We think of the residential real estate sale as a price transaction when, in fact, it’s a trade of NET EQUITY. Price and expenses are factors in the formula to calculate a home seller’s home equity. PRICE – EXPENSES = EQUITY. By keeping eyes on equity, real estate agents have many more options to craft Offers sellers are likely to accept.
Selling our homes is how we release our home equity to do the next thing. By focusing on NET EQUITY, not price, we avoid the consequences of agreeing to expenses that deplete our equity and terms that leave negotiations open. By structuring our Offers to reduce the owner’s costs to sell, we increase their NET EQUITY and improve our chances of getting our offer accepted. The price is only a participation trophy. The actual money and the security of a sure thing is the real prize.
Price is misleading
Homebuyers who only know how to improve an offer by increasing the price will pay a premium in negotiations. The buyers who provide the seller with secure terms and a reasonable price receive accepted offers and probably retain some unspent equity by not overpaying. To pay a reasonable price without being the highest price offer on the table, increase the Seller’s Net Equity after the sale by decreasing the Seller’s costs to sell.
The Secret Is Knowing Where The Money Is In The Purchase Agreement
You’ll find those opportunities to improve your offer without increasing the price throughout the Offer. There are at least two places on the first page of the WB Purchase Agreement, and at least six more throughout the 10-page offer.
At Essential Real Estate, we know how to make the Offer work for our buyer clients, when the goal is to be the most attractive buyer. The same strategy works to give our seller clients every opportunity to eliminate risk and increase the amount of the equity check they’ll receive at closing.
Businesses exist for a reason. If I asked 100 owners why their company exists, the most common response would be to make a profit. All companies sell widgets or services. Customers or clients pay the money a firm uses to pay the bills to keep the remainder as profit. When the purpose is profit, the problem is too. Solving the problem requires a product to be sold. Customers must pay more or buy more when a profit-driven business has a problem. The customer is now the product.
What might happen if profit was not the reason-to-be, but only an outcome to expect? A business built to solve a problem for consumers remains in business as long as they are a solution to the problem. And as long as your solving problems, you generate revenue. Your profit is not dependent on the consumer; it depends on how well you manage your income and expenses. If you exist to make a profit, you are out of business when you don’t make a profit.
Ask The Most Important Question
The price of a widget or a service is the business of the business owner. Why the price is what it is, well, that’s your business. If you are the product necessary to be sold for the company to achieve their reason for being, you should know. It’s OK to be in business to make a profit, and it’s perfectly fine to be the product the business needs to meet its objective. Your only choice should not be to concede to be the product instead of the customer or client. When you discuss the WHY behind a firm’s reason to exist and the reason their fee or price is what it is, you’ll know if you are the customer/client or the product. All firms see you as one or the other. What do you want to be?
We can’t talk about the American experience of prosperity in the decades after World War II, without recognizing the prosperous impact of homeownership. And to that, we are wise to acknowledge segregation eliminated the opportunity for black Americans to prosper as the white Americans who were not living next door. The mood is right in the world today to raise our understanding of the eternal consequences of our actions. Merriam-Webster (the dictionary people) just took a giant step in changing racism’s discourse by modifying their definition of racism to include systemic oppression. When an institution is trusted, respected, and looked to as reference turns how they define racism into thorough recognition of consequences, we are on our way to a more excellent dialogue.
The strength of definitions is their inflexibility. No one benefits from words meaning one thing under one administration and another under the next. Over time everything we believe is put to the test in the streets, in the classroom, and courts. The concept of racism was more or less understood and accepted in 1968 to be this but not that. It’s natural that given any boundaries, humans will work around the edges to push the limits and breach the walls until the definition of a word is no longer suitable because now what is openly racist is shaded by slight nuances.
Examples of Begging Love Letters to Home Sellers
Twice in my career, love letters to home sellers became the go-to idea Realtors turned to as a way to give some of their buyer clients an edge in competitive markets. Today we are seeing home sellers request letters be included with Offers to help the seller select the people who will be the right fit for the neighborhood. Some people need to know more than how favorable the price and terms to show a person’s commitment to getting safely to closing. And if that need to know includes what they believe (Christmas=Christian, Family=male dad, female mom, at least one child, and a pet, higher education=better fit, etc.), the decision to negotiate has everything to do with discriminatory factors.
The intent may not be crystal clear.
Every person who wrote a letter to appeal to the sensitivity of a home seller did not intend to violate Fair Housing laws. Every Realtor who encouraged and helped clients write letters, or helped home sellers select the lucky buyer based on the buyer’s messages and photos is not racist. But every note and every chosen picture included for the seller to consider has an intent. And it is that intent a licensee may get the opportunity to prove or defend when they facilitate a decision to negotiate with this buyer but not that buyer on factors that are unfavorable to a protected class.
It’s Not Always Easy to See
A Google search took me to this page of Dear Seller Letters. I’m not going to say what I think is easy to see. Read the letters and decide for yourself if the letters play into the systemically oppressive attitudes that have forever kept black and other minority Americans from owning homes they are well qualified, prepared, and committed to owning.
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.
How does one become a top real estate agent? Let me count the ways. One, two, three, Two Hundred and ninety eight million. In .71 seconds Google found 298,000,000 results pertaining to my question. In .47 seconds Google gave me 366,000,000 results for real estate training. Certainly there appears to be interest in. (1.86 million results for train me to be a top real estate agent.)
I just saw a social media post recognizing the top real estate agents in an established local firm. Of the 60 agents who achieved the recognition level nine began their careers since the Great Recession. They did it without training. They committed to learning, and did the work. Going from zero to multiple millions is the carrot real estate trainers dangle, and who wouldn’t want that? As long as it’s fast, and easy, there will always be a rush to pay the fee, to be trained to be a star. We won’t see 15% of them in the top performer list of their firms. Rather than a quick road to success, the training programs launch most of their customers on a short career.
That’s not the same for learners. Learners like the nine I mentioned are in a hurry to be effective. They are in a hurry to do things right. They want to learn. They don’t have an interest in being trained. What’s the difference? Training is remembering which boxes to check and which lines to fill in. Training is the passing along of memorized scripts. Learning is knowing how to interpret and explain contract terms. Learning is knowing why the contract has this or that provision and knowing implications of those provisions. Not just well enough to draft an Offer, but well enough to also explain the document in terms their client can comprehend.
Congratulations to you all. I remember you when you didn’t know anything. You learned well. Keep growing. Keep sharing what you learn. Enjoy your careers. You learned it.