Author: Tom Meyer, Owner-Broker, Essential Real Estate, LLC Madison, WI

We never know what we don’t know until we pay the price to learn. Two weeks ago, optimism was the weapon of choice to protect Americans from Coronavirus. The guy in the Whitehouse called the tragedy a hoax; the democrats were scheming to make him look bad. (No scheming required). 

Once the stock market went into a free fall, the suits marched up to the podium and began their spin a new tale of hope with more lies. We can see how the guy has solidified his power by watching supposedly intelligent adults stand in front of cameras and heap praise on Adolf before uttering their lines. We know this is an act. We know it’s deadly to many Americans. But do we know how deeply this act contrasts with the Constitution? A wannabe dictator can not be part of the solution conversation. Where are the Patriots?

Patriots probably don’t get to enjoy the fruits of their sacrifice for long. Standing against evil and stupidity is a dangerous business. There are patriots among us. The first one to stand directly in front of the guy in the Whitehouse and tell the world the buy is wrong is Dr. Anthony Fauci. When everyone on the podium and all of the President’s enablers, bow to his fragile ego, one brave expert is willing to die literally or professionally for the Country.  

While people like Dr. Fauci are risking their lives to keep people alive and to find a medical solution, people like the Republicans are hammering away American Health Care. People like Texas Lt. Gov. Dan Patrick promote the notion that older Americans should die for the sake of the American economy. Knowing he will never have to stand up and show his courage, this guy boasts that he would gladly give his life for the economy. Call the bluff. 

When told the president said doctors want to shut down the world for a couple of years, a Doctor replied, If it were up to doctors, we’d save as many people as possible. 

Politicians stand at podiums giving alternative facts to preserve their political support when they could be seeing that doctors have ventilators and protective gear. The doctors are Patriots. They’re the ones making decisions on who lives or dies because the Country is ill-prepared for this catastrophe. 

The price of politicizing every issue is being paid by people who are least able to protect themselves. Constant fighting for power has dire consequences; and they are always paid for by the elderly, sick, young, and least capable of surviving. Politicians, please sit down. 

Those who know the historical cycles of history saw this crisis, and they knew it would arrive before 2025. In 1997 authors William Strauss and Neil Howe alerted us, in The Fourth Turning, to the economic catastrophe of 2006-2009. And that’s in just the first 50 pages of chapter 1. 

First impressions: Similar to the housing collapse in 2006, the capitalistic mantra is “Don’t fear. Keep buying. The world is overreacting.” The polar opposite response is “Huddle up. Bury your money; grab all you can get; and guard the door.” Advice is easy to come by. The safe actions to be part of the solution are probably somewhere in between.

Is it advice we need, or is it accurate information without the slant favoring the informer? There is no trusting this president. He can sit in the corner with the rest of his administration and his offspring. Congress can wait for direction from the professionals. We don’t need to hear Lindsay or Mitch or Chuck or Nancy tell us what the other side is doing to harm our country. We can see what they’re both doing.  

We all have a skill or an aptitude that can be useful to somebody in need. As an American and business owner, I choose to make myself available to serve others in need of my talents. I understand the importance of isolation and protecting people from something I might carry. There are precautions I can take to keep others safe. But shutting doors will block some people from getting what they need to survive another day.

Keep safe. 

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

Price is a one time thing, and costs are a life time thing. The PRICE is at the top of the first page of the Offer to Purchase and the top of the mind of home sellers. It’s not the price that you end up with, it’s the equity that remains after you pay the expenses, fees, costs to sell. In an uncertain market, prices may go down. And if they do, Essential Real Estate’s Success Fee plan becomes essential.

The High Cost of Broker Commissions

The commission rate will consume the largest chunk of your remaining equity. There is no standard commission rate in real estate. There may be similarities in rates, and some myths or beliefs about rates, but there is no standard rate. Essential Real Estate doesn’t make you negotiate or ask for a favorable rate. We just made our rate favorable from the start: $499 and 1.0% of the purchase price is our Success Fee. You are welcome to offer a fee to a buyer agent to bring a buyer, but we don’t expect it to be any set number. On Thursday I was told by an agent, 3.0% is the standard buyer agent fee. I disagree. It may be a number expected to be offered but our expectations adjust to reality.

Don’t Give Your Equity Away…negotiate

Agreeing to pay an amount before you see an offer makes no sense. There is no requirement that anything be promised to a buyer agent. We discuss this with our clients. Look at it this way; a seller pays for an Offer. Offering to pay more than an offer is worth before you see the offer is illogical. Holding something back could increase your NET on an Offer below your expected price.

There will be no boycotting of your home by agents who don’t like your offer. That’s unethical and depending on their agency, it’s probably illegal. Besides, how will real estate agents prevent buyers from seeing homes on the market? This is not 1980. Home shoppers find the homes they want to see and they find them from the comfort of their home. They do not need access to the MLS to see your home is for sale. The internet is the real estate consumer’s greatest asset…until it’s time to negotiate.

Negotiate Profitable Terms

The money you spend to close the sale is spent from the moment you agree to price and terms. It doesn’t stop there. Contingencies are the buyer’s opportunity to chip away at the price (and therefore your equity) from the time of acceptance and possibly until closing. Real estate agents are not created equal. They don’t have equal experience. And years of experience without learning is no advantage to the public. As sure as agents believe commissions are standard, it is more certain there are agents who believe all offers are standard. The forms might be; but the agent who knows how to customize an offer for the buyer and the situation, taking into account the seller’s needs will create an offer that works for their client and appeals to the seller.

Use the remaining strength of the market to negotiate profitable terms. Talk to us to get a better understanding of this important strategy. Our clients learn to focus on their NET EQUITY when reviewing offers. A big price can have a excessive costs. Repeat this: Price is a onetime thing. Costs are a lifetime thing. Pay less. Keep more.

Selling a home has costs. Title Insurance, transfer fee, deed, overnight, warranty, extra fees, and real estate commissions, credits, and concessions for the buyer can easily exceed $20,000 for even a $200,000 sale price. After deducting those costs from your equity, what’s left is yours to keep. 

And therein lies the first problem. If your gross equity (before deducting expenses) is $40,000 after you pay everyone in line, you will spend 50% of your capital on fees. Maybe you’re left with enough money for a down payment on another house.

It’s Not The Price That Matters

The price of an offer is a distraction. Fall in love with a price, and you’re at risk of overlooking expenses. I say it’s best, to begin with your eye on your equity. It is your equity that you’re using to accept the Offer. If you want that Offer, it will cost you this much of your equity. When you see how much equity you have to spend to get an offer, you’ll be a lot more careful to avoid the distraction of a big purchase price. Sprinkled throughout the contract are fees and costs. There is an assumption that the Seller will pay those bills but know this: they’re all negotiable. 

Reduce The Fees

When you get down to the last few thousand dollars of difference between your price and the Offer you’re negotiating, look at the fees. 

The first place to look is the Broker fee. Essential Real Estate, LLC created a modern and logical fee to leave more of your equity in your hands. $499 plus 1.0% of the purchase price is our Success Fee. Over that, you’re welcome to offer any amount you desire to a buyer agent to bring a buyer.  

There is no standard fee paid to buyer agents.

You may hear that the standard commission split is 3.0% to buyer agents.

That’s a myth and misleading. It is indeed typical for a buyer agent to expect a 3.0% offer of commission to bring a buyer. It’s accurate and easily verified that most home sellers pay 3.0% to a buyer agent. It’s so true; it’s not even close. Listen carefully; you may offer any amount to a buyer agent to participate in selling your home through the MLS. Come closer, regardless of what you offer to pay to a buyer agent; you can expect the Offer you receive will include a provision where the buyer says, I don’t want what you’re offering. I want 3.0%, and when that happens, negotiate or agree. When in competition, some brokers may believe it is better to take what less than they expected to help their clients get their Offer accepted. 

Buyer Agents Show Homes Regardless of the Fee Offered

I don’t feel this myth of blackballing on account of commission even merits a conversation. It’s unethical and, in some instances, will be illegal. It’s not happening. And I know it’s not because Realtors do not control the access to available properties and buyers. List your house for $300,000 and offer 3.0% commission or offer 2.5% or 2.0% or 1% and you will see the same buyers come to your home. There is no evidence to show homeowners providing less than 3.0% get fewer showings or that showings increase when changed from less than 3.0% to 3.0%. 

The Odds That An Agent Will Accept Less Than 3.0%

Clients of Essential Real Estate are told facts and given options to propose any amount they desire to a buyer agent. They will sign a contract to pay a Success Fee of $499 and 1.0% to Essential RE and an amount of their choice to the buyer agent. We presented four offers to one client. Three of the four agents rejected the 2.5% the Seller offered and required the Seller to pay their firm 3.0% plua $295. One agent accepted the 2.5% the Seller had offered. Half of 1% is $1,000 for every $200,000 of price. That will buy a lot of pandemic TP.  Based on limited research, the odds are 1 in 4 and that’s enough.

Hold That Thought

Consider holding your commitment on a top-dollar fee you are willing to pay an agent who represents the buyer. Keep your negotiating options open. If you’re offering 2.0% and the agent wants 3.0%, you get to decide. Consider your options. When you hold to think about paying the 3.0% and look at everything on the table, you’ll make a smart decision. You can always go up. 

Summary:

• You pay a fee to accept an offer. It’s the Buyer Agent Fee
• All offers are not worth the same
• To increase your Net after the sale expenses, offer less commission upfront
• No real estate licensee decides to show a house to a client based on the fee offered from the Seller or listing Firm
  • If anyone disagrees, please share the evidence
• Price is one consideration; expenses and costs and terms can be more important
• Increasing the purchase price to increase your Net has a risk you won’t have when you lower your costs

Costco scares me on any Saturday. I wasn’t there this weekend, but I heard about the crowd. Shopping carts snaked back from the checkout to well past the rotisserie chicken. If it’s possible to pick Costco clean, it will happen during this pandemic. Grocery stores never had a chance.

Panic and pandemic sound like they share a Greek lineage. I looked. Sure enough. Pan, the God of woods and the source of frightening sounds that struck fear in crowds throughout a village. The sounds we’re hearing are certainly sending alarm through our village.

When we are afraid that there might not be enough for everyone, it must be a natural reaction of humans to gather more than enough for themselves. The people with the greatest fear gather what they fear won’t be there for them if they don’t take it now. And by taking more than they need, there isn’t enough for everyone else. Interestingly, the people who fear that others will get what they want are the ones who take what other people will wish to get. By not sharing the fear, the fearless get nothing.

The feeling of never having enough is a miserable way to live. If we felt we had enough would there be enough left for everyone?

I believe in science. When scientists say a virus is dangerous, there is a good chance following their advice is the prudent thing to do. When I think about our parents who are in lockdown in senior care facilities, I understand the precautions are not so much about keeping me healthy. They’re about keeping me from unknowingly becoming a carrier and infecting those least able to recover from the virus.

Buying and selling real estate is something most of us can put off to tomorrow. Being part of the solution is not. A pandemic is a novel experience for our generations. Like all life experiences, this one too will pass, and lessons will be taught. Whether they are learned will be up to us. We were shown a harsh lesson in the first decade of this century. Denying a bubble was building and encouraging people to disregard the naysayers contributed to the humanitarian crises referred to as the housing market crash of 2006. We have a new opportunity to be better. And I believe we are up to the challenge.

Should I buy it? Should I sell it? I don’t know. No one knows what someone should do when it comes to housing. The question is so much more complicated than finding the lowest rate of interest. Buying, renting, staying, selling are all decisions that should be made based on personal facts and risk tolerance with the help of qualified experts.

Recovery will happen

Sooner or later, scientists will get the upper hand on this virus. And when they do, we will begin our process of recovery. Maybe the opportunities that are missing for people who can’t outbid the competition will come again. Perhaps some people will drop out of the buying market and commit to a new lease. I suppose those who refinance at 3.0% will decide the home they are outgrowing is just the right size with their new right-sized mortgage payment. People will still move. Employers will again recruit from out of state.

The market can stand to adjust. We will all be OK. If buying, selling, staying, moving is best for you, you’ll decide. We’re ready to be a valuable resource for you. We work with facts, and we implement logical customized plans. You’ll make a decision that you’re comfortable with, and one that works for your family. There is no one more equipped for this decision than you.