Metropolitan Place Owners Might Be Missing The Market by about $10,000

Home sellers are not getting the full benefit of a SELLER MARKET.  Metropolitan Place Condominium owners are paying a nearly $10,000.00 premium to sell their condos in 2020. A quick comparison of sales in 2020 compared to sales in 2011 proves somebody can save significant money if they had a viable choice. 

2011 Recession Pricing of Condos and Broker Fees

In the first 10 months of 2011 only six Metropolitan Place (360 W Wash) condos sold. The average time on the market was 193 days. Each sale reported to the MLS shows the seller paid buyer brokers a 3.0% commission. We know the RASCWMLS practice offers 50% of the total commission to a buyer agent so let’s assume the typical seller paid a typical 6.0% commission. If 2011 was a buyer’s market (six months on the market and 93% of the final asking price) and the going commission rate of 6.0% was related to the difficulty in attracting a buyer and negotiating a sale, do we expect to see the commission rates change in a favorable seller market? A hundred economists might say yes. Let’s see what happened.

A Fast Market in 2020

Compare the 193 days on the market in 2011 to the 38-day average in 2020. Consider the average sale price to asking price, with no price reductions, is 98.5%. Sixteen units sold in ten months. There are supply and demand. So, what happened to commission rates? Fifteen out of sixteen owners paid 3.0% to buyer agents. Assume that’s 50% of the commission, and it’s safe to conclude the typical commission rate was 6.0% in 2020. If you are an economist, please share your thoughts. Are owners not able to negotiate both sides of the commission? If not, why not? 

Lack of Viable Choice

The average sale price in Metropolitan Place was $357,706. Essential Real Estate, LLC is a choice for complete real estate service at a market rate. We charge $499 plus 1.0% of the sale price to represent our clients. Furthermore, we teach our clients how to negotiate the buyer agent commission AFTER they see the Offers’ quality. Promising to pay 3.0% before you know the terms of an offer is an expensive mistake. Most of our clients receive multiple offers and they negotiate a buyer agent commission of 2.0%. I’m happy to explain how this works. Our clients are delighted to save a few thousand extra dollars.

3.0% + $499 Total Commission v. 6.0% is a Viable Alternative

The average sale price of $357,706 is an opportunity to save $10,000 in home equity. We believe it is better that you keep your home equity than spend it on selling costs and fees. If that seems like a good idea, let’s talk. 

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

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.