No-Show and Hold Offers. Who benefits?

Before the week is over, you’ll give an opinion on something, and someone will counter your opinion based on something they experienced once or something that they have not experienced once. Maybe you’ve had this conversation.

Given a choice, when all else is equal, a home seller is likely to prefer an offer that does not include a radon testing contingency. Someone replies: Oh, I’m afraid I have to disagree. I’ve never seen anyone decide one offer over another based on a radon test. In fact, I had a seller say they were glad the buyer wanted to test for radon. 

Contrairians might argue that 6 out of 10 people prefer an offer with more risk than less risk. Knowing what you know about contingencies and radon test results, what do you think is the logical position? Will at least 6 out of 10 home sellers prefer offers with more risk over less risk? 

One experience is enough to suggest something may or may not be. Still, it’s not a big enough sample to make a reliable conclusion. When it is possible to gather evidence to prove a point, it’s worth taking the time.

“No showings until 1:00 PM Sunday at the Open house. All offers will be presented at 5:00 PM on Tuesday.” has become a common practice even though it’s unsupported by evidence of any value to the Seller. I am sure more than one person saw this strategy used and believe it worked in favor of a seller once. Without analyzing the facts of each scenario, do we really know if the plan produced a better result? No. Not unless we have the same transaction exposed to the show and present promptly plan. 

It may be possible to gather evidence to make an informed opinion that the no show and hold offers approach is better. It hasn’t been done. There is an outcome we can easily track. The MLS data can show whether listing firms and listing agents sell more of their listings under the no show and hold strategy. What do you think the results would indicate?  

Why do home sellers offer 3.0% commission to buyer agents? You don’t have to.

The six percent real estate commission has shown a remarkable immunity to technology. I believe that immunity is the result of the home selling consumer having too few choices for complete real estate representation from firms with alternative pricing structures. To be a part of the solution, we opened Essential Real Estate. We sell homes for a price of $499 at signing, and 1.0% of the purchase price at closing. The contract you sign with us will offer an amount of your choice to the cooperating (or buyer) broker. And that fee does not have to be what you might have been told it should be.

The Myth of 3.0% Buyer Agent Fee

The story goes like this. A home owner lists their property with a real estate broker who belongs to the local MLS. Among other things the listing agreement states the obligation of the firm and the seller and the commission or success fee owed to the broker by the seller at closing. To participate in the MLS, firms agree to extend cooperation and compensation to other member firms who procure a buyer for the property they have listed. This is important: THERE IS NO SET AMOUNT WHICH MUST BE OFFERED BY THE LISTING FIRM TO A COOPERATING BROKER OR BUYER AGENT. Mandating any specific fee is an anti trust violation.

A random search to look at fees offered to buyer agents on sold properties I see the fee is not just usually, or typically 3.0%. It is almost always 3.0% as in maybe one out of 25 are anything less than 3.0%. The reason the buyer agent offering is as it is is because their is a myth perpetuated that says brokers might not show homes where the commission offered is less than 3.0%. The myth is unsupported by evidence and logic. No agent can hide properties from buyers as long as the internet is free.

Long ago when Realtors held the information and listings were only published in bi weekly books an agent who chose to violate ethics and law might have been able to hide listings from clients. Today buyers find out about listings before the agent knows about them and has access to scheduling an appointment directly with the listing agent.

Millions of Dollars in Savings to be Had

The amount of money offered to a buyer agent to bring a buyer is not an incentive. With so few homes on the market in any price range every home that is not under contract in some price ranges is going to draw a crowd. People will come whether or not a Realtor wants to participate on their behalf. By committing yourself to paying 3.0% of the purchase price to a buyer agent before a buyer evens sees the house is starting at a disadvantage. Remember, as a homes seller you are interested in your Net equity after fees. When we focus on the price and fail to tally the expenses and subtract them from the purchase price we deplete our home equity unnecessarily.

Consider This

If you agree it’s a good idea to put your home on the market one day and begin showings a few days later you then believe it’s a good idea because demand will build up and demand will translate into more offers. Homes priced under $300,000 in many neighborhoods draw a crowd on day one. In this case the home seller may want to offer less than 3 and see what happens. Agents who have broker permission to accept any fee might be pleased to concede some commission in order to help their client get their offer accepted.

What would I do? Offer two.

A home seller could offer zero dollars to a buyer agent and still draw a crowd. The fee will be negotiated in the Offer. If my house was one that is sure to draw multiple offers (and we can tell which ones are) I’d offer 2.0% and be willing to pay the amount necessary to secure the best price and terms. But I would not commit myself to 3.0% at the get go.

Compound 4.0% Commission saving Into a College Fund.

Calculate the growth of the commission you save with Essential Real Estate

You easily find options to pay 50% more in broker commissions compared to our 4.0% or less success fee. Essential Real Estate exists to be an option to receive expert transaction service along with significant commission savings.

The difference you save is yours to do with what you want. Had you paid it to the real estate agent that’s what they would do. We believe home sellers should have a choice to keep more of what they earned in home equity by paying less in sales costs. The thousands of dollars you save with Essential can grow into something more substantial. Mutual Fund Average Return Examples 2019 can’t be counted on to exist into the future but they work for projecting. Using historical data let’s assume a sales price of $350,000 and commission at 6.0% v. commission at $4.0% plus $499. We will use a projected return range above and below 9.0% annually over 15 years. This Compound Interest Calculator Investor.Gov shows the potential growth. Your commission savings return is certainly a good start on an college fund, a down payment on a vacation property, or an all expense paid world tour.

*Assume a sales price of $350,000 where the owner pays a 6.0% commission of $21,000.00. In some neighborhoods the median time on the market is 8-9 days. Compare the same scenario to Essential Real Estate’s 4.0% success fee of $14,000 or less, and $499 listing fee. The savings of $6501.00 invested in a mutual fund growing at a rate of 5-13% grows into a healthy college fund while a 3 year old grows into a college student.

Vision and Mission. Why Essential Real Estate exists.

“To matter” means means, to me, creating choices where none or too few exist for people who want to keep, or get back, what they need to live their purpose.

The ability to matter is open to just about anyone. * That merits inclusion in a future edition of The Words I Wish I Wrote. The purpose of Essential Real estate is not “make a profit of X dollars”. Profit or loss is an outcome of living a purpose. Our purpose is the Why we exist. Home equity is a treasure under constant threat. From the day your offer is accepted to own a home until the day you sell that home to use what remains for the next significant thing you do somebody wants a chunk of your treasure.

“To matter” means means, to me, creating choices where none or too few exist for people who want to keep, or get back, what they need to live their purpose.**

In the field of real estate, where we live, the problem we set out to be a solution to is the constant demands made on home owners to spend their home equity treasure on services they don’t understand or don’t need.

It is our Vision to be the real estate broker of choice for people who believe they have more important uses for their hard earned equity than paying fees and costs to sell their homes. We see a future where our results inspire others to start their own endeavors strengthening a field of healthy competition for the benefit of the public

Mission: Thrive to master transaction skills to be a wise choice for consumers who prefer to have a transaction skilled real estate agent on their side, and pay only for what they need.

The effort to fulfill a mission that matters will be met with resistance. One result of our existence may be that other services are created to improve on our model and bring more choices to the market for people who desire to keep more of their home equity in their hands. Resistance is natural; it may even be an invitation to dialogue.

*Quote from Seth Godin.

**The Aaron Meyer Foundation is one effective choice we brought to life for improving the lives of families who have young people in substance use recovery.

Pay less in commission. Wait for the Offer before promising 3.0% to the buyer agent.

There is no hiding a house on the internet.

Maybe this is a true story, perhaps not. There was a Detroit automobile assembly line where the last guy in the assembly line uses a mallet to pound one or two of the doors. An executive from another car manufacturer visited the plant to see how to build an efficient assembly line for her company. The visitor asked, Why is hammering those doors? The plant owner replied, “That’s his job. Doors don’t always shut tight at first. A few bangs with a heavy rubber mallet on each door solves that problem. See how the door fits now?”

Later the fellow from Detroit paid a visit to the other plant to see the assembly line in action. The American noticed the last person in the line did not have a mallet. The man from Detroit turned to his host and said, “We never send a car out with the doors, not snug. You gotta have a mallet-man at the end of the line. Trust me. If you don’t bang the doors shut, they won’t fit right, and you’ll have upset customers.” The host smiled politely and replied, “We too never send a car out with unfit doors. We designed our doors to close snug the first time and every time.”

We will do what we have done until someone asks the magic question, WHY? Once the item is questioned , the solution is often simple and cost-saving. We have one of those costly old ideas and it costs home sellers millions of dollars every year. It’s the belief that you must offer a 3.0% commission to the cooperating or buyer agent. Anything less and agents won’t show your house. I say that idea is a long perpetuated myth unsupported by logic.

There is no hiding of a house on the internet

REALTORS held all of the information about homes for sale thirty years ago. If you wanted to know about new listings, you had to see a REALTOR. If you wanted to see houses, you saw the houses the REALTOR wished to show to you. If an agent was dishonest enough to be unethical and chose homes to show his clients by the price of the fee he would earn, I suppose it was possible to hide homes from would-be buyers. Today that’s not probable, and it’s illegal. Some things changed.

A search of the MLS for homes in any price range in any location will yield maybe a half dozen homes for sale and without offers pending. That’s no crowd where your house can get lost. The searching is not done primarily on the MLS by agents. The searching is in the hands of the consumer on smartphones, tablets, laptops and it’s the home buyer who is doing the searching. Instant new listing notifications get to the hands of buyers within seconds of being entered on the MLS. The chance that a buyer is alerted by an agent to a home they buy is diminishing. So, is there any advantage in offering a 3.0% commission over something more like 2.0%?

The Buyer sees the new listings first
The National Association of Realtors has the facts. It’s highly likely that the home a person wants to make an offer on was discovered by the person and the agent is invited along to do what the agent does. As good as any agent is in getting new listing information to a buyer, the internet is better. A late-night entry of a new listing will be in the smartphone of the public long before the agent has the first cup of coffee. (Of the homes that people buy, I wonder what percent were discovered by the Buyer while wearing PJs? I bet it’s a lot.)
Don’t give away your negotiating leverage
By promising to pay any amount of a fee to a buyer agent before you’ve seen an Offer you are spending money on a mallet-man. This is the reality. The Buyer discovers the house. The Buyer tells the agent. The Buyer decides to make an Offer. The agent writes the Offer. And this is where the buyer agency fee is typically negotiated. Regardless of the fee, you offered to pay to the buyer agent; the Buyer is going to find the house and see the house. Irrespective of the fee you offered to pay the buyer agent likely will reject your Offer (3.0% or less) and negotiate for the seller to pay the buyer agency fee of 3.0% or more directly to the buyer broker at closing. And this is where your opportunity comes.

If it’s in the Offer it’s negotiable

Imagine you offered to pay a buyer agent 1.5%. The Offer, the buyer agent, writes, is at your asking price but requires you pay the buyer broker 3.0% instead of 1.5%. You’re not deciding the buyer broker fee; you’re deciding if the net price after the cost is acceptable to you. If you have no other options double, the commission might be agreeable to you. But when you have options, more than one offer, there is a chance one of the Buyer Agents will concede 1.5% commission is better than coming in second holding out for more commission.

Let’s assume we have two full-price offers on a four hundred thousand dollar sale. The Offer where the seller pays a 3% commission will drop the value of the Offer by $12,000. The other, at the same price where the Buyer Agent accepts your Offer of 1.5% leaves $6,000 in the hands of you, the seller.

The law, the Code of Ethics, and the Internet, and common practice is on your side. Take your advantage while it lasts. Pay only for what you need.

Selling Your Home is Not Your Objective.

The selling is a means to an end. It’s the work that’s done to accomplish the objective. And the objective is to liquidate the equity. Whatever we intend to or might do with the equity is a secondary objective.

When liquidating equity is the objective it makes sense to consider the amount of equity that has to be paid as a price to liquidate. Essential Real Estate set its fee at 4.0% or less, plus $499. You can choose to spend 50% more with any number of brokers. We think you should have a choice to keep more of your equity.

We leave more home equity dollars in the hands of our clients.

When we talk of real estate commissions as a percentage of the sale price we overlook the fact that the fee is paid from home equity, not the sale price. As a percentage of equity that 6% can be an enormous 20, 30, 40%.

From the day we buy through the day we sell our home equity is at risk of being depleted. By paying attention to where the money comes from to pay costs, expenses, concessions, and commissions our clients see the importance of wise negotiations and reasonable fees.

When we think of real estate commissions as a percentage of the sale price we overlook the fact that the commissions are paid from equity dollars, not from the price. Six percent is not the same for everyone. For example, everyone with a $400,000 house could be charged a 6% broker commission. For the person with $100,000 in equity, a 6% commission of $24,000 will consume 24% of their equity dollars. The less equity a person has, the greater drain the fee will be on their savings, jeopardizing their ability to do the next thing they have planned in life. We think the consumer should have more choices.

Collusion or price fixing is not what’s happening here. Given a choice to charge as much as the market will bear or less, very few firms will concede the higher price. We can say real estate commissions are not fixed and they are negotiable. What we can’t say is that the consumer has many choices. Without choice, there is no real negotiation.

It is the essential real estate services required by license law that the consumer is least prepared to concede. A system that ties less real estate service to a lower fee is incomplete at best. The only reason there are not more options for complete real estate agency service at a more affordable rate is choice. Few talented people are choosing to fill the void.

One day more firms will look at home equity as a person’s treasure the way we do. And when more firms strive to leave more equity with home sellers they will offer smarter services and everyone will benefit. Until then, Essential Real Estate is showing that it can be done. Lower fees. More ideas. Better choices. Safer contracts.