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.
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:
- 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.
- 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.
- 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.