It’s all about your equity, and the number 6.
Essential Real Estate exists to spread happiness among home buyers and sellers. And we do this by being skilled in communication, negotiation, representation, with a long history of excellent results. Success is a subjective concept. Success is an accepted offer at a fair price, on favorable terms, no stress, and no surprises to our clients. Our seller clients have one more expectation: The more of their home equity left unspent on real estate fees and costs, the happier they are. We can do this because we designed a system to work how the residential real estate transaction works when you eliminate falsehoods, misconceptions, and myths.
It’s All About Your Equity, and the Number 6
Let’s assume Nerd Wallet and Clever Real Estate have done their research into the 6.0% issue accurately. Nerd Wallet says an expectation of an average long term rate of return on a financial investment would be 6.0%. Clever Real Estate reports the average real estate commission charged in Wisconsin is 5.81%. That’s a six on a Federal Tax Return, so it’s a six for this conversation. (Agents, if you typically quote less than 6.0% as your commission to sell a home, please correct me. ) Six seems to be the key number in real estate and investing.
This is where happiness really kicks in. You will pay your real estate commissions from your home equity. A 6.0% commission on a $400,000 house consumes $24,000 of equity. Essential Real Estate clients pay an average total commission of 3.4%. Apply that to the same sale, and the commission is $13,600. The difference of $10,400.00 is your bonus for being smart. 1. It’s your money. Do what you want with it. The real estate broker was going to spend it as they wanted, you should too. One idea is to invest it at 6.0% for ten years. Nerd Wallet Calculator figures your smart bonus could be more than $18,000 if you average a return of 6.0% and contribute nothing to the investment.
Take Your Money With You. Flip the 6.
- The money you save selling your home with Essential Real Estate is a bonus. To determine your bonus compare the commission you would pay with another firm to our Success Fee of $499 and 1.0% of the purchase price, plus whatever you decide to pay to a buyer agent. (Most of our clients offer and pay 2.0% to the buyer agent. Most sales by REALTOR members on the RASCWMLS are reported as 3.0%.) On average our clients pay a total commission of 3.4%. Clever Real Estate reported that Wisconsin has one of the highest average rates at 5.81% second only to Ohio at 5.82% and Missouri at 6.07%. Nerd Wallet suggests using a 6.0% annual rate of return to estimate a possible return on your investment in a mutual fund.
We believe you should have the choice to invest or spend more of your home equity. How might you spend nine grand of free money?
Our business is about improving your life by leaving more of your home equity with you to invest in yourself.
This year Essential Real Estate’s average home selling client saved $9,000 more in real estate fees than what they would have paid with a 6.0% commission. When the average time on the market is a few days, regardless of the commission rate, paying only for essential real estate services leaves more of your earned equity with you to spend or invest as you wish.
Invest at 6.0% for Thirteen Years
NAR reports a person is likely to stay in a home for 13 years. Nerd Wallet says your nine thousand will be $19,000 after 13 years when invested at a return of 6.0% compounded annually.
The real estate firm you didn’t pay $9,000 to would pay bills, invest, or spend your dough on instant gratification. We believe you should have the choice to invest or spend more of your home equity. How might you spend nine grand of free money? Downpayment on a luxury car, a recreation property, new appliances, flooring, paint, kitchen or bath remodels, medical procedures you’ve been putting off, higher education, learning to paint, flying, and sailing. Write a book, or start a business? How about getting your real estate license, join us, and pay it forward?
Essential Real Estate, LLC agents are skilled in the licensed responsibilities that matter. Our clients don’t have to save $9,000. They think it’s a good idea to keep more of their money for things that matter most to their families. We agree.
Why do licensees who present themselves as superior charge the same average fee as the least capable licensee?
Every real estate firm is free to set its commission rate as they wish. There is no set rate for the industry. Check with real estate firms in your community and ask them, “What is your commission rate to sell my house?” If you get a vague answer, ask, “What is the commission rate most often charged, by your firm, to sell a house?” If the research is right, your tally will show an average real estate commission to sell a house in your area is very close to 6.0% of the sale price. Given the opportunity to charge, let’s say, significantly more for far better service, why do we not see firms charging a fee commensurate with their stated ability? Is everyone just average?
Market Conditions and Quality of Service Should Drive Prices. It’s never been easier to attract a crowd of home buyers to a house. Prices for real estate have climbed steadily for several years in a row because of market demand. That wasn’t the case during the recession. Real estate firms charged a 6.0% commission, home prices were dropping, and firms had all of the inventory they could want; it was the buyers who were in short supply. Inexperienced agents and those who could not keep up with the changing market fled the industry for safer jobs. I don’t have evidence to prove this, but those agents who stayed and survived might have had more essential skills than those who left. The shrunk pool of agents available to the consumer might have been the most capable group of agents ever. The least experienced, the least track record, and the most charged the same fee, with few exceptions.
Free Choice Should Also Drive Prices. There are opportunities to be a viable service as long as the service providers are free to design their fee schedule and business as they wish. Free trade laws allow for competition. Choosing not to compete or choosing to deter competitors are decisions that work to the consumer’s detriment.
REALTOR Membership Grows With The Market. The mass exodus from 1.357 million members in 2006 to 999,824 members in 2012 was market-driven. The entry and re-entry of 403,000 members since 2012 pushed the membership to an all-time high of 1.403 million. The rise in membership is market-driven.
Are Real Estate Commissions Market-Driven? With more agents than ever competing to be the listing agent for the lowest-ever inventory of homes, real estate commissions’ price must be in decline. It’s inconceivable that the agents with the most outstanding skills charge the same commission as the agent who just got their license. There is no way consumers will pay the same fee for an agent who has no track record as one who has proven themselves effective in all market conditions. You’d think.
Are there too few alternative business models available? Do firms charge a rate the consumer appears willing to pay, regardless of the agent’s ability, track record, or essential real estate knowledge? Everyone can’t be exceptional, incapable, or average. Business models that are effective for the consumer and profitable for the business owner at a price that rises and falls with the market could thrive in a market where being average and charging average rates is standard.
…we teach our clients how to negotiate the buyer agent commission AFTER they see the Offers’ quality.
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.