The first type of ‘feedback’ are things the homeowner already knows but the homeowner has refused to address. These are usually obvious and just a huge waste of time. These are things that should be addressed prior to sale. Either fix the problems or drop the price until the home you’re trying to sell is similar to the homes in the same price range, the homes your potential buyers are looking at. The huge waste of time comes in because these are things that are so obvious that I pointed them out as I walked through at the listing appointment. How many wasted opportunities to sell will you need before you take my advice and make changes?

1. Didn’t like the finishes. Paint colors, carpet, light fixtures, etc… This is pretty common and highly changeable. The problem is most sellers think that if the buyer doesn’t like it, they can change it. If you’re getting lots of showings and no offers, this could be the culprit. Usually it’s cheaper to make the changes than try to drop your price enough to get an offer. It’s the whole $2 will get you $10.

2. Home needs updating. If you haven’t remodeled recently and don’t have the latest and greatest finishes, you won’t compete anywhere near the same price of similar homes that do. Buyers usually don’t want to do any work. If your competition is nicer, don’t expect they’ll pick your home unless there is a significant price difference. Your only cheap options are staging the property well and making sure that it’s clean and bright for showings. Some paint usually goes a long way to help here too.

3. Home needs serious work – You can’t tell me the seller and the listing agent don’t already know this. Investors are your most likely buyer here and don’t expect to get more than 80% of what your home could be worth if it was fixed. Most savvy investors are looking for homes at about 70% of what they could sell it for fixed up.

4. Horrible smells – Many homeowners have an idea that their home smells but don’t know what to do about it. Others like to pretend they can’t smell anything. I know they know it smells though because they always ask. People whose homes don’t smell never ask visitors when they come in if they could smell the _____ (insert animal of your choice). People whose homes smell, usually do ask that silly question. Of what value is giving the feedback…”Yes, it’s horrible.” when the seller isn’t going to do anything about it. If it smells bad, don’t expect to get a fair price for your home. I’ve seen this knock $20,000 of the value of homes. Animal smells are the worst but food smells can be overpowering too. Suffer from hyposmia? Get professional help.

5. Home is overpriced – If you’re a seller, don’t expect helpful feedback from buyers when it comes to price. This is the most inaccurate feedback you will get. Most buyer’s agents will likely tell you it’s overpriced regardless of what the comparable sales are. Usually, the buyer’s agent has no idea about the home’s value; they only know if their clients liked it or not. Even if they liked it, they might say it’s overpriced. Who knows for sure? The only thing that is certain, the buyers didn’t want to pay the list price for the home. If all buyers that see your place would gladly pay your listing price, you’re probably listed too low. From an agent’s perspective, feedback on price is only useful for helping the seller feel comfortable about a price drop, unfortunate but often necessary. I , personally, don’t go by feedback; I start by looking at the competition and seeing how we compare. This dictates more than anything what your home should be listed at.

The second type of feedback we get are things that the home owner already knows about but can do very little to fix.

6. Poor location – Funny thing is everyone talks about location, location, location as being the most important factor in real estate. But to a seller, he can’t do anything about the location when it’s bad. You can expect that location alone will turn off many potential buyers even before they come in. Repeated canceled showings? They probably discovered the problem before they even went in. A seller can only try to divert attention to the property’s strong points while attempting to downplay the problems with the location. Backing up to a busy street? Play soft music inside and considering adding a water fountain outside. If you’ve got worse problems than road noise, you’re probably going to need to address it in the price of the home. These problems may include close proximity to factories, crack homes, shanty towns, tent cities, train stations, gang hangouts, prisons, public housing, or Rocky Flats; don’t act like your home is anything like the home that backs to a ‘green belt’ or fronts on Washington Park.

7. The home has a funky layout – Staging may help but If your home has a hodgepodge of additions over the last 80 years it’s going to effect the price.

8. Bad Neighbors – There’s very little you can do to get the neighbors to ‘get with the program’. I’ve seen homes where the neighbors had a junk yard in their back yard, rotted out cars and all. As you might guess, this is bad for the neighborhood. I once got a call from an agent that noticed there was an electric fence, the type used for horses, along the top of my client’s fence. The neighbor needed to keep the pit bulls from jumping the fence and getting into everyone else’s yard. Do the only thing you can do, file a complaint with the proper government agency and hope nobody finds out it was you.

Now for actual valuable feedback.

9. Doesn’t show well – This can mean anything really, but if you have dogs barking at the buyers as they walk through the home or they are stepping over underwear, I want to know. Homeowner doesn’t step out for the showing, laundry is everywhere and bread crumbs are all over the counters? I want to know how the seller is doing at keeping the place show-worthy. Trust me, these are things the seller doesn’t want to hear. They are at the root cause of why homes don’t sell even after they really are priced appropriately for what they are.
10. Home doesn’t show at all, the homeowner denied showing – As an agent, nothing is more frustrating than when you’re spending money to market a property and the homeowner turns down a showing.
In most cases, I know exactly why something isn’t selling. Feedback is an exercise to help educate the seller and build the seller’s confidence in what I’ve already said to them. I don’t try to get feedback so I’m better educated about the price or condition of the home. I’m an expert and if I need a second opinion, I’m not going to ask someone who has a motive to not tell me the truth. I get feedback to take to the seller and say ‘See, I’m not the only one that didn’t think blood red with a rag faux finish is a poor color choice for the bathrooms ceiling and walls.’

Technorati Tags: Denver, Real_Estate, Marketing, Feedback, Agents, Home_Repairs, Home_Value

Before I made the decision to pursue real estate full time, I had considered getting into the mortgage business. What I found was just about anyone would ‘hire’ you on as a mortgage broker. Why? Because they would provide almost no support for you but take half of what was made on a loan. They knew that in most cases, a mortgage broker would come on, refinance their friend and family then wash out of the business. So they attempt to capture a larger share of the market with a networking through expansion method.

I can’t help but think many large real estate brokerages are doing the same. For example, I recently talked to an agent in a large brokerage who said that they shared an office with less than 20 desks with over 300 agents. This office represents a small area of Denver, so I would assume that there is alot of overlap between the agents. Most businesses in sales don’t have that many agents for a small area. It wouldn’t be fair to the salespeople. They would limit the number of agents so their agents would be as busy as they would like to be while still achieving saturation. But the truth about real estate is that brokerages make a lot of money off the agents themselves through various fees. They also know that the new agent will immediately go after their friends and family who might not otherwise use their company. So on top of the fees, there is perhaps another $10,000 to $20,000 to be made simply by bringing on another agent who may even be paying you to be there. Of course, most agents won’t be successful but the brokerage doesn’t really care. Most brokerages provide general training and services to make it appear that they want an agent to succeed but the truth is their business model is at odds with that premise.

To establish yourself in real estate requires time. If you’ve been in the business long enough, you have made the contacts and have the client base to pull from to sustain yourself. If you’re new to the business, you need to build your business in the face of a vast and entrenched competition. But the brokerages tell you you shouldn’t drop your commissions. They then proceed to charge you enough or split the commission in such a way that you agree, “There’s no way I could work for less.” There is no way that these agents that have no momentum will ever gain a foothold against the entrenched agents who are actively marketing in a neighborhood. So the new agents are left to help their friends and family (assuming there are not more agents in the family) then slowly fade away, back into the careers they came from.

Technorati Tags: Denver, Real, Estate, Brokerage, Business_Models

The settlement sheet shows that I’m going to receive ___% of the sale price of the home. But I don’t get to KEEP all of that. I take out a dollar bill and hold it up as a visual example. If another agent listed/sold the home, I have to split my money in half with them. RII-IIIIIP! (Ripping money, even just a dollar, gets people’s attention.) Then there’s my split with my broker (riiip!), my franchise fee (riiip!), my split with my partner, my E&O insurance, Uncle Sam’s portion, and all the money that I put in up front in gas, marketing and so on. Gentle reminder: my job does not have insurance or a 401K, so for those I’m on my own. We end our discussion looking at my little confetti pile and the tiny scrap of dollar that I’m still holding. It’s very small, if I’m lucky about the size of a postage stamp, but usually less than that. I do not earn what the public thinks I earn. Educating my clients keeps them from feeling rippped off at the successful end of our quest, more likely (I hope!) to use me again or refer me to friends and family. A quote from Sarah Cooper’s Blog

Here’s why I don’t think you can justify high commissions selling a home in Denver. (and probably just about anywhere with a good MLS)

1. Nobody cares. All businesses have costs and overhead. There are thousands of people out there who are self-employed in the same position as a Realtor is. You don’t see them tearing up money just to make a point. Most business owners manage business costs closely. Realtors, as a whole, do not.
2. As home values go up, so do commissions. 10 years ago in most parts of Denver, the cost of a home may have been $150,000. Your commission at 6%? $9000. Today, it still takes the same amount of work to sell the same home. Home value? $350,000. Today’s commission, $21,000. Even after splits and co-ops this is a lot for the amount of work that’s involved. Even after calculating in cost of living adjustments, you’re still in pretty good shape.

3. It’s easier than ever to sell a home. Especially for a listing agent. When you look back at the time spent it’s typically much less than that spent with buyers. Denver has a very cooperative MLS. If you offer a co-op, all those agents out there spending money to find buyers will come with their buyers to the house. In the end, 80% of homes on the MLS sell with the help a a buyer’s agent.

It’s pretty short-sighted to gouge consumers for more than you need to in order to make a good living. I’m not saying it’s not expensive to be a Realtor. There is definitely a point where you can’t go any lower without operating at a loss or cutting service. Most discounters go straight to cutting service. That’s why not all discount agents are successful. They believe that they really are worth those high commissions so they cut their services proportionate to their fees. Bad idea. Work a little harder for a change.

I like being busy. I sell homes for less because it makes me more money. That may seem funny to other Realtors but not to the rest of the world. If I offer the same service for less, who do you think they’re going to go with? It’s amazing how easy it is to get listings when you are telling people what they already believe. Just wait until they tell their friends.

Want to talk about selling a home in the Denver Area? Click Here

Technorati Tags: Denver, Real, Estate, Marketing, Commission, Realtor

What I would look for in a Comparative Market Analysis (CMA).

1. New Sold Comps – This one is obvious but probably one of the most overrated when it comes to pricing. I don’t think this is the most important factor in pricing, but it’s important because once buyers have found that they liked your home more than the competition, this is where they will look to see if you’re worth it. You don’t have to be priced less if you can justify it, but both the initial offer and the appraisal will be based on this. Because of this, and to make sure you will appeal to the buyers in the market, you need to be priced in the ballpark that your buyer is looking in. Be prepared with a list of sold comparable homes and a justification of the price based on the homes’ differences. Sold data will likely not show a significant change over a short time frame and usually one low or high sale isn’t enough to support pricing.
2. New Competition - How many similar homes are you competing against? What does it cost to buy the other home? How do you compare to what is currently for sale? Lots of competition? It can have a huge effect on time on market and how much you’ll get for your home. If another seller comes on the market and prices below your home it will reduce your ability to compete at a higher price. Unless, of course, your home is truly different in a substantial way, this is not very likely when your home was a new construction home in a subdivision full of homes just like yours. How you compare to other homes that your potential buyers will be looking at is the most important factor in determining price.
3. Changing Absorption rates - This is a measure of how long the current inventory would take to sell if no new homes were added to the mix. Demand varies seasonally and as the result of the weather (super obvious) and the school year, as well as economic pressures and even poor media coverage of the market. Supply also varies greatly, peaking in the summer in most cities. It’s a great indicator, especially when applied directly to the homes of similar type.
4. Change in Days on Market before a sale – It’s also much easier for most people to grasp when compared to other indicators, but it’s one of those pieces of information that gets abused. Unfortunately, just because something sells quickly doesn’t mean it was under-priced. It could have just been the best home that the buyer was able to get an offer accepted on when they were looking. (see #2) There are too many variables to use the fast sale of a recently-sold property to support the idea that your home should sell for more. I find that of the homes that sell quickly, they usually don’t sell to some new buyer that just wandered by. Most new listings sell quickly when they are priced right when compared to what’s available. Buyers usually look around before they’re ready to buy. The homes that sell quickly likely sold to someone who was looking for a while already and recognized that the home was priced appropriately.

What is most disturbing though is the vast majority of sellers already have a price in their head that they want. Of course, I’m usually willing to hear why the seller thinks his home is worth the pie-in-the-sky price. They are usually trying to compare their home to homes with extra bathrooms, a finished basement, or more square footage. Even worse, many work backwards from how much they want to walk away from the closing table with or what they owe to arrive at their number.

For me though, I believe that the CMA’s should give you a range of what pricing will be acceptable to the market. It should also indicate where offers are being accepted when compared to the list price and what concessions (if any) are common. For Denver, as a general rule, most Denver homes homes sell within 2-3% of their current list price and buyers get less than 1% in concessions. Most also sell within 10% of their original list price of the current listing period. That means most homes priced more than 10% higher than what comparable homes would sell for usually end up expiring without a sale. In case you missed it, most Denver Homes are overpriced on average of 20% when compared to the average list price of the solds.

In the end, it comes down to the feeling you get walking in the door. The same feeling the buyer will get. Look at the competition and know what price can be justified. That’s the only way you can nail down the real value.

Also see: How to sell your home quickly for top dollar.

Technorati Tags: Denver, Real, Estate, CMA, Selling_A_Home, Pricing

Steve’s seems to be trying to get his fingers on the pulse of real estate but can’t seem to get past the waiting room. I spoke with Steve on the phone after he wrote an article in the December issue of Money Magazine, “Best Ideas for 2007″. I had disagreed with him on many of the assertions he had made regarding strategies buyers could use to get a better deal. To be fair, I agreed strongly with his suggestions for sellers. In our conversation, he admitted that he ‘doesn’t have access to the same information that agents have’. Thus he has to “rely on other people” in order to write these real estate articles. He’s essentially trying to analyze data from hundreds of markets and collate that into advice that could be applicable nationwide.  He’s not an expert in the sense of personal experience but rather is forced to rely on so-called experts from across the country to give him accurate information regarding the stories he researches in order to make the valuable conclusions. I’m honored that I can fall into that category. Unfortunately, I disagree with some of the advice in the latest article. It seems the article plays more to what buyers would want to believe rather than the truth about what will help get you a better deal.  But then again,  who knows what agents across the country tell him.  This is how it works in Denver and what I disagreed with…

(If your not sure what commissions are and how they work, check the end of this post)

 Why would offering more money to a buyers agent work? Because brokers want to make a living and will be more likely to show your place in among others of the same type. This is often true in the case in newer condos or builder-owned homes where there is often a lot of competition. If you have ten other condos in your building that are essentially the same home at the same price, and then there are lots of other condos in other buildings, most agents want to narrow down what building their client wants before showing them everything that is available in one building. There are literally hundreds of condos that are similar. Do you want to go view all of them or would you like someone to help narrow it down? Most people would like some help here. Well, if I have to pick which one to show first, and they appear all the same, why wouldn’t I pick the one that pays me better, especially if they’re are all priced the same? That’s just good business. 

Unfortunately for sellers, this doesn’t seem to bring them a higher price, it just gets you more showings and helps to sell your home faster. From all the home sales I analyzed to prepare my information for Steve, I noticed that of the homes that had higher commissions sold slightly faster than homes that didn’t.  It’s not obvious when looking at homes offering co-ops slightly higher than the average because often that money is being offered to get brokers to overlook the obvious problems with the home and bring someone by.  While it might not have been as clear in the ’slightly more’ group that higher commissions bring faster sales, it definately becomes clear in the ’slightly less’ group.  When you offer less than the average commission, there is a marked difference in time on market.

I took a look at this and noticed that time on market goes up immediately when offering even slightly less than the average co-op.  Days on market increased by 12% when agents offered less than the average co-op.  This can affect the sale price since a long time on the market is viewed poorly.  

When should you offer less than the average co-op?  I did find situations where offering a below average commission didn’t hurt your time on market.  It was usually when the properties perceived value was easy to see.  Low priced homes in high interest areas, and other properties that were obviously priced low in order to bring a quick sale.  The seller and listing agent knew that the number of showings would not be necessary since the price & value of the property would sell it quickly.  

When should you offer a higher than average co-op?

1. Too much competition – The home has a lot of competition of equal value. Set your home apart somehow. Preferably with some upgrades to the home. If you can’t do that, attempt to influence the people who set up the showings.
2. Complications – The process of buying the home will be more complicated than a normal purchase. Typical when dealing with banks and corporations.
3. New construction – A bit of both of the above. Some builders have taken to offering ridiculous commissions to buyer’s agents. Personally, new homes sell themselves because they’re new. Unfortunately, new homes are often not worth the asking price. Any agent that isn’t pointing out this truth is not working in his client’s best interest. Not only does he not deserve his commission, he doesn’t deserve to have a real estate license.

Remember though, regardless of what you offer the buyer’s agent, in most cases it won’t affect the price you get for your home. If you overprice your home, you won’t sell it.  Agents don’t sell homes, the home sells itself. If a buyer walks in and doesn’t like it, then it doesn’t sell regardless of what the buyer’s agent might say.  Agents are there for pricing, marketing, negotiations and coordination.  Sales skills are in there somewhere but you should know that no amount of sales skill will manipulate a ‘well educated’ buyer into buying an overpriced property.   

For this reason, I’ve found, their is no reason to offer a higher than average commission if your home is priced appropriately. If a home isn’t worth the price you’re asking, no amount of bribery will help you out. You might get showings but it still isn’t going to sell. Here’s the only times you should consider offering a slightly higher co-op to set your home apart to the buyer’s agent.

Should buyers expect that their agents should give up some of their commission? That’s between you and your agent. In most cases, the amount your agent (the buyer’s agent) is getting paid has been pre-negotiated between the seller and the listing agent. It is independent of your offer in the sense it doesn’t affect the net to seller and thus doesn’t improve the price you get the house at.  On the other hand,  their are situations where you have done most of the agents work and can rightly feel he didn’t earn it.  Whatever the case, if you want to take the money from your buyer’s agent, remember for that to be legal, it has to happen at the closing and show up on the HUD-1. The lender needs to know.

Lenders have limits with how much the buyer can walk from the table with. Most lenders won’t let the seller pay 3% of closing costs and your prepaids in addition to your broker giving you a kick-back from his commission. There are limits for both agent’s commissions and seller concessions that vary for each lender. When it comes to what the seller can walk away with, that depends on the appraisal. All the lender really knows is you’re willing to attempt to pay back what you put on the contract. It’s not the seller’s money, it’s not the buyer’s money (yet), it’s the lender’s money. To claim otherwise is an over simplification of the truth. There can be no money if there is no house. The house has value and thus a trade has to take place. You could argue this “chicken and egg” causality scenario all day long without being any closer to an agreement.

My advice to buyers:

1. Understand how your agent is paid – Negotiating your agent down does not always improve your bottom line or the value of your offer to the seller. If your offer can be improved by decreasing how much your agent makes then this should be discussed. In most cases, this involves more than your agent, it also involves the other agent and the seller reaching a mutual agreement.
2. Agree on how your agent will be paid and get it in writing. Agree on a maximum they can make on the purchase (expect to have to agree on a minimum as well) or you could agree on a flat fee.
3. Discuss with your agent how he will handle any bonuses offered. He should disclose if there is a bonus, especially if it will affect the terms of the offer.
4. Never go directly to the listing agent. I’ve said it before and I’ll say it again. You probably are going to overpay. Most homes are overpriced by as much as 20%.  Who cares if you get the home for 10% less than the list price by negotiating down the seller and then the sellers agent’s commission only to find out you still overpaid? I’m sure you’ve seen the murder suspects try to represent themselves instead of having their own attorney. I’m sure you’ve also heard of people trying to negotiate their own divorce. I’m sure you know how successful these methods are.
5. Do more of the work – There are many tools for buyers to help them find a home for themselves. While its not efficient using sites like Realtor.com or REColorado to find a home, it is possible. Many Agents including myself offer tools to help you as well as a discount to clients that do much of the work themselves.  While these tools may help you do more work for yourself, they also cost money. The agents somewhere along the line will want to be compensated.  If you do find a home yourself, it is possible to still have representation and save money. Call a buyer’s agent and tell them the situation; most would be happy to assist you in exchange for actually working with a real buyer.  Most would give you a significant refund on the price of their services. (Keep in mind 1-3 on this list and my comments on lenders and concessions, they all play a part.)
6. Don’t be that guy – Trying to work your agent over for every last dime can be counter-productive. Stick to what you agreed upon. You’ll get what you pay for. Make sure you understand what to expect from your agent. Since different relationships exist as do different levels of service, get it in writing before moving forward.
7. Educate yourself – Umm..what’s a commission and why talk about this?  Usually, the seller has negotiated a commission with the listing agent that he earns if he sells the home.  The listing agent turns around and offers to split this commission with a buyer’s agent if they find a buyer.  This widens the net quite a bit and has given rise to the popular MLS systems around the country.  Thus the co-op has come to mean what is being offered to other agents to bring a buyer.  80% of homes listed on the MLS in Denver sell with the buyer having their own agent.  There are no set commissions but there are definately averages that have become acceptable compensation for the work and risk that goes into the business.  These accepted ’standards’ that used to be quite stable and in line with the cost of living have varied greatly in the recent past as more agents and home buyers have taken advantage of the internet to make life easier.  In addition, the housing boom has increased the value of a percentage based commission faster than the cost of living standards than most career choices.  Because of these factors, many different real estate companies are ahead of the learning curve when it comes to the rest of the National Association of Realtors and have been able to offer savings to their clients both when buying and selling a home.

Other Posts about home buying and commission:

• Money Magazine – Bad Advice for buyers
• How to sell your home quickly for top dollar
• Buying a home? Think before making your first offer
• Most Denver Homes are Over Priced

Technorati Tags: Denver, Real_Estate, Stephen_Gandel, Money, Commissions, Realtors, Buying, Selling, Home