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.
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.
Compared to 4.0% a home seller who pays a 6.0% commission will pay 50% more money from their equity. Saving that equity is now a choice.
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.
$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.
Offering more money than the home is likely worth came into our market via the escalation clause a few years ago. As I previously wrote, the typical clause was a watered down version of a true promise to pay more than someone else, but it did serve its purpose of catching the seller’s attention. More often than you might think the seller’s attention drifted when they looked closely at the clause and discovered more money might happen, but at the cost of more uncertainty, greater risk, and some long days waiting.
What happens when we pay more money for a house than the house is worth? We spend our equity before we earn it. Paying $275,000 for a $250,000 house and using $30,000 as a down payment might leave you negative equity. That’s a tough way to begin ownership of an home and an unwise way to make an investment.
Fortunately, when working with agents who know how to construct a custom contract to present your full ability you have more than money to use to catch the seller’s attention. We use the offer to appeal to the seller’s desire for security and safety. A sure thing at a fair price has a better chance of being accepted than a high price with high risk and lots of uncertainty.
It sounds easy enough. And yet, it remains an uncommon skill. Essential Real Estate is created to customize offers for client and make the contract terms work in their favor while being appealing to the seller.
Two lines is all it takes to include a price in an Offer. The remaining 579 are dedicated to the rules of the transaction, and the promises made with exceptions. On price alone an Offer might be judged good or bad. It’s the easiest condition to see and when it’s good, it shines like a bright star. So bright in fact that a person may overlook the essential aspects of the Offer. Rules and caveats are ignored at great peril. Price is a one-time thing; security lasts longer.
Getting the most money in the shortest amount of time is said to be the goal of home sellers, and maybe it is until we have more information. When we take the time to look at the ‘more information’ we discover that security, not price is the overriding factor in negotiations. Price being objective ($100 is greater than $50) is simple to see. Security is subjective. (A $100 bill today that I can never spend is not as appealing as a $50 bill I can spend in a week.) It’s harder to see but becomes clear when we know what the rest of the words mean.
Real estate transaction drafting is primarily a trained practice. When working with a practitioner trained to insert this here, that word there, and cross this off but not that, the client is left looking just as unprepared and insecure as the next person. A wise seller will not get tied up in an uncertain contract. A big price won’t distract them from the clutter of the Offer.
On the other hand, the person working with the professional who understands that the contract is filled with qualifiers, exceptions, caveats, and cautions will have more to offer to appeal to the desires of the seller. Price will always be a factor, but it’s not the only factor. It is in the lack of conditions where buyers are given a chance in highly competitive markets. Knowing how to structure Offers is a skill under developed in the world of fill in the blank and check the box, one-size-fits-all, standardization. At Essential Real Estate we made it our business to know the conditions of the contracts so our clients can make informed decisions about what goes into their contracts, and what is left out.
Expediency, convenience, desire to get an accepted offer before someone else does, aren’t permitted exceptions.
Prior to acceptance is never interpreted to mean “or within X days after acceptance”. In the case of the Federal Lead Paint Hazard disclosure rules, there is no work-around. Prior to acceptance is not, “…within (any time or days) after acceptance”. Expediency, convenience, or a desire to get an offer accepted before someone else does, aren’t exceptions to the rule. If your firm has a work-around, your participation is ill-advised.
A policy does not need to be in writing to be a policy. Evidence of practice repeated, known, and unaddressed might be enough to determine a firm has a policy of violating LBP disclosure law. Penalties levied by HUD for lead hazard disclosure failures are significant and increase when children are involved. When the failure to properly disclose is a standard practice permitted by the firm in special circumstances, the consequences could be dire. Your broker’s willingness to bypass the law doesn’t grant you a free pass to participate risk-free.
For some people skipping the “prior to” and risking the penalty may be less painful than the reward of a statistic and a few dollars more is gratifying. For the rest of us doing the right thing because it’s good for the client, and in compliance with the law is always the better choice. Even if the pay-off is just a better night’s sleep.
We believe 4.0% is a fair real estate broker fee when the median time on the market is 9 days.
Acquisition. The question is never, What don’t you wantfor Christmas? This is the season of receiving. It’s an important season in American culture. The American is an acquisitive creature.
To live in a material acquisitive world Americans become adept at trading as little as possible for as much as possible. And we expect it. A tried and true method to acquire more for less is sell the sizzle. A handy example of selling the sizzle is an appealing ad for the incredible shrinking fast food hamburger. When you buy the burger that looked so good in the advertisement the burger you are handed has less meat, smaller buns, 1 pickle not 2. Less substance. More price will continue until one day we hand over $10.00 and the person at the counter will show us a picture of a burger with everything on it. And we’ll be satisfied.
Why would we expect anything more? To fund a lifestyle at a level one has become accustomed to, there needs to be more revenue and less cost. Selling sizzle instead of steak when you can get the same price for sizzle is going to keep happening until the consumer quits buying less for more. Or a business flips the script and provides more for less, and stays in business.
The new generation is more inquisitive than acquisitive. Maybe because they have more choices at their finger tips and more information they are more likely to ask why where we and our parents were quick to ask how much.
Patrick and I designed our company, Essential Real Estate to be a healthy choice for people who want all of the service at a fair and reasonable price. People who want substance. Essential Real Estate set fees at 33% of the price the market will bear. And we did that because we believe this is true, “Help enough other people get what they want in life, and you’ll get everything you want in life.” Simply put, you can make a profit charging a fair price and leaving more for the customer. We don’t need to acquire more of your home-equity.
Real estate transactions are governed by transaction law. The service a real estate firm is paid to provide is the service they’re licensed to practice at a high standard. The transaction is substance. Our expertise is in the essential real estate service our license expects us to provide expertly. When knowing nuances of the real estate transaction is not your thing, the smoke from the sizzle might cover your substance deficiencies…until someone gets burned.
The six percent, more, or less broker fee is a choice businesses are free to charge. In the next decade the consumer will demand and receive more choices. They businesses that deliver those choices will be built less on the acquisitive model and more on solution at a fair price for expert service model. Essential Real Estate is that choice today.
We believe 4.0% or less is a fair fee when the median time on the market is 9 days.
Let’s keep it simple. In 1963 residential real estate commissions were typically 7.0% of the purchase price. Today, Zillow says they’re about 6.0%.
Commission down 14%. Zillow says the Median Home Value is up to $285,000. Census.gov shows the median value was $17,000. Is it possible the broker fee was about $1,200 in the summer of ’63? It’s $17,100 today.
We pay 100% of our broker fees from our Home Equity. Home Equity is savings earned. If the median home seller has a typical home equity of $50,000, broker commission is going to consume 34.0% of their equity.
And that’s just the cost of fees. We haven’t looked at the costs of under representation and negotiating flaws.
Essential Real Estate is created with an aim to increase your home equity savings by 33%. They surpass that with real estate contract law knowledge and skills.
Realtors are on the side opposed to Zillow. The peculiar thing is, most have no idea why they fear Zillow.
The public embraced Zillow and Zillow gave the public liberty. Is that a pure example of a free-market success story? If you’re the consumer you know it is. The consumer is on Zillow’s side.
REALTORS were brought up in the cyber world to resent Zillow. The REALTORS had the first opportunity to be Zillow but they couldn’t comprehend a world where the public had access to information and where 1975 was no longer the future. They did what large associations are best at doing. They walked away and went home.
If the public wants something, you’re the biggest controller of that something and you don’t find a way to make money off of your stuff, you have no one to blame but yourself. Zillow knew what the Realtors must have known, if the Realtors were sharing their data with members, join them. Zillow aligned itself with Realtors, walked in, took what was free to them, gave it to the consumer and turned around and sold data to the Realtors…this is the data the realtors had but never mined.
I love Zillow. I love informed consumers. I love the fact that a potential client has access to the same information as me so they can do their research and maybe come to the same conclusion as me. Even more than that, I love Zillow for the opportunity they created for independent contractors to provide their brand of service to the consumer who wants what they have. More individuals are free to leave corporate ownership with their arcane rules and hefty fees. Zillow has given the independent REALTOR the liberty they desired. I’m on Zillow’s side right next to the consumer. Realtors are on the side opposed to Zillow. The peculiar thing is, most Realtors don’t know why they fear Zillow.
“What;s your fee?” That’s the easy question to answer. “Have you ever charged less?” That’s the critical question home sellers must ask to know if the answer to the first question is sincered.
Real estate broker commissions are not all the same. Rates vary even among agents in the same firm. Even if the agent makes a convincing defense against a commission concession you can still negotiate a lower fee. Agents are confident in their answer to questions like “Is your fee negotiable?” It’s such a common question Google will give you about 127,000,000 connections about answering. It’s the next question that Google has no answer for. The truth is in the pause.
The topic of a recent company meeting at a local firm was the book Never Split the Difference. Negotiating is the skill the book aims at improving. Nothing of the strategy the author proposed came close to misrepresentation. Honesty. Trust. A sincere commitment to see the other person as deserving of your consideration are clearly part of the strategy presented. Here’s how well the book impressed this firm.
A dozen or so agents around the table, including the owners and leaders, were confident to the point of enthusiastic as they shared their prepared responses to the question, Is your fee negotiable? The quick quips were right out of 1970 sales training. “NO. Nope. Can’t do it. Company policy.” To a person, everyone knows there is no such company policy. Based on every agent’s past history any version of NO is not the truth. And yet the seasoned agents were proud of their answer and the unseasoned agents were impressed. I was not.
I asked this next question and their silence told me the answer I just heard was bullshit. The decisive question was simply, “Have you or your firm ever charged less?”
This conversation turned out to be a defining moment in my career. When deception is encouraged by the owners the culture is poisoned and the future is determined. Building something better is easier when the status quo can’t honestly answer a simple question about their fees. So I did.
There is no question, broker commission fees have not been reduced by the presence of the internet even though the buying habits and methods of consumers has changed substantially. Apparently the broker fee is immune to market pressures or the market pressures are to not pressures at all.
It’s not collusion that keeps fees as they are. I believe inflexible fees are the norm because real estate business owners are committed to doing today what worked in the past. Few leaders get to the top when most members want to be followers of leaders who are taking them right where they are and no where near their discomfort zone. The obvious choice in this environment is to be the change. As I see the world, it’s not important to be a leader. It is essential to see wrong and try to right it. Leadership is overrated. Look around. There are effective leaders behind every crime against humanity. The bigger challenge is to be a wise follower and a committed instrument of change.
I started looking at the broker fee problem from the point of view of the home owner. This is what I saw: The conversation about commission tends to be related to a percentage of the purchase price. It occurred to me that this focus on purchase price minimizes the problem and distracts attention from the real problem, which is, real estate fees are paid by the seller from their home equity, not from the purchase price. As a percentage of purchase price the cost is a single digit. As a percentage of the only real money in the transaction, the equity, this cost becomes a double digit problem. A typical American with $70,000 in home equity is probably going to pay 20, 30, 40, and even 50% of their equity in real estate commissions.
Go ahead, ask Essential Real Estate the questions you want to ask. “What’s your fee.” Answer. $499.00 at the time we sign the contract, plus one percent of the purchase price as our Success Fee at the time of closing. We suggest you offer at least another one percent to cooperating broker who procures the buyer. More than that is up to you. ”
Be sure to ask us the second question. Have you or your firm ever charged less? The answer is, Of course. Our clients set the fee they’re prepared to paywithin the range of fees we’re offering.
When starting a business relationship on honesty and keeping more of your home equity in your hands is your thing call me. 608-332-8331.