1 Percent Selling Costs and and Other Lies

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Real Estate

Real estate is broken, and here is a perfect example. Pull up Craigslist. Look under “Services,” then “Real Estate.” You’ll find one Denver agent who advertises constantly with this headline:

“List Your Home – 1% Flat Fee.”

As you may know, most agents charge between 5 and 6 percent to list and sell a home.  Some will do it for 4.  How can this guy pull it off for 1 percent?

It’s simple. He can’t. He is lying. And to understand how, first understand this. In most real estate transactions, two agents will be paid. One represents the seller and the other represents the buyer.

Normally it is the seller, not the buyer, who pays BOTH agents. Why? It’s a convention that dates back to the beginning of modern real estate practice. Right or wrong, the assumption is that the seller will have cash to spare while the buyer is stretching to fund the down payment, inspections, an appraisal, etc.

It absolutely doesn’t have to be that way.  A seller can refuse to pay buyer-side agents. A buyer is free to pay his own broker. (Net it out, however, and the total costs of selling are the same.)  Or the buyer can agree to be served simultaneously by the the seller-side agent. (Both sides would have to agree.)  In that role the middleman is called a Transaction Broker. When it works, it can benefit all parties. When it doesn’t work, one or both sides can end up feeling under-represented or betrayed by a “double agent.”

But back to our friendly Craigslister claiming to list homes for 1 percent.  Exactly what is he offering?  His 1 percent fee is for the SELL SIDE ONLY. It’s laughable.  Call his office and he will hem and haw and eventually get around to telling you that your commission total will be 2.8 or 3 percent 2.8 or 3 percent ON TOP of what goes into his own pocket.  It’s a total load of 3.8 or 4 percent or maybe FOUR TIMES what was implied in the ad.

By the time he admits the truth, he hopes he’ll have sweet-talked you or at least confused you enough to sign up with him.  A binding listing agreement can be executed via email.

Advertising real estate services this way is like selling hot dogs without buns.  It’s like selling cars where the floor mats or worse, the wheels, cost extra.    

Another question entirely is whether the advocacy and assistance of two licensed agents is worth 5 or 6 percent of the contract price in a sale.  Why do 99 percent of listings in the MLS promise a 2.8 percent commission to the buyer’s agent. 

I tell you why.  It’s HARD WORK.  But that discussion is for another day.

I say very often a commission load of say 5.6 percent is worth every penny.  And sometimes it is not.  Alternatives include mini-service discount brokers, selling the house yourself, or a relatively new thing called Instant Buyers or “iBuyers” who purchase properties directly from their owners.

Here’s a question for today.  When an agent is elusive or deceptive in their very first pitch for your business (“Sell for 1%”), how well will that person represent your interests going forward?

My answer is, probably not very well.

Now let’s talk about iBuyers.

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