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.
“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.
Home equity is money you earned and saved. To accumulate equity in your home you made choices to sacrifice one thing or another. It’s money you invested in your home. That’s personal. You’re going to one day want these funds to use for another life experience such as buying another home, or settling an estate.
When access to home equity require you sell your home, sales fees and transaction costs will all be paid from your Gross Home Equity. If your equity is $100,000.00 and your expenses to sell are $20,000.00, you just paid 20% of your earned equity to other people. If you’re like typical Americans your equity might be closer to $50,000.00 and in that case 40% of your equity is destined to become other people’s money. Here’s a brief video to explain what we’er saying.
Paying 20% – 40% or more of your savings might be a wise choice, but if it’s not I believe you should have a choice to keep more of your savings in your hands. Anytime we pay more than necessary to receive less than expected there are consequences; having less than we could have is certainly one. We all face this problem when selling our homes.
To be part of the solution I designed and created Essential Real Estate, LLC intentionally to increase the amount of home equity that stays with you after the sale by at least 33%. Depending on fees charged by other firms that 33% could be $6,000.00, $8,000.00, $10,000.00 or more. Like you, I believe hard earned money should remain with the person who earned it.
Home equity is your money. You earned it. Essential Real Estate ensures you have a choice to keep more or your money. And we do this through fair fees, guarding your confidentiality, providing better negotiating alternatives, customized contract analysis and explanation, and clear transparency into the real estate transaction. Total compliance with Wisconsin Real Estate law is guaranteed.
If saving your equity is an advantage to you let’s talk. Email: Tom@TomMeyer.com. Text or Call 608-332-8331.
Real estate companies are fueled by real estate commissions. Those commissions are paid from other people’s money, specifically their home-equity. Where does that money go?
Texas Instruments calculators. If you had one in 1988 you were on the cutting edge of real estate technology. If you could operate it for anything more than multiplying a number by 7.0% you were likely trying to pre-qualify people. Eventually, you turned them over to a mortgage lender who knew how to use the machine.
Thirty years ago we booked air travel, rental cars, and hotels through a travel agent. We got our messages on pink paper notes, folded lengthwise and inserted into a lazy Susan-type message holder with slots for everyone. There they would remain until we returned to the office…which we did most every day.
The travel agents are real estate agents now, and they get their messages in an instant without needing to set foot in an office. Do we book our trips ourselves because the agents left, or did the agents leave because we book ourselves? Either way, when we miss our connection we have no one to blame but ourselves.
The end of this first decade of the 21st Century is near. This black electronic apple on my desk is a calculator, computer, cordless phone, radio, and television. Oh, yes. It’s also a movie production studio. I pay $100 a month for this gadget. And with it, I can spend more money and every store in the world is open 24/7.
Real estate commissions are no bargain. Despite the fact that the typical buyer spends three to six months researching and discovering the market without intentionally contacting a realtor, according to Zillow, the typical broker commission is 6.0% of the purchase price. How is it that a travel agent, who’s service was required far more often, is out of business while real estate agents are everywhere and their fee has gone down 14% while the average house price grew 108%. If you have the TI-68 please tell me if 6% of $383,000 is more money today than 7% of $135,000 adjusted for inflation.
Real estate companies are fueled by real estate commissions. Those commissions are paid from other people’s money, specifically their home-equity. I haven’t seen an ad for a house for sale in any media forever. Online sure. I’m a REALTOR and when I search for real estate outside of the home I use Zillow.com. I like the Zestimate. Last time I looked, the cost of placing a property on Zillow and a thousand other websites is between zero and zero.
Where does the money go? Billions and billions of home equity dollars are paid as real estate commissions. Some of it is absolutely earned. Maybe someone could analyze the cash flow to see what is spent on essential service and what is misspent on the lifestyle enhancements of other people?
Essential real estate services are listed in Chapter 452 of the Wisconsin Statutes. Nothing in the law obligates the licensee to spend money on more than annual fees. Extravagant expenses are not required to be a highly-skilled, effective real estate agent.
Do you think a real estate company can be profitable and sustained by investing in delivering essential services and charging unselfish fees?
What’s your commission? When you’re worth it, you’ll know it.
The question is often asked because the answer is always assumed to be “negotiable”. When your fee is negotiable, be prepared to negotiate. Simple idea: Remember there are 4 to 10 reasonable stopping points between two whole number. Assume the commission rate you built your business model on is six percent. A client wants to negotiate your six to his five…I’ll skip the rest of the discussion a Realtor might have with the seller and assume the conversation ends with the Realtor conceding without negotiating.
Now, imagine the Realtor was expecting the question because she knew Google Trends showed Realtor Commission was a trending search this time of year. Let’s say the house will sell for $500,000. One off of 6 is not one percent. It’s a 16.6% reduction. But instead of percentages, let’s look at what we are really conceding. Five thousand dollars could end up being a 33% discount, donation, you made from your fee. If you can find 33% off of anything you should probably buy it and sell it on E-Bay for a 20% profit.
Thirty three percent probably is a reasonable discount to expect from some agents. They’re not all alike. If you aren’t some agents, it’s reasonable for you to stay close to your established fee. When you choose to make a concession think Hindu-Arabic numerals. Another number less than 6 is 5.75, 5.5, 5.25, or even 5.6. If you concede 1% your $5,000 donation is not a tax write off. I’m not saying don’t make concessions. I’m saying there is money to be earned by developing conversation skills which will help you turn that expectation of 1% concession to maybe a .5% or even .25% concession. You and the seller can move on knowing you each just made $2,500. What will you do with your $2,500? Put it in the bank? Donate to a real charity of your choice? When you’re worth it, you’ll know it.
If the buyer and seller agree in their contract that the purchase price shall be $300,000 the closing statement must show a sales price of $300,000. We all agree on that. If the contract states the Seller will credit the Buyer $1,500 for closing costs the closing statement will show a credit of $1,500 from Seller to Buyer. What if the Seller’s agent and Buyer’s agent correspond (by phone, text, email, in person) and agree that the credit will be $1,000 instead of the $1,500 the buyer and seller agreed to in writing? The closing statement must reflect the terms of the Offer and the terms of the Offer must be in writing using approved forms as long as Wisconsin Real Estate Licensees are involved. $1,500 is the only agreement the buyer and seller have. That’s the amount that has to be on the closing statement.
What about the situation where the buyer’s broker and listing broker agree to contribute money to the transaction by lowering the broker’s commission? Assuming the Offer to Purchase includes a statement where buyer has directed buyer broker to reject listing broker’s offer of compensation, and have the Seller pay the buyer’s broker at closing (assume 3.0% of the purchase price), the Offer to purchase must be amended to change the 3.0% to an amount less than 3.0%. If the Offer is not accepted a counter offer is the proper form. If the Offer is accepted then the buyer and seller must amend the Offer. An appropriate statement for the counter offer or amendment where the buyer’s broker is accepting $1,000 less to improve the Seller’s bottom line could be:
Addendum A, page 1. Buyer Broker Commission: Change 3.0% to 3.0% minus $1,000.
Nothing else in the Buyer Broker compensation contingency of the Offer is changed. Buyer is still directing the buyer broker to reject the listing broker’s offer of compensation. The only change is that the seller is not paying buyer broker 3.0%, they are paying 3.0% less $1,000.
The listing broker, selling broker, title company, lender, closing agent want to be careful to make sure all of the agreements the parties have with respect to money are documented and signed by the buyer and seller.
Obviously, a listing broker who reduces the commission the seller is to pay at closing will use an amendment to the listing contract to document the commission change. The title company receives the listing contract and amendments to that contract as well.