Tuesday, March 28, 2006

Sucessful Relocation: An Interview

Successful Relocation: An Interview

Or, "How Joe Sold the House Himself and Saved a Bundle"

Update: Second Buyer Comes Through

Update: The first buyer has dropped out, and has lost $15,000 in earnest money.

"Joe" was able to repeat his selling process. He put the property back on the market for a week, with the announcement that bids would be taken on Saturday. His number two bidder from selling round one came back, but produced a low-ball offer, lower than they had been willing to pay before. As the bidding war played out, they raised their offer, but lost to a buyer that Joe and his wife favored: The Judge. The choice of buyers this time had as much to do with personal character as it did with the amount of the offer. An older man working as a court judge impressed them with his straightforwardness. He seemed like a solid type who would not play games when it came time to close.

All told, the earnest money from the first buyer did cover the expense of carrying two mortgages, and then some. The remaining cost was in stress and time. One could debate whether the savings of using a limited service realty agent was worth the hassle. Certainly it is not clear that problems with buyer number one would have been avoided by using a full service realtor. However, the impact on Joe's life would have been reduced. Joe minimizes this, saying that a couple of three minute phone calls per day were worth it. I observed more interruption. Joe took a few afternoons off work, and fielded home selling calls during meetings with coworkers. The increased stress on him was evident some days, particularly when the first buyer reneged.

Comments? Has anyone else had personal experience with a limited service realtor, that they would like to share?

Joe (not his real name) graciously agreed to an interview on the topic of his home sale. I had marveled at the rapid, profitable sale, which he handled with a limited-service realtor. True, he only moved a few blocks, so it was not one of the out-of-state locations that are the topic of this blog. But, he moved from one historical Wallingford house to a better one, and closed a great deal. We sat in a cafe in Pioneer Square for the interview.

Monte: How many houses have you bought and sold?

Joe: Three or four -- Four, including my wife's condo.

Monte: How many of those involved a full-service realtor?

Joe: I did three with limited service brokers, and one with a full-service realtor.

Monte: Have you "flipped houses" (bought and sold houses as a profitable business)?

Joe: No. One was a rental property, but the others were all primary residences.

Monte: How much do you estimate that you saved by selling your family home yourself?

Joe: About $19,000 US.

Monte: Wow. How did that break down?

Joe: I paid the limited service realtor $799. Typically, I would have paid 3 percent, so $20,100 on a closing price of $670,000.

Monte: What other expense did you incur by doing the sale yourself?

Joe: I paid a "house dresser" to advise me how to present the house, rented a storage unit, and bought some decorative items. It adds up like this:

$20,100   Savings on realtor fees
-$125   Storage unit for two months
-$100   45-minute consultation with house dresser
-$1800   Decor, mostly art for the walls
+$1200   Money from returning some of the art
$19,275   Total savings

Monte: What did the limited service realtor provide?

Joe: The plant a professional-looking sign in the yard with their name on it, which provides more a more legitimate look than a FSBO sign. She listed the house on the Multiple Listing Service (MLS). You get an MLS key box. You put your spare key in there, so any buyer's agent can get in to show the house. She helped with the content of a flyer, which we had to make. We also had to keep her informed of all the offers we received. She took care of the offer timing and terms, the paperwork. She advised us how to fill out the "agent-only" remarks in the MLS listing.

Monte: Describe that.

Joe: There is a section of each listing that only realtors are allowed to read, not the buyers. We included the terms that the buyer's agent would receive the customary 3%. A lot of buyer agents will dismiss a DIY listing, but the commission kept them interested. It also included details like the date that offers would be accepted, and the Open-house dates and times.

Monte: So that kept the buyer agents happy?

Joe: Yeah. In fact, at times the buyer agents were working in my best interests. They would advise me on what counter offer I should make, and they leaned on the buyers to pay more nad to make up their minds.

Monte: You priced the home yourself?

Joe: Yes. We offered it slightly below market, at $619,000. By doing that, and by announcing the day that we would take offers, we managed to get six offers in ten days.

Monte: Excellent. What were the offers like?

Joe: One advantage of listing yourself is that you are not bound to sell. Most seller agents will have you sign documents promising to sell the house, and to do it through them. That's why we were comfortable starting at below-market; we were not really bound to that price, unless someone showed up with cash in a suitcase, with no contingencies, and we had no other offers.

So, these six buyers made a few offers each. The highest one was verbal, which posed a problem. In order to bring that offer to a competing buyer, and ask for more, you are supposed to have it in writing. That buyer was being tricky. We explained the situation to our favored buyer, and they matched the $670k, added no contingencies, and got the house.

Monte: I suspect that this is something not everyone can do themselves. Have you had any sales jobs or training?

Joe: I worked for four years as a customer service rep in an import auto repair shop. It was not really selling, but involved a lot of communication and negotiation. I represented the customers to the mechanics, and vice versa.

Monte: Speaking of cars, are you the type that likes to haggle over the price of a car that you are buying.

Joe: Yeah, I love that stuff.

Monte: With a wife, two kids, and another on the way, you are a busy guy. What impact did the extra work of selling your home have on your professional and personal life?

Joe: Judging by the business cards left, about 10-15 agents per day showed the house. My wife and I both work, so we were not in the home. I took about 5 phone calls a day at 2-5 minutes each. The redecoration and storage required me to take a day off work. We had open houses one Saturday and Sunday, that ran over time, so we had to be scarce from 11:30am to 5pm. We took offers on a Sunday morning. The buyer fretted for quite awhile. I ended up making a trip to the copy shop at 9:30pm that night. I was sweating bullets that day.

On three occasions, agents needed to show the place in the evening. We told them that we needed to have the house back at 7pm, so that we could put the kids to bed. On those nights, the family went out to dinner.

Monte: And nineteen thousand dollars will buy a lot of dinners.

Joe: Indeed.


At Thursday, April 06, 2006 2:40:00 AM, Blogger Monte Hayward said...

There's been some controversy about this article.

"The buyer's agent worked in Joe's favor?! If I was the buyer, I would report my agent to their board of Realtors for failing to perform their fiduciary duty to me! I find that a little hard to believe..." --L25izzy, at RealEstateTalks.com

L25izzy, I've seen buyer agents squeeze a buyer before. Although Levitt was studying sellers, I think that there is enough evidence to question whether realtors act in their clients' best interests:

"Using data from 100,000 Chicagoland homes, and controlling for any number of variables ... it turns out that a real estate agent keeps her own home on the market an average ten days longer and sells it for an extra 3-plus percent, or $10,000 on a $300,000 house."
Freakonomics : A Rogue Economist Explores the Hidden Side of Everything
by Steven D. Levitt, page 9.

At Saturday, April 22, 2006 3:51:00 PM, Blogger Monte Hayward said...

Update: The first buyer has dropped out, and has lost $15,000 in earnest money. This guy seems to be mentally or emotionally unstable. He has made several runs at it, and each time, crippled by indecision, has failed to close, even though he knows that it is costing him money. He even showed up outside the seller's house, and stood there without knocking. When the owner confronted him, he returned some documents he had borrowed from them.

I don't know if a full-service selling agent would have filtered out the unstable buyer. He was qualified financially, and his bid was higher and more prompt.

As a result of the first buyer's hesitancy, the seller had to carry two mortgages for a period of time, and missed the deadline for a locked-in interest rate on the new home.

The house is back on the market, with bids being taken Saturday, April 29th. One of the original bidders is in the running, but has offered less than they did the first time.

I will add more as new developments arise.

At Saturday, June 10, 2006 9:53:00 AM, Anonymous AlwayzHungry said...

Limited Service can work... but, I would be sure that you know exactly what you get and what you don't get for it.

First, I would interview a few Limited Service Offices. There are quite a few out there. The fees vary and many also offer "ALA CARTE" service menus. This way you can select the options for service that you feel best fit your wants and needs.

Second, compare this information to whatever you learn on a background check. Check references. Check with the BBB and the local MLS. See if there are any complaints on record. This is a good thing to do with a FULL Service Agent, but moreso with Limited Service.

Then, compare the value of a Full service company.

If you want to someone to post a sign in the yard, get you on the MLS and then provide documents/contracts, great! But many of these companies consider contract review an ALA CARTE option. Open Houses are SELLER responsibilities. Ads are Seller expenses. Virtual tours, negotiations, flyers, post cards, broker open houses, etc. can all be on the ALA CARTE menu.

Just get all the information that you need to know about what the true bottom line is. That way you can make a better decision.

There are FULL SERVICE companies and Full Service agents that will negotiate the Listing office commission but still provide full service to the client. Granted, many may not like the idea, but I am well aware of quite a few that do negotiate reduced listing commissions. Again, check into the reputation of the company and the Agent; be sure that you approve of their track record.

As with anything, you always run the risk of getting what you pay for.


At Saturday, June 10, 2006 2:35:00 PM, Anonymous Phil11514 said...

Re: Limited Service Agent - my take on it.

Are you comfortable with doing your own marketing?
How about staging and holding your own Open House?
Doing your own advertising? Running your own ads?
Doing your own negotiating dorectly with the buyer's agent?
Interpreting legal contracts (Purchase & Sale Agreements) on your own?

Depending on what the Limited Service Agent and Broker are willing to do, you may need to do "some" or "all" of these things. And if you're comfortable with that, then that's great. But find out first, what services you will actually be receiving from the Limited Service Agent, versus what services they will expect you to do on your own.

As AlwayzHungry correctly pointed out, as with anything, you always run the risk of getting what you pay for.

At Saturday, June 10, 2006 4:55:00 PM, Anonymous Phil11514 said...

AlwayzHungry is right.

Generally there is no getting away from the Ancient And Time-Tested Historical Fact that One Gets What One Pays For.

A limited service broker can save you money. However, that's only true if the property ACTUALLY SELLS.

If it doesn't sell during the listing period, then it seems to me that you now have TWO problems:
#1 - It didn't sell; and
#2 - It's now a "STALE Listing" in that it's been on the market for a while now and is no longer a "New" listing.

I am a Realtor (R) myself, so I fully understand why people might, at face value, think my opinion is biased. I actually do not have a problem with the idea of discount brokers and Limited-Service Agents. And I certainly don't have any problem with the idea of saving the home seller as much money as possible. OBVIOUSLY, most sellers would like to get as much money as they can for their property when they sell, and if the commission can be reduced then obviously that's money that will not have to come out of the seller's wallet.

The real questions you need to ask yourself are:
- What are you getting in terms of service, in return for a very low commission percentage-rate or flat-fee listing? And:

- What kinds of services do you need or want to have, in return for paying a very low commission percentage-rate or flat fee? What are your expectations?

Personally, my concerns would be that the strong seller market of the last few years has caused many people to (mistakenly) think that all they have to do is put a sign in the front yard and/or an ad in the paper, and their place will sell virtually overnight. And that's just not the case now, and likely won't be the case in the future. It might have been the case back when interest rates were running at 4.5% and there was a shortage of inventory on the market. But things have changed; when interest rates are higher and the number of qualified buyers is dropping, it takes more aggressive marketing to get a home sold.

And, contrary to popular opinion, taking 1 or 2 photos of the home, taking the listing, and putting the listing on the MLS do NOT qualify as "marketing". Those are quite simply the MINIMUM, REQUIRED responsibilities of anyone that is listing a property on the MLS.


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