Last week I attended a real estate agent training class. These are almost always a disappointment and this one was no exception. It’s no wonder that there are so many poor agents out there. The only reason I attend these is to stay in touch with what the traditional approach to real estate is.

In this class the subject of homes that don’t sell came up. The instructor’s handouts listed only 3 reasons a home might not sell:

1. Lack of marketing
2. Price is too high
3. Terms are too restrictive

However, based upon the instructor’s class discussions you would think that price was the only reason on the list since everything always came down to price. He spent no time talking about items 1 or 3. When explaining why we needed to provide ongoing feedback to sellers he said “so you can have the pricing discussion with them.” And he encouraged us to feed lots of data to sellers so that we could get them to lower the price.  And he told us how to have the pricing discussion with sellers.

Granted, pricing is a big issue. There are many homes on the market that are over-priced and 9 times out of 10 that’s the reason a home won’t sell. In theory, pricing should solve any problem. However, if an agent isn’t doing their job then replace the agent. Or if something needs to be fixed (I guess that would include an agent that’s not doing their job) then fix the problem.

The problem is that many Realtors tend to accept problems as givens when in reality they’re not always. For example, suppose the next door neighbor is raising chinchillas in their back yard. Well…you can report them to the city. Or if the front porch is falling down you probably should get that fixed since it’s going to create one heck of a first impression.

As long as the expected benefit from the improvement is going to exceed the cost you might as well deal with it. And you should deal with it before any buyers notice it. A good Realtor should be on the lookout for problems that are almost certainly going to come up upon further examination by a buyer.

When looking for a real estate agent, there are different tasks you should expect your agent to help with completing, depending on whether you are buying or selling.  

BUYING   - when you are working with a buyer agent, an agent should: 

1. Understand your needs and desires for your purchase.  The agent should spend some time getting to know you to ensure that he or she is providing you with the information tailored to your needs.
2. Help you understand how much you can afford to comfortably spend.
3. Help ensure you are pre-approved for a loan and connect you with qualified lenders.
4. Be knowledgeable about any special funding or home buyer grants available to you for your purchase.
5. Routinely provide you with information regarding the properties on the market that meet your specified criteria.  The information can be shared with you in many ways.  Let your agent know your preferred communication method and times.
6. Plan and attend your “house-hunting” days.  Provide you with maps of the properties to ensure that your time is spent wisely.  Research and provide detailed information on any properties you are touring.  This sort of information could be related to taxes, zoning, property specific features or any number of items.  More information lends to the ability of making an educated decision.
7. Use their experience to obtain any relevant information from the selling agent if it is not publicly documented.
8. Once you have identified property, guide you through the offer process and write an offer and present the offer to the selling agent
9. Negotiate - Help you write the offer that will get your property for the best possible price.  Review the merits and drawbacks of any counter offer.
10. Identify several qualified attorneys to represent you in the transaction, work with the attorney throughout the process.
11. Discuss the benefits of a home inspection  and identify several qualified home inspectors.
12. Understand and coordinate any required inspections in the area where the property is being purchased.
13. Attend home inspection to ensure all of your concerns are investigated.
14. Work with lender to schedule and attend appraisal.
15. Maintain continuous contact with the selling agent and all parties throughout the process.
16. Foresee and communicate unusual issues or circumstances.
17. Coordinate and attend final walkthrough to ensure all items identified in the inspection process are corrected and property is in as expected condition.
18. Participate in closing to ensure follow through on all deal terms and to handle any last minute issues.

 SELLING - when you are working with a listing agent, an agent should:

1. Offer you a fair commission rate.  The agent should make enough for the amount of work the agent is providing, not more.
2. Explain the listing contract and terms; ensure you understand thoroughly  in order to establish a positive working relationship.
3. Provide and guide you through the necessary property  disclosures for your review and signature.
4. Offer the option of a home warranty, explain the benefits of the warranty and then obtaining it on your behalf.
5. Provide you with a list of tasks to complete to ensure your home is in its best possible condition for marketing.  This could be as simple as remove all clutter or to complete a major repair such as adding a new roof.
6. Enter property in MLS.
7. Prospect MLS system for current potential buyers.  This is an often overlooked means of proactively connecting to your target market, people looking to buy homes similar to yours.
8. Market your property via agreed upon channels.  Offer and implement creative channels.
9. Put For Sale sign in yard to attract attention to your home.
10. Coordinate and attend any brokers’ tours and Open Houses agreed upon.  Gather feedback from brokers and potential buyers.  Review the information with you and recommend any necessary property or pricing adjustments.
11. Create high quality, comprehensive and informative brochures to market your home and ensure that you always have enough brochures on hand to give out to potential buyers.
12. Take phone calls from selling agents, schedule and document all showings.  Use the opportunity to point out any special features of your property.
13. Follow up with agents after showings, gather feedback, share with you and offer advice on any changes that would help in the sale of your home.
14. Attend any second showings to personally gauge the interest of the buyer and help in the sales process.  Be aware that most buyers’ agents do not like this idea.
15. Present offers and assist in the analysis of their merits and drawbacks.
16. Manage title work by working with the title agent to ensure a clear title is provide to prevent any delays in the sale of your home.
17. Provide HUD 1 statement at closing for your records.

 Things you should expect from both agents

1. Constant communication throughout the process.  The agent is your eyes and ears during the home buying process, they should share information with you in a timely fashion.
2. Education on steps of the process that you may not understand.
3. Gathering other resources for you to access to help make an educated decision.
4. Help you negotiate offers and assist in the merits and drawbacks of each offer submitted or received.
5. Manage attorney.  Ensure that the attorney review process is handled within required time period and ensure any written communications to other party is shared with you.
6. Fax paperwork to necessary parties whether it be the other agent, the lender, the appraiser, the inspector, the attorney or any other contractors.
7. Manage buyer financing.  Routinely check in with lender to ensure no snags are encountered.  
8. Coordinate closing and provide a list of the items you will need to bring to ensure a smooth closing.
9. Inform you of any transfer stamp costs other village specific requirements that need to be handled to ensure a smooth closing.

The above is a sampling of the activities you can expect from a good real estate agent.  A smart agent will suprise you by doing much more!

When people are picking a listing agent to sell their home they can fall victim to any number of self-imposed myths or outright lies perpetuated by the agents they talk to. When I hear about these it really gets my dander up. Of course, in reality, I don’t have dander. Dander is “loose scales formed on the skin and shed from the coat or feathers of various animals” so I’m not entirely sure how I can get mine up. But any way, many of these conversations are inane. Here are some of my favorite examples.

“I don’t discount my commission because if I did I wouldn’t work as hard selling your property”. Some sellers already subscribe to a variation of this lie themselves: “I don’t want to negotiate the commission down because then they won’t be motivated to sell my house”.

This is utter nonsense. The reason a real estate agent won’t discount is because they are sitting fat and happy with lots of referral business with people who are willing to pay full commission. They’ve got a strong network that they have been very effective at leveraging to get more business. Furthermore, many of these same agents will take referrals from other agents or take Internet referrals from their broker and forfeit up to 30% of their commission in each case. So, obviously they don’t have an issue with earning less under the right circumstances. If you want a deal, move on to someone else.

Also, if a real estate agent takes a listing at a reduced commission don’t believe for a minute that they are going to work less diligently on it. First, if they took the listing they must have decided it was worth it. Second, if they are the kind of agent that would take a listing and then neglect it you were going to have trouble with them anyway. Third, if their degree of attention was proportional to the commission rate then perhaps you should pay them 15% and get lots of attention, right? After all, there is no reason to believe that you coincidentally get the optimal amount of attention at 6%.

“I will look for buyers in _____________” or “I have a lot of buyers for this type of house” or “My office works with a lot of buyers for houses like this”. This falls under the heading of the listing agent delivers buyers. Many sellers already believe this without a listing agent having to tell tall tales of their prowess with buyers.

More nonsense. The fact of the matter is that the listing agent is usually not the one that delivers buyers. It’s the buyers’ agents that deliver buyers. The listing agent gets the listing in front of the buyers and their agents and positions the house in the most favorable light for them. For instance, I just pulled over 600 sales of single family homes in Lincoln Park over a more than 2 year period from the MLS. In less than 15% of the cases did the listing agent produce the buyer. The other 85% of the time it was a buyer’s agent.

One other thing. If a potential listing agent is talking about delivering the buyers herself or through her office I would get very worried. That might be a red flag that she is trying to get both sides of the commission and might pursue that strategy to the detriment of exposing your house to other agents. I have heard conversations where this appears to be an explicit strategy.

“My list-to-sell ratio is___” or “My average time on market is______”. You’re supposed to be impressed with a high list-to-sell ratio or a short market time. However, how do you know the agent isn’t giving the houses away? That would certainly make both of these numbers look favorable. I’m not suggesting you ignore these numbers entirely, but you should be aware of the limitations of these numbers and take them with a chunk of rock salt.

As always, when dealing with those slippery real estate agents caveat emptor.

I have to be really careful writing this because the last thing I want to do is come across as being self serving. Nevertheless, I want to examine the issue of selling a house on your own.

Starting with my parents, my family has always had a great degree of mistrust with regard to the real estate industry. Therefore, selling a house without a real estate agent is an approach that my parents have successfully taken on several occasions and my wife and I successfully pulled it off just prior to moving back to Chicago in 2000. Faced with the prospect of an $18,000 commission on a $300,000 house my wife and I decided we could do it on our own, despite the fact that we had a strict timetable. So clearly it can be done, but under what circumstances?

First some random statistics of questionable validity regarding FSBOs (For Sale By Owner. This is an almost derogatory term used by the real estate industry which is meant to imply that these people are exceedingly naive to think that they can perform the “highly skilled job” of a real estate agent on their own):

• According to the Chicago Association of Realtors the number of FSBO classified ads that run in the Chicago Tribune is virtually negligible. Of course, I would imagine that most FSBOs don’t run classified ads.
• According to a survey conducted by the National Association of Realtors (NAR), only 11% of people selling a home in an urban area like Chicago sell that home on their own. Of that group approximately half knew the buyer ahead of time so that they really didn’t have to “sell” their home.
• There is an interesting myth out there. What they told us in our training classes on marketing to FSBOs is that 80% of the people who attempt to sell their home on their own will ultimately turn it over to an agent. However, I calculated from the NAR’s own survey data that for sellers that did not know the buyer the percentage is closer to 38%. Perhaps the myth originated with an often quoted December 9, 1998 Realty Times article by Steven Poscente where he claimed that “studies show that 70% eventually hire a Realtor and 80% of those who don’t say, ‘Next time I hire a Realtor’. ” Only thing is, he doesn’t exactly say what studies show this. Looks like this is another one of those industry lies.

The real estate industry would like you to believe that it’s not a very popular or successful option. Maybe. Maybe not. More importantly, let’s examine what you should consider in determining if selling your home on your own makes sense for you. Because clearly it often works.

How much money will you save?

This is probably the #1 consideration for most people. When most people ask themselves this question they are thinking in terms of a 6% commission and if it’s an expensive home the answer will often be “a lot”. However, 6% is the wrong number for a few reasons.

First, even if you sell your home yourself you will likely have to pay a buyer’s agent a “cooperating commission” to bring a buyer to the table. Why? Because, according to the most recent NAR survey of buyers and sellers, 89% of buyers are working with a Realtor and you don’t want to limit yourself to only 11% of the potential market. And the commission you pay the buyer’s agent will usually be 2 - 2.5% and it’s the same whether you are using a Realtor to sell your home or not. The only difference is that a good listing agent can provide you with some guidance regarding what that number should be based upon current listings on the market. So you don’t save the entire commission by selling the home yourself, just the sell side commission.

Second, if you can find a good discount broker (like us!), that sell side commission should be a lot less than 3.5% (6% - 2.5% cooperating commission). In addition, when you sell a home yourself you will still want your home to appear on the MLS and you are going to have to pay a broker several hundred dollars to do that. The bottom line is that the savings of selling a home yourself might only amount to a few thousand dollars.

How much is your time worth?

The other side of the savings equation of course is how much of your time will you have to spend in order to realize the savings discussed above. Selling a home yourself can be a lot more time consuming than you realize - especially if you’ve never been through the process on your own before. As you read through some of the issues raised below stop to think about how much time it will take for you to duplicate these efforts. You’ll be surprised at the time that will be spent gathering the proper documents together, becoming familiar with the legal requirements, coordinating various services, obtaining feedback, negotiating the deal, and coordinating closing. If these activities weren’t that time consuming we would be able to lower our commissions even more or we would be a lot more profitable.

Then there is the question of whether or not you even have the time to devote to selling your home. When my wife and I sold our home in Richmond we just about ran out of time after 3 months in a fairly hot market. We lucked out when a buyer materialized at the last possible moment, just prior to us throwing in the towel and listing the home with an agent.

Do you really know what your home is worth?

My wife and I were lucky in this regard as well. We lived in an area where all the houses were pretty much the same - two story colonials built at approximately the same time. The difference in prices was pretty much driven by the square footage of the homes. If you live in a development like this or you live in a large condominium complex with fairly identical units currently for sale then putting a price on your home should be pretty easy. Unfortunately, not many people in the Chicago area have this luxury and even if they do there are always some people (actually a lot of people) that think their home is somehow special and worth a lot more than everyone else’s - after all it does have that special gold embossed maroon wallpaper in the kitchen. For instance right now there is a home for sale by owner right around the corner from me for $850,000, which is clearly priced higher than very similar units in the development by approximately $130,000. It’s just not going to move, which is a very expensive mistake. And of course, underpricing a house is also an expensive mistake. Back in the days of the real estate boom I used to always cringe when a FSBO would tell me that they sold their house in 1 week, at list price. That tells me they under priced their house.

The fundamental question you need to ask yourself is what is the probability that you will lose at least as much on mis-pricing your home as you will save by selling it on your own? A one or two percent error is pretty easy to make and will wipe out anything you saved on the commission.

Are you sufficiently familiar with the home selling process in Illinois? In your city?

Some examples of the process issues to be aware of:

• There are a host of legal obligations that you need to be aware of, such as disclosures.
• Then there are the various closing costs for which you will be responsible. You don’t want surprises at the last minute so you should make sure you accurately estimate your proceeds.
• And there are the various land mines that some prospective buyers bring with them - contingencies, skittish lenders, buyer’s remorse, unethical behavior.
• There are also other last minute surprises to be on the lookout for such as unfavorable home inspections, title problems, survey problems, local government obstacles.

How do you navigate all of this?

Do you know how to market your home?

It’s all about exposure. Better exposure means a quicker sale and a higher price. A good agent will provide a fairly standard package of marketing tools:

• MLS Listing
• Professional photos - a variety of studies have shown that a good set of photos will improve the ultimate selling price by 4.2% and the number of days on the market has been shown to be shortened by 30 days
• Virtual tours
• Public open houses
• Broker open houses
• Print ads
• Distribution of your listing on over 100 Web sites
• Perhaps an “exclusive” relationship with Yahoo! Real Estate
• Your home’s own Web site

Some of these are bogus - a topic for another blog post at some point. However, there is a necessary combination of these that are critical to a successful sales process. For the individual trying to sell their home on their own it’s actually difficult to replicate these because of the cost and the learning curve. Because Realtors use these tools frequently they get better pricing and can execute a marketing plan much easier than you can.

In addition, a good agent will provide you with staging advice, which can prove invaluable. This is another area where my wife and I lucked out in Richmond. A parade of real estate agents vying for our affections offered lots of staging advice, which we took.

How will you handle letting total strangers into your house?

This is pretty straight forward. There’s a certain value in letting the real estate agent take the bullet instead of you.

How will you conduct yourself when showing your home to a prospective buyer so as to maximize your negotiating position?

I’m always amazed at how much information people will inadvertently divulge about their situation. They freely discuss personal matters, life events, and their motivations - all of which a skilled buyer’s agent could leverage for a lower price. Even their demeanor can leave clues regarding their vulnerabilities or convey nervousness.

How effectively can you negotiate the contract?

There are actually several traps that sellers can fall into on their own and any one of these can easily wipe out any commission savings.

• Believe it or not people often get emotional when negotiating the single largest transaction of their life and this impairs their judgment. They are inclined to argue over trivial points, over complicate the deal terms, allow themselves to get offended, or offend the other party.
• A seller might not have access to the right data or know how to leverage the data to improve their negotiating position.
• I have been shocked by people who sold their home on their own who have told me that they were able to drop their price during negotiations because of the money they saved on the commission. Aside from the fact that they overestimated the commission savings, it was clear that they were far too eager to forfeit their savings.
• Armed with an unrealistic belief in the superiority of their own home, sellers can often overestimate the likelihood of a better offer in a reasonable time frame.

My wife and I lucked out again in this area since the other party was not represented and willingly paid our asking price. However, as a coldly rational negotiator I was aptly suited for a much more vigorous negotiation.

The Bottom Line

If you really feel like you are up to the task of selling your home yourself then go for it. My wife and I were definitely up to the task and we benefited from a fair amount of luck. On the other hand you should also realize that there is a point at which the value provided by a good Realtor is worth at least as much as the savings from selling your home yourself. That premise has served as one of the guiding principles in establishing our commission model. Our goal has been to set our commission so that when a seller looks at what we offer and compares it to the cost they will feel absolutely certain that it is worth it. That’s usually not the case for a full commission broker.

Knowledge is power, so they say. As a professional who realizes the importance of education and staying current on trends, I dedicate a few hours each day to my continued real estate education.

Last week, I read an article that made me feel embarrassed to be a real estate broker. The article “33 Professional Etiquette Tips” was published in the March 2008 Illinois REALTOR magazine and gives “professional etiquette” advice. While I do not think that it can hurt to remind people of the common courtesies of doing business, I found some of the tips pretty basic. Basic, as in behaviors that should have been learned by young adulthood.

Here are a few of the points:

“1. Don’t answer your phone—or check your Blackberry—during a closing. This is the time when everyone’s efforts and hard work come to a successful conclusion. Show all parties involved the respect they deserve by focusing on the closing.”

Do my peers need to be reminded how to use common sense or common courtesy? I mean come on! Does any adult need to be told not to talk on the phone during a business meeting? When I was in corporate America, no boss ever had to tell me not to answer my phone in a meeting. Doing so probably would have gotten me disciplined. Why do real estate agents just need an extra reminder?

“3. Please pronounce who you are correctly: REAL-TOR, like DOC-TOR. (Not REAL-A-TOR or DOC-A TOR!)”

Is comment even necessary for this one?

“6. Spell-check your remarks in the remarks section of the MLS.”

How about being reminded to use spell check? We are supposed to be professionals’ people. Business 101, wait is that English 101? Check your work!

“19. A buyer’s broker was eating a sandwich while walking through my listing. I politely asked her wait until leaving my listing to finish the sandwich.”

That is just wrong. What did the brokers’ client think? How could the broker be effective at answering questions or pointing out the features of a home while her mouth was full of food? The fact that the broker had to be reminded by the listing agent is pathetic.

“27. Delete the expletives from all of your communication.”

When I was old enough to talk my mother taught me not to swear. Now, I’m human, and of course I swear on occasion. But not in writing! Common sense tells me it’s a bad idea.

“34. When showing a property and the seller is home be sure to thank the seller before leaving home. Many sellers expect this courtesy and are offended when they discover the agent and his/her client have left without saying a word.”

The last point is my favorite, or is it the least favorite? To express gratitude. Again, something I was taught as a child. Do adults really need to be reminded? Uttering the words “Thank you” is not only simple, but so effective. Again, it is called common courtesy.

What scares me the most about the article, in addition to the fact that it was even written, is how much many of the real estate agents in the industry today need to read and heed the advice.