Monthly Archives: January 2020

Essential Real Estate. A Free Market Choice by the Numbers.

For a market to be free there must be a choice on both sides of the transaction. Do we have a free market real estate service economy?
Maybe.

Real estate representation is a licensed service. The standard of performance is the same for every real estate licensee. There is no choice as to which legal obligations a licensee will perform. There is a minimum standard though, and we expect some licensees to rise above the minimum to be a choice of higher-skilled service for the consumer.

What about the price? As long as the consumer is willing to pay *6.0% broker fees the market will be dominated by firms that choose to offer the same real estate licensed service for the same 6.0% price. Eventually either the consumer will demand a range of prices for the legally obligated services or licensees will choose to structure their business model to be profitable and sustainable at an alternative fee.

Essential Real Estate, LLC was created in 2019 in Madison to be a free market choice for home sellers who want to keep more of their home equity by spending less on broker fees. These are the numbers.

When the fee of choice tends to be 6.0% of the sale price the regressive nature of the “tax on value” hits those who can least afford the fee the hardest.

$400,000 Value. $300,000 mortgage. $100,000 equity
$400,000 x 6.0% = $24,000.
$24,000 is 24% of the equity.

OR

$400,000 x 4% = $16,000
$16,000 is 16% of equity.

To pay a 6.0% commission the home seller will pay 50% more money compared to a 4.0% commission.

50% more, in this scenario, is $8,000. By moving that $8,000 back into the hands of the seller the difference is impressive:

The $8,000 is a 33.3% reduction in the price of the commission.
The $8,000 is a 10.5% increase in retained equity.
The $8,000 applied to the next down payment will reduce a monthly payment on a 30-year mortgage at 4.1% by $39.
$39 per month is $468 per year
$468 per year for 30 years is $14,040.00

Finally, home owners have a choice to pay less in selling commission and keep more of their home equity. Essential Real Estate has set the market free.

Listing fee: $499 at signing. Commission of 4.0% or less due at closing. We will show you how to make that 4.0% less.

* The Internet Didn’t Shrink the 6.0% commission

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Catch the Seller’s Attention Without Overpaying.

Offering more money than the home is likely worth came into our market via the escalation clause a few years ago. As I previously wrote, the typical clause was a watered down version of a true promise to pay more than someone else, but it did serve its purpose of catching the seller’s attention. More often than you might think the seller’s attention drifted when they looked closely at the clause and discovered more money might happen, but at the cost of more uncertainty, greater risk, and some long days waiting.

What happens when we pay more money for a house than the house is worth? We spend our equity before we earn it. Paying $275,000 for a $250,000 house and using $30,000 as a down payment might leave you negative equity. That’s a tough way to begin ownership of an home and an unwise way to make an investment.

Fortunately, when working with agents who know how to construct a custom contract to present your full ability you have more than money to use to catch the seller’s attention. We use the offer to appeal to the seller’s desire for security and safety. A sure thing at a fair price has a better chance of being accepted than a high price with high risk and lots of uncertainty.

It sounds easy enough. And yet, it remains an uncommon skill. Essential Real Estate is created to customize offers for client and make the contract terms work in their favor while being appealing to the seller.