Everyone who owns real estate has equity. Negative or positive, you’ve got equity. The home ownership model is designed to produce positive home equity. By saving and living within our means our equity grows. To live within means we do not buy what we don’t need, and we pay a proper price in exchange for the goods and services we buy. It’s a daily struggle to protect our savings. Everyone who has something is willing to exchange that something they have with us for more than it’s worth.
What’s it worth?
The relative cost of a new idea or invention trends lower over time. Think of your computer. If NASA had anything like this in 1969 the price would have been in the billions. Real Estate Broker fees have a resistance to downward pressure. Is a broker fee set at a rate of X percent the same value as the service provided in 1990 at the same X percent? Is the dollar worth more or less today than in 1990? The formula for determining some real estate fees is X% times the sale price of the property. As property values go up and the percentage stays the same over time the cost to the consumer is what? Greater or less?
Your home equity is being spent on things you would probably not buy.
The typical American home owner does not drive a car priced at $75,000. They do not pay commercial office rent on space that goes mostly unused. Second and third homes and vacation properties aren’t in the budget. Neither are vacations to exotic places, new cars for kids, or private schools. Americans like nice things, but they don’t spend their children’s education fund on designer hand bags and extravagant parties. All service providers do not share the typical American’s idea of living within means.
Your home equity and real estate commissions
A business can exist when it makes a profit. A profit is made when less money is spent than revenue generated. All businesses have business expenses. All expenses paid for by the business are not essential business expenses. I can speak for my experience in the real estate business. Before you invest in a stock or business it’s prudent to see how the revenue is earned and spent. When we consider a real estate company to represent us in selling our real estate it’s wise to know what is to become of your home equity as it is transformed into company revenue. Asking for a financial statement will show you what you’re about to buy. Remember, owning luxury is a choice. Receiving exceptional skilled service is a fair expectation.
Do you get to drive the Tesla?
When we pay companies more money than the service or product is worth we aren’t surprised. We should be surprised when we discover the excess we paid is excessive. After we sell a home, somebody is going to have your money to spend wisely or to satisfy some other need. Someone will save your equity or buy the latest, greatest something. Vacation, investment, tuition, boats, cars, real estate, luxurious fashion or some other thing that provides temporary happiness. Your home equity is the money that will be spent. The only question is: “Who will do do the saving or spending?”
Before committing to spend your equity on a new luxury for someone who is not you, it’s Okay to ask to see where the money goes. A profit is necessary for a legitimate business to exist. Maybe that profit could be made just the same by lowering the fee and spending less? At least you should get to drive the Tesla and go along on the world travels