buyer’s market, the buyer gets off easy, and the owner pays most of the costs to sell. Negotiate to move expenses from you to the buyer, and you can quickly reduce your selling expenses by $2,500 to $10,000. The high costs that the buyer could pick up are Title Insurance, Transfer Fee, property tax prorations, and commissions. 
  3. Agree to Contingencies. “The rest is just standard terms.” The presentation of the offer to the home seller by the licensee or the attorney gets overlooked. Those standard terms are mostly contingencies. Contingencies are included in contracts to allow the buyer to complete their due diligence before being committed to closing. That accepted offer with contingencies is the buyer’s opportunity to eliminate competition and shift time to their advantage, setting the stage for renegotiating everything, including price. All contingencies are not crucial to everyone. As long as a person can leverage you into negotiating, the terms of your offer are at risk. Contingencies are often satisfied to the favor of the buyer by the seller making a financial concession. Two thousand dollars is a typical concession. 

Let’s do the math.  

Mistake 1. Promise to pay a 3.0% commission before seeing the quality of the Offers. $4,000 (or 1% of the sale price)Mistake

2. Agree to pay fees that the seller typically pays. $2,500 +

Mistake 3. Agree to unnecessary contingencies. $2,000

A conservative estimate of profit to be made by avoiding three common mistakes made negotiating is $8,500. I know people are making unusually high profits due to accepting offers well over the asking price. It’s not my business to decide how much profit is enough. It’s my responsibility to show you where you can make a profit, so you have the choice to determine the amount of money you keep from the sale of your home. 

These three mistakes are easy to avoid when your agent knows the contract.

Essential Real Estate Service

There are hundreds of things a real estate firm might do, but not all of the activities are for the benefit of their clients or customers. And only a few activities are services that require a real estate license. The majority of tasks done in the process of a consumer’s interaction with a real estate firm are administrative chores. A smooth transaction and satisfactory experience results when all of the work is done timely and with skill. The end result is intended to be more than just good. Because good-enough is not good-enough, the admin work is important. It’s just not essential real estate work.

The duties of the real estate broker and licensed agents are spelled out in the Statutes. Admin work is selective, the duties prescribed by law are not. The consumer participates in the chores. Hourly employees conduct many of the activities such as staging a home, pricing, photography, paper processing, scheduling appointments. Handling admin chores poorly is not acceptable, but they may be hardly of any consequence to whether or not the sale closes.

Handling the essential real estate services poorly carries tremendous consequences. If the job requires a license you can assume there are skills required, and rules of engagement. Failing to exercise skill or play within the rules can be catastrophic to the transaction’s outcome. And if not catastrophic, expensive in loss of time and money is almost certain.

We created Essential Real Estate LLC to be the firm that strives to make better use of the contracts, and negotiating opportunities for home sellers and home buyers. The advantages a consumer can experience when their broker knows the contracts and contingencies are significant. Giving away leverage because you agreed to a condition that your agent didn’t comprehend happens every day, but not with us. We make it our business to help our clients get into a commitment with well qualified, and highly committed people. We work smart to identify the people committed to closing on the terms they agreed to and separate those who aren’t.

The essential real estate work is contract work. It’s negotiations. Confidentiality is a contract and license law responsibility. Our clients should expect a higher level of attention to the work that requires a license. They should also expect to see a more satisfactory profit after the closing.

Most Offers Aren’t Rejected…they’re just unacceptable as written.

You’re never competing with multiple offers… I’ll pause while you ponder that.

When an owner has a dozen offers on the table, more often than not, they have one offer that’s acceptable as written. Even if a few of the offers have exceptional prices, at best, one offer is acceptable without requiring changes. Most offers can’t be accepted without a counter offer. Those offers aren’t necessarily rejected, they’re simply unacceptable. You don’t have to compete with unacceptable offers. As a listing agent, it’s sad to see a person lose the opportunity to own a house when, except for flaws, and poorly drafted terms, their offer was the better choice.

Contract Drafting Skills are essential in this market. They’re also not a high priority subject of education. That’s too bad. Many years ago I decided I would make sure I was never at a disadvantage to anyone…broker or lawyer, in my knowledge of the Wisconsin purchase agreements and forms. I’m not saying I know the law better; I’m saying I know what’s in the purchase agreements, what’s not, what works for clients, and what works against clients.

Acceptable Offers are easier to craft than the ones that are peppered with errors and omissions. All of my clients can’t outbid the highest bidders. But none of my clients are submitting unacceptable offers because I missed something, or they weren’t given proper choices. Rejection is a fact of life. Acceptance is the goal. Submitting offers that can’t be accepted is avoidable.

Years of experience and ability do not go hand in hand. Some REALTORS get into the field because they like houses, or like working with people. Few people are inspired to get a real estate license because they love contract work. When you’re interviewing agents to represent you, take some time to discover their contract drafting ability and comfort. If you have a choice, expect higher standards.

You’ve got 11 days to sell for more than you’re asking.

We’re not in a hurry.

What do you think a home owner means when they tell a REALTOR, “We’re not in a hurry”? We hear statements like that during the early meetings with home owners. I think those are just words and they don’t mean what we think they mean. Could it be we’re not in a hurry to be disappointed? Who wouldn’t be in a hurry to be ecstatic?

Facts show you will be disappointed with the selling process once you pass day 11 on the market. Out of 742 homes sold on the West side of Madison since July 1, 2020, Five hundred and fifty four (554) sold in 11 days or less. Of the 554 sales, 87% of the homes sold for the asking price or greater. Mostly greater. How important are the first 11 days? Only 17.5% of the homes that sold after the 11th day were sold for the asking price or more. The window of opportunity to take advantage of this red-hot seller’s market is 11 days. Maybe the question isn’t, “Are you in a hurry?” but rather, “Would you prefer to be thrilled?”

There has never been a market like this. Because we’re more familiar with a balanced market, we still think that we have to negotiate as sellers. We think we need to price higher and prepare to give a little on price. Consumers still believe a low price will invite lower prices. That may be true, I don’t know. But I do know when you have multiple offers, the person who is going to give you the best price and terms has a reason to give you their best price and terms. Without competition you lose the motivation factor. Fear of loss is real. No one knows the price of any of your offer. Apply logic and tell me what you think. If you hear the seller has 3 offers, do you take a chance of offering less? If you hear the seller has no offers, do you take a chance? Three low price offers are motivating factors because only you know the price.

Results show pricing where you hope the price will rise to is the wrong approach today. People who price their homes at or near prices supported by an appraisal are getting the higher prices and the terms they need to close at those higher price. On the other hand, if you see the high prices and price at the limit, you’re pricing for that one buyer who will overpay. They may be there but they aren’t overpaying if they’re not competing. Draw a crowd.

Leverage. Whomever has leverage controls the outcome. After 11 days on the market, patience is wearing thin. Unmet expectations quickly take a toll.

Take advantage of the market with smart pricing. Prices escalate with demand. Attractive prices drive demand. When we present multiple offers to home sellers, the most likely scenario is most of the offers will be at the asking price or just a little above. If you’re going to get a ridiculously high price, you’re going to get that from ONE buyer. It’s the five offers you don’t accept that cause the one buyer to make the Offer you’re thrilled to accept.

How Many Offers Do You Have? The Power and Frustration of Information.

Knowledge is power. We can all agree negotiations favor the side with knowledge, and information is knowledge. The outcome of a real estate transaction hinges on the information a person acquires. Real estate license laws require agents to provide fairness to other licensees. Whether or not a person is playing fair depends on which side of the question we’re on. Fairness can be objective, but it’s most often subjective. The surest way to trigger an accusation of unfair practice is to exercise a client’s right to confidentiality.   

How many offers do you have in hand?  Why do real estate buyer agents ask this question? What difference will it make to their client if I have zero, one, or ten offers in hand? Is the client’s decision of price and terms to offer (or even make an offer at all) dependent on the answer? Of course, it does. And depending on the buyer’s perspective the answer could be detrimental to the seller. Why do agents expect sellers to disclose the existence of offers? I heard this recently: “Why can’t you at least just tell me if you have any offers!?” You know why, right? Because the direction from the seller is to not disclose the existence of the number of offers and one offer is a number.

Confidentiality exists for a reason. Your expectations of me are driven by your opinion of what’s best for your client. That’s true from my side of the conversation as well. The decision to keep the information confidential is the right of the seller, as long as the disclosure is not required. And that’s a problem for buyer agents who are frustrated by the advantages held by the sellers.  

What information do you want to be held confidential? The existence of offers might cause someone to make their best or better offer. The knowledge of other offers may cause some buyers to drop out. When we don’t know how a person will react to the answer, does it make sense to confirm or deny other offers are on the table?  

Inman.com Doesn’t See A Real Estate Bubble…again.

Is history about to repeat?

Inman.com didn’t get it right in ’05: Real Estate Bubbles Bubble May Deflate 1/28/05.
Better luck this time: A Real Estate Bubble Mythical at Best May 2021. 

Inman.com is the go-to source whatever it takes to move real estate. 

There was no bubble in the eyes of Inman in 2005. But even if there were, fear-not, responsible behavior would deflate the excess air—nothing to see here. Keep on buying. Who saw the tragedy coming?

Sixteen years later, we know the bubble was real. It didn’t deflate. It burst. Was it an economic crisis or a humanitarian crisis? It depends; did you lose your job, your home, your family, your dignity? Or, did you experience a temporary inconvenience before being bailed out by the federal government?

There is no doubt that history does indeed repeat itself. Wouldn’t you think there would be a few generations between one disaster and its second coming? Having been around long enough to see how easy it is to forget painful lessons, Inman.com publishing an article saying a housing bubble in 2021 is mythical at best is no surprise.  We humans have short attention spans and shorter memories, or we are the most optimistic creatures on earth.

How different is this? For history to repeat itself, we don’t need the same players. (Afghanistan plays the role of Vietnam in the 1950s and ’60s in the 21st century.) Subprime lending, low interest rates, and too few homes created a surplus of buyers in the first decade of this century. Low rates and a shortage of homes for sale, and high land prices have accelerated the price a person has to pay to own a home again. The players may be different, but is there evidence to expect the outcome will be?  

I don’t know if we are growing a bubble or not. Is it safe to say there are sound financial principles we might be ignoring and might be wise to consider before we rush into the mystic?

PAC Donations unintentionally fund Efforts to Enact voter supression laws.

The National Association of REALTORS and member associations across the country should pay attention to the voter suppression consequences gaining momentum in States where Republicans hold power. Through the Political Action Committee arms of trade associations REALTORS are heavily invested in politics. By choosing to support candidates who vote favorably on real estate issues, Association PACs are pumping money from members into voter suppression efforts which the members do not support.

The Associations are not misleading members into funding unconstitutional efforts. Enabling unconstitutional laws to be enacted is a consequence of supporting candidates on narrow criteria of a favorable position on self interests.

If members believe it is best to elect lawmakers based on their support of our narrow interests and disregard the consequences of giving these same people the authority to tread on constitutional rights, giving money to a PAC is one way to keep clean hands. For those who don’t seek to hide behind walls of plausible deniability, giving directly to candidates is a responsible alternative. Expecting politicians to agree with everyone on conflicting opinions is what we do and what politicians tell us they will do when seeking votes and money. When the time to vote comes, they have to pick a side. If we like a candidate because they support property tax deductions on income taxes, we better know where they stand on civil rights.

It’s time we see that we’ve elected a significant number of politicians who are not interested in the Constitution of the United States. REALTORS are smart enough to make their own decisions on candidates. Giving money to a PAC reduces the impact of your vote and fuels the efforts to restrict your rights.

Listing Agents: Please Learn The Purchase Agreement.

Real estate licensees do not understand the terms of purchase agreements, and customers are hurt. There are 50% fewer homes for sale. The competition is brutal. People are overpaying by more than 10% and sacrificing all protections. The standard offer to purchase is not sufficient for this market. It is too bad for most consumers because it’s not going to be changed unless licensees learn how to eliminate continencies and soften conditions. I have little hope for most agents but see an excellent opportunity for those who make an effort to learn a skill.

You work in the contract business. If reading comprehension and logical thinking are not your things, give up your license and be an administrator. Your failure to excel at contract interpretation and explanation wipes out the advantage capable agents have for their clients and leaves home sellers represented by incapable agents locked into contracts with high-risk conditions. These things are easy to see…all you have to do is read and comprehend.

Agents who panic if every contract doesn’t look like the contract their trainer showed them are incompetent and dangerous to the consumer.

Seriously, if your learning ended with your new agent training or the person you’re learning from is a self-designated mentor, you’re in the way. Put down your lead generator, skip your next networking event, grab the real estate law books and learn something. How many people have to get hurt because you don’t think the contract work is fun.

Imagine getting 40 written offers on your home. Which one do you pick? The chances are you won’t like any of them well enough to accept. Unless the Buyer commits to close, why should the Seller commit themselves to the Buyer? Isn’t the Buyer committing to settle? Typically not.

With contingencies sprinkled throughout the contract, the Buyer has protection from an obligation to close. The standard Offer to purchase is a proposal to move from acceptance of the Offer to closing while the Buyer does due diligence to be satisfied with the property and the terms. An accepted Offer is more restrictive on the Seller than it is on the Buyer.

In a market favoring the Buyer, the purchase agreement works well. With few or no options, the Seller takes what they can get, and the Buyer enjoys all of the opportunities to change their mind or renegotiate. That’s not going to fly in a Seller’s market. As long as agents keep filling in standard forms with standard contingencies, it’s hard to tell one person from another. Every Buyer might have different motivations and commitments, but their Offer to Purchase says something different; it says, “I’m just as reluctant as the next guy. I might show up for closing, but I’m not sure yet.”

A Buyer Agent who knows how to take each section of the Offer and break it down to its fundamental intent gives their client more of what they need to know to make an Offer that better represents their commitment. The agent who thinks critically of the Offer and learns to guide clients to alternative terms is the agent who is likely to get an offer accepted for a buyer client when the competition is heavy.

The most acceptable offer gives the seller a great price, and terms show absolute commitment to close on time with no concessions. Knowing what will be a great price is the hard part.

You Captured a Lead. Now What?

The thing about capturing leads is once you catch em, what do you do with them?  

Accumulating names and numbers of folks who look at houses or converse about housing topics has never been more efficient. For a fee, thousands of services exist to fill your pipeline with leads. But, what about the real estate agents? How ready are they to be an asset in the process? What do the agents know, and is their knowledge vital to the outcome? 

The education requirement to test for a license is not rigorous. Seventy to ninety percent of applicants pass the test. Partnering with a broker is more a choice for the licensee than the broker. I know everyone says they have high standards for selecting agents to join their firms. It’s possible to apply objective means to determine if actions match words, but I haven’t seen it done. 

The role of the licensee is specific. Limitations vary from one state to another. A license to practice is not a certification of competence. There are plenty of administrative duties and several real estate law responsibilities and authorities granted with that new license. Is there too much choice for a licensee to learn before practicing or learn on the job? 

Education is not free. Someone will pay the price of an agent’s learning. 

What would happen if a newly licensed person was required to show competence gained from a thorough apprenticeship before they are permitted to work with a client without a skilled practitioner on their side?

How eager is the new licensee? It depends. Keen to have a closing is certain. Anxious to have to do real estate transaction work is less likely. 

Searching for and showing homes doesn’t require much confidence. The real estate license law work triggers high anxiety in typical new agents. Competency calms the stress and increases a person’s ability to be a contributing factor in a transaction. Confidence does not require competence. Without demonstrated competency, having faith in oneself and a desire to make money is enough for some brokers to let their agents go to work. My compliments to the broker who keeps here new agents learning under a competent mentor until the new agent has demonstrated they can work within the rules. 

What holds you back? Walking out of the building with a license in hand and going to work selling real estate on day one is possible. I was one of those new agents, highly confident, and minimally competent on Jan 1, 1989, my first day in business. I know and have mentored agents who have confidence galore, unwilling to sit any longer to learn, and those with no confidence who wanted to learn more. Both approaches produce highly effective real estate agents. 

What Are Your Trained to Do? Real estate is a transaction business subject to laws, rules, ethics. Our authority under a license is not lead generation, lead capture, social media marketing, blogging, or hosting an open house, farming, drip campaigning, socializing, joining clubs, or hosting first-time buyer seminars. By looking at real estate courses available, I get the impression that these are critical abilities to making money. I don’t know that they are essential to providing useful real estate service to the consumer, but that’s just my opinion.

Become Skilled at Licensed Real Estate Work. What comes first, the chicken or horse? The cart or the egg? Can you get business without competency? Can you gain competency without interaction with consumers? I believe you can. Yes. But this is not the vital question. Let’s ask instead, “How effective for the consumer can we be when we start with more confidence than competence; more enthusiasm than aptitude?” 

What advantages do we bring for our clients when we develop competence and aptitude before capturing good people who have high expectations of the real estate industry? I’d love to hear your thoughts?