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Recent articles by Liz Pulliam Weston: • 7 ways Congress can battle identity theft, 6/8/2005 • Don't be duped by bounced-check 'protection', 6/2/2005 • What Europe can teach us about identity theft, 6/1/2005 More... |
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There's no need to pay top dollar to sell, especially if you live in a white-hot housing market. The best option for you depends on your home, your market and your time. By Liz Pulliam Weston Jennifer and Dave Hampton of Atlanta tried, and failed, to sell their home without a real-estate agent. But the replacement house they purchased was FSBO, or for-sale-by-owner, so they know it can be done. The seller priced the house about $30,000 below comparable homes, Jennifer Hampton said, but still came out ahead since he didn't have to pay a 6% commission to an agent. "We had a great experience. No hassles, and everything except the closing was handled between the previous owner and ourselves over his kitchen table," Hampton said. "We were nervous and hesitant at first, but it worked out great and saved us both money by not paying the (agent) commission." Traditionally, sellers have coughed up 4% to 7% of their home-sale proceeds in commissions, with half typically going to their own agents and half to the agents representing the buyers.
But if you live in an area where home prices are soaring and houses sell within days, you may well wonder if the agents deserve such a hefty cut. Even if your market isn't white-hot, you may be tempted to save a little money by reducing or eliminating the commission. 3 ways to reduce costs If so, you're not alone. Real Trends, a company that tracks the 500 largest real estate firms, says the average commission on residential property has dropped in recent years to 5.1% from 6% as sellers cut better deals. Have you recently sold your home? We want to read about it. Did you sell sooner than you expected to take advantage of rising real estate prices? Or, did your house sell for less than you had hoped? Click on the "e-mail us your comments" link at the bottom of the next page and tell us your story. So you do have options besides paying the full load, but whether you should take them depends on your home, your market and your available time. Three popular options include:
Research your market. Is it a seller's market, with homes selling fast for more than their asking price, or a buyer's market, with houses sitting for months before a purchaser can be found? Is your house in great condition in a top neighborhood or a falling-down wreck next to a freeway? The worse the market, the house and the location, the more you may need the skilled intervention of an experienced real estate agent to market your home. Prime your house. Regardless of who's showing it, your home typically will sell faster and for a better price if it's in decent shape. Don't embark on major remodels, but fix whatever is obviously broken, rid the rooms of clutter and freshen up with new landscaping and clean windows. Get three proposals. Getting "comparable market analyses," or CMAs, from three experienced agents can help you determine the best selling price. Smart agents will cooperate even if you let them know you're thinking about FSBO'ing, since 80% of do-it-yourselfers give up and hire an agent, said real estate expert Ilyce Glink, author of "50 Simple Steps You Can Take to Sell Your Home Faster and for More Money in Any Market." Once you've taken those steps, you're ready to decide which option fits your needs. For sale by owner Glink has sold two properties this way, and cautions that it's a big investment of time. In addition to all the tasks an owner usually does -- prepping the house, keeping it clean, containing kids and pets -- you have to perform the tasks usually overseen by the agent, such as:
Real estate agents often caution that FSBO sellers can invite lawsuits by failing to make proper disclosures about their properties. Glink says there are two remedies for that problem:
Glink also recommends noting on your sign and in any advertising that you'll "cooperate" with buyer's agents, meaning you're willing to pay their customary commission (usually 3%). Otherwise, she says, many agents will simply avoid showing their clients your property. Donald DeWeese, a Seattle mortgage broker, let buyers' agents know he was willing to pay their commissions when he sold a rental property several years ago. He received two full-price offers during a three-hour open house -- both from realtors, although one was representing her son and willing to waive the 3%. "Obviously, she won out," DeWeese said. "We subsequently netted $7,920 more than if we had listed with an agent. Not bad for three hours' work." Of course, in less competitive situations your proceeds may be trimmed if your buyer expects to share in the savings. Someone who knows you're not paying the 3% seller's commission might expect you to sell the house for 1% to 3% less. Using a discount broker A major disadvantage of selling a home all by yourself is that you can't advertise on the Multiple Listing Service, the database used by real estate pros to market properties. A listing in the MLS isn't necessarily required to sell your home, particularly in hot markets, but it does vastly increase your house's exposure to potential buyers. Related news and commentary on MSN Money
You don't need to pay full price for MLS access, however; discount brokers also can get you listed. Owners.com, for example, allows you to advertise your property on the MLS for a $499 fee plus a 3% commission for the buyer's agent. (No commission is owed if the seller, rather than an agent, finds the buyer.) Many discount brokers, including Owners.com, Assist-2-Sell and Help-U-Sell Real Estate, also offer flat-fee arrangements for handling paperwork. Help-U-Sell has a $2,950 package that includes a consultant's help negotiating the contract and managing the deal through closing. Still other discount brokers promise full service for less. ZipRealty.com, for instance, aims to charge 1% less than the going commission rate in a given market. Catalist Homes in California and Foxtons, which operates in Connecticut, New Jersey and New York, charge sellers 3% total commissions, which are typically split with the buyer's agent. All three companies use MLS, local newspaper ads and Web sites with virtual tours to help sell homes. Catalist and Foxtons, by the way, dismiss the conventional wisdom that lower-than-average buyer's commissions can discourage home sales. The companies say most home seekers do at least some independent searching for homes, typically using the Internet, and aren't as vulnerable to being "steered away" by buyer's agents. Author Tyson remains skeptical. "You really should set the commission to be paid to the agent bringing you a buyer at about the same level being offered on comparable homes for sale," he said. Negotiating with a full-service agent Another cause for skepticism: a seller's agent who pretends commissions are set in stone. There's no legal minimum for commissions, Tyson said, and any agent who pretends otherwise should be dumped. How motivated a particular agent will be to negotiate depends on several factors, though. In a buyer's market where a home will need lots of marketing and time to sell, an agent may well insist on 6% or 7%. In a seller's market where agents desperately need listings, the motivation to knock a point or two off the usual rate will be much stronger. An agent's ability to negotiate also may be hampered if he or she works for a broker that insists on holding the line on commissions. The agent's commissions are split with the broker, and both parties usually must agree to any discount. If you do negotiate a discount, you probably should make sure the breakpoint skews in favor of the buyer's agent, Tyson and Glink said. Regardless of how wonderful your home is, it's still competing with many others in the same price range that offer a buyer's agent the full commission. Travis Mack of O'Fallon, Mo., said he negotiated a 5% commission with a full-service broker after trying a discount broker for two months with no offers. His home sold within two weeks. "The split was 2.9% buyer and 2.1% seller," Mack said. "The typical (commission) is 6% to 7% in this area." You also might consider a tiered arrangement, such as 6% for the first $100,000, 5% on the next $500,000 and 4% thereafter, Glink said. But she warned against using a sliding scale, where the commission decreases the longer a home takes to sell. "You don't want to give the agent incentive to sell faster" rather than for the highest price, Glink said. Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board. | |||||||||||||
MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.