Month: February 2018

There is only one commission

If I buy a house from the listing agent, without involving another agent, should I expect to save 3% of the purchase price  (approximately 1/2 of the commission total) because there is only one agent to pay?  No. There is no half of a commission. Sorry real estate bloggers. You’re explanation to the public is wrong, and some of those people are paying a high price to find out commission does not work like you think it works.

To understand the commission distribution method in a real estate transaction, you have to recognize that there are multiple contracts involved in the transaction. Each of the contracts is an agreement to cooperated, and compensate based on criteria the buyer has no part in deciding.

MLS Contract: Each Firm and their agents belong to the RASCW-MLS. To be a member you agree (by contract) to cooperate with all firms and compensate the firm who procures the buyer for your listing.   Procures. Keep that in mind. It’s important.

Listing Contract: A seller of real estate contracts with a firm, agreeing to terms of service, obligations of the broker and seller, etc. One aspect of the agreement is compensation. If the listing broker charges a commission of 6% of the purchase price, the fee the owner is obligated to pay is 6%. There is the one commission.

Let’s say the sale price of a house is $300,000. I am the listing agent. You are the buyer. This imaginary person next to me is the seller. At closing the seller pays my firm $18,000.  If there is a cooperating firm in the transaction my broker will deliver a check for 50% of the commission. It’s still one commission. That’s a cost of doing business in a cooperative MLS. My firm then splits the remainder of the one commission with me based on my commission split agreement.  If there is no cooperating firm, there is no other firm to pay.  That’s the agreement the broker has with the seller. One commission. Six percent.

There is no buy side and sell side commission.  Real estate bloggers who talk about two commissions or buy side and sell side are confusing the public. Time and again buyers offer less than they have to thinking there is a commission to save, and they come in second or third or worse in competition. The listing firm is paid by the seller and the listing firm compensates cooperating brokers. It’s as simple as that. Or is it?

What about a buyer agent? When the buyer has a contract to compensate a buyer broker for real estate services there is an agreement/contract between the buyer and the broker for compensation. The buyer agrees to pay the broker a stated amount. Assume it’s 3%. The buyer is obligated to pay the firm 3% when they close on a house. The contract provides an opportunity for the buyer to have their 3% buyer broker fee reduced by the amount the broker is able to collect from the listing broker, and or the seller.  Without getting to deep into the weeds, it is a rare transaction where the 3% the buyer is obligated to pay isn’t paid to the buyer broker by the seller or from the offer of compensation made by the listing firm to cooperating brokers.

As a buyer entering this Seller’s market, you may want to decide what is most important to accomplish. Getting an accepted offer on the house you want or learning that the 2 commission idea is a myth and settling for your second, third, or worse choice house. You can own the home you want. Be the buyer who everyone wants, and let the myth believers help make your offer look even more attractive.

Tax Law: What it means to real estate professionals

NAR on Tax Law and Impact on Real Estate Agents

First I’d like to be clear. I do not think this tax bill is reform in any way. It’s a terrible law seriously impacting the most vulnerable people in our society at the advantage of those of us who need the least.  I’m sharing this link for the benefit of the real estate licensee professional who provides a service and provides for their family on the income they earn.

We’ve heard the alarms of the National Association of Realtors® over the limitation of the property tax deduction. It’s clear the law is unfairly favorable to the smallest percent of Americans. We heard there was something in the law to give the small business owner an incentive to hire.  What we had not heard was an explanation of what defines a pass-through business eligible for the 20 percent deduction.  Thanks to the National Association of Realtors, and the Wisconsin Realtors Association, we now have clarification.

Issue:

The 20 percent deduction is available to non-personal service businesses. A brokerage service is a personal service business, and a real estate firm is a brokerage. You would think we do not qualify for the tax deduction. No.  We do. The NAR (yes, lobbyists) made a deal and an exception was granted for the real estate industry. (Firms and agents). With a limit on the amount of income eligible to the claim the deduction ($157,500 individual-$315,000 couples filing jointly), independent contractor real estate licensees are eligible for the deduction.

Check with your lawyer and accountant to verify the info is correct and what will be your best method of participating.

More information is available through the NAR web site link above.

Property Damage After Acceptance Prior to Closing

An easy to happen and complex to navigate situation licensees address is property damage after acceptance and prior to closing.  The WB-11 Residential offer to Purchase begins to address this on lines 206-215. In compliance with Wis. Stat 706.12, unless this provision is not part of the Offer, the parties have expressly agreed to who has responsibility (buyer or seller) to repair the damage and under what conditions the contract may be terminated and parties released.

WRA on Damage after Acceptance
When the licensees become aware of damage which occurred after acceptance and prior to closing decisions have to be made regarding disclosure, damage assessment, repairs, closing date, and resolution.  The prudent licensee will be careful to direct their clients to legal counsel to interpret their rights and obligations, and to their insurance companies to determine their coverage. The parties will look to the provisions of the Offer to determine the avenue they will take to move forward or to separate.

Attorneys may advise their clients to maintain their right to remain silent on the new condition, make the necessary repair and proceed to closing.  Because  the buyer may have recession rights when they receive an amendment to the RECR with previously undisclosed conditions, sellers may be advised by their attorney to not amend the RECR or issue a new RECR.  Even though a seller may not have disclosure obligations, the licensees do. A Disclosure of Material Adverse Fact form is available for licensees to disclose conditions they are aware of.

Occupancy May Change Everything

Buyer pre-closing occupancy is a condition which may alter the buyer’s rights and seller’s obligations for repairs, expenses, and resolutions.  Pre-closing occupancy is a seriously risky proposition. The Addendum O (Occupancy Agreement) has been modified to make it easier for licensees and parties to incorporate occupancy provisions into offers.  I wonder if that’s a good idea considering the complexity of the issues involved with occupancy. Anything which contributes to parties avoiding consulting their lawyer is not an advantage to their safety. Just my opinion.

Water Everywhere

It happened here in 2008 and it will happen again. Spring is flood season in Wisconsin. Frozen ground, rain, melting snow, clogged drainage sewers, rising river levels are the perfect storm conditions for property damage after acceptance and prior to closing. It’s never too soon to sharpen your skills in the disclosure of defects and conditions responsibilities.  Heavy rain is the forecast for today through tomorrow.

 

Would you rather learn or be trained?

Learning is what we do for ourselves. Training is done to us. Maybe that’s why learning opportunities promoted as training sessions are unfilled with experienced employees or professionals.  Continuing education isn’t a big draw either. Education is learning, but it’s not something people who have arrived agree they need. That’s why CE is mandatory and not voluntary.

A company with a culture that places high value on learning will attract learners. People who learn develop insights, skills, and wisdom they won’t get in training or Continuing Education.  Learners stay ahead of change. They embrace new technology if for no other reason than it’s something new to learn.

Would you prefer to be represented by a person who is continually learning, or one who just got  out of training, or attended mandatory continuing ed?

 

Duty to Disclose Conditions

Wisconsin real estate buyers are well protected in the house buying transaction. At least they are protected to the extent the Seller and licensees comply with their duty to disclose conditions which may adversely affect the transaction or the property.

Sellers of 1 to 4 family residential properties are required to complete a Real Estate Condition Report (RECR) and provide the report to the Buyer within 10 days of the accepted offer. It’s not illegal for a transaction to close without the RECR being provided. Instead, the law extends rescission rights to the buyer who does not timely receive a RECR.

A buyer who does not receive a RECR, and used the Wisconsin approved offer to purchase form will have affirmative statements from the seller representing they have no notice or knowledge of specific conditions which may be defects or material to the transaction. Unless the provisions are deleted or a counter offer is prepared to override the affirmative condition statements in the Offer, much of what is on the RECR is addressed by the seller in their acceptance of the Offer.

If the Seller declines to adequately complete the RECR the licensee still has an obligation to disclose to the seller and the buyer adverse conditions he/she is aware of from a limited inspection of the  property.

A consequence of this hyper active seller’s market may be a loss of attention to disclosure obligations. I’ve heard attorneys say their post closing complaint cases have increased in the last two years. I’m not surprised. Whether a person resents having been pressured to pay more or accept conditions without an opportunity to do discovery, adverse conditions, the extent of which are unknown until after closing are likely to bring the buyer and seller together again, and this time with lawyers instead of real estate licensees.

Suggestion:  Sellers who correct, prior to listing, and fully disclose adverse  conditions are better protected from a claim of failure to adequately disclose. I understand some people will shy away from a home with a condition report acknowledging defects, even those which have been repaired.  It’s safe to say the person who would not consider the house because of a known condition would be a prime candidate for suing a seller who didn’t disclose. Licensees who complete a pre-listing inspection of the property and document their findings in writing will have what they need to conduct an appropriate pre-listing discussion of the property condition with the seller.

What’s My Home Worth? The answer doesn’t have to be a WAG.

No one ever said the appraisal process was scientific or perfect. Certainly somebody from MIT, or Stanford, or the UW Math Department could create a system to pinpoint real estate value. Oh, it’s been tried. See your property assessment, or Zillow’s Zestimate, or the RPR Value. There are a multitude of these calculators out there. They all use quite disclaimers of their lack of dependability, but they whisper the disclaimer and shout their confidence.

A useful tool on the internet is the mortgage amortization calculators. They different than (WMHW) tools in that  we expect accurate information.  Accuracy doesn’t appear to be the goal of the WMHW tools we see. You do know the tool isn’t generating a product, right? You’re the product.  All of these tools are shiny machines to attract your attention. Everyone know we will give away our valuable privacy for  a peek at a cute cat or a bird that talks. Lead capture is the purpose of WMHW and other calculator programs. (You’re not even a number, you’re now a lead and you’re getting sold to who knows.) Oh, the program will put out a number for you. Some will give you a $90,000 range (the right number has gotta be in there somewhere). It’s not a dependable number and it comes with no evidence of support.

The widespread use of WMHW is concerning. These numbers do get used as starting point for home sellers and buyers, data for financial statements, as an idea to decide to refinance, dispute resolution, etc. I’d like to see them go away until someone builds something that works. Until then, there is a better way.  Of course the appraiser is your only resource for a report to satisfy a lender.  That appraisal may cost $500 and it’s likely to be worth the cost. If you don’t need a certified number, the Realtor® price opinion is still better than WMHW WAG. If the licensee, regardless of experience, is using a value adjustment process to arrive at an opinion, you can trust the number to be within 5.0% of what a typical buyer would pay to own your property at the moment.  The key is the proper input of relevant data, and a calculator.

If you want to know a number worth knowing and you don’t want to pay, talk to a Realtor®. If you want to be sold to the real estate industry, play with the shiny machine.