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The Left Most Digit Effect

Psychologists have confirmed what retailers and real estate agents have known for some time.  Buyers of everything from sweaters to gasoline to homes are susceptible to a phenomenon known as the Left Most Digit Effect.  

Studies have shown that buyers are so heavily influenced by the left most digit in the listing price of a product that they perceive a real and material difference between two numbers that are almost identical.   For instance, most people would say that a $2 can of soda is essentially the same as a soda being sold for $1.99.  

However, for most of us, our brains do not take the time to make the rational conclusion that these two sodas are for all intents and purposes the same price.  Instead, our brains quickly process these two items as being distinctly priced and quite different from one another.  

While there is little risk in pricing your soda cans this way, there is a huge risk when it comes to pricing your home for sale.  Instead of making a few cents more or less, in most cases when you are selling your home, the risk of not taking the Left Most Digit Effect into account can cost you thousands of dollars.  Moreover, it can make the difference between selling your home within a week or taking 90 days or more to sell. 

Because of our unique Flat Fee program, we are able to help sellers ensure that they can utilize the Left Most Digit Effect in their pricing.  Most firms charge a 6% commission.  In contrast, we charge a Flat Fee of $3,500.  Instead of increasing your price from $299,000 to $305,000 or from $399,000 to $409,000 in order to pay your agent's fees, you can incorporate the savings you will get from our Flat Fee program into the pricing.  You can keep that "Left Most Digit" below those important psychological thresholds and sell your home more quickly.

Visit us at www.flatfeevt.com or call us today at (802) 318-0833 for a free consultation.  

 

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    Should I Buy in 2020?

    Many buyers in Vermont found 2019 to be a frustrating year.  The combination of low inventory and high demand meant buyers had a difficult time finding a new home.  This was particularly true in Chittenden County and even more so for buyers looking for homes between $250,000 and $350,000.  

    The question is will conditions be more favorable for buyers in 2020?  

    We believe that conditions for buyers will improve in 2020 so long as the trends we are seeing continue.  

    The first encouraging trend is the amount of new housing being constructed, particularly in Chittenden County.  While homeowners (and analysts) tend to isolate the rental market and sales market, ultimately all housing helps balance the supply and demand.  If the creation of new housing units, whether they be apartments, condos or single family homes, outpaces the influx of new residents into Chittenden County then the supply will grow faster than the demand.  If the housing supply grows faster than demand, the prices, whether they be rents or sales prices should at the very least stabilize and possibly decline slightly. 

    The pace of construction for all combined housing types has been at a historic high rate for the past couple of years in Chittenden County.  Apartment construction has been quadruple its historic annual average and new home construction has been robust as well.  

    Along with more units being built, buyers should also continue to see historically low interest rates in 2020.  At the beginning of 2019 many forecasts were for interest rate increases.  However, the Federal Reserve cut interest rates three times during the year and buyers are once again seeing historically low rates to start 2020.  

    Finally, we are seeing less frenzied activity in the market.  While some houses still receive multiple offers, we are seeing buyers now being able to be a bit more selective.  If this trend continues and the inventory continues to increase, buyers should find 2020 to be a better year than 2019.  

    Whether you buy a home in 2020 or decide to wait, we encourage you to check out our Flat Fee Buyer Rebate.  Our clients get an average rebate of $5,500 when they buy a home using our services.  

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      The Customer Comes First

      For decades the real estate industry was centered on the reputation of its agents.  Because personal networks were instrumental in helping sellers locate buyers, it was important to choose an agent that had a large personal network of friends.

      That is no longer the case.  Over the past 30 years the paradigm has shifted.  Sellers no longer need an agent with a robust personality and oversized ego.  In the 21st Century, sellers need an agent that puts the client's interests first.  Where a big ego and gregarious personality were once so valued, they are now impediments to putting the needs of the client first. 

      At Flat Fee we provide a superior service level at a fraction of the cost of other firms.  People often ask how we do it.  The answer is simple.  We put the customer first.   We created our innovative Flat Fee approach with this in mind. 

      One of the ways we have done this is by removing the inherent conflict that the antiquated 6% commission model creates between the buyer and the agent.  Under the old model, when you buy a home, your agent gets paid more if you pay more for the home.  However, your goal when buying is to pay less so therefore your agent's needs end up superseding your own.

      At Flat Fee we remove this inherent conflict.  Instead of getting paid more when you pay more, we give you more money back in the form of your Flat Fee Buyer Rebate.   Instead of keeping the windfall like most other firms do, we keep our Flat Fee of $3,500 and share the rest of the commission with you in the form of a cash back buyer rebate.

      For instance, if you buy a home for $250,000, we typically get a $7,500 commission from the seller.  We will share our commission with you by giving you $4,500 back in your Flat Fee Buyer Rebate.

      Visit us at www.flatfeevt.com or call us at (802) 318-0833 for a free consultation. 

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        Will My Agent Work for Less than 5%?

        Chances are you probably know a real estate agent personally.  It is very likely that you even have a close personal friend or family member that is a real estate agent in Vermont.  Therefore, when you decide to sell your home you will likely call or text your friend or family member to assist you.

        When you do, it is important to ask not only how much your agent will get paid but also how the buyer's agent will get paid.  While sellers appreciate how much they are paying, they may not appreciate how the buyer agent's compensation affects them.

        First ask your agent how much they will get paid if your house sells.  Unlike our innovative Flat Fee approach where we charge $3,500 for seller representation, most firms charge a 5% commission for seller representation.  Even for friends and family there is rarely a discount so you are likely going to be paying more than you need to if you hire your friend or family as your seller's representative. 

        Next ask "how will buyer agents be paid?"  Even though you may only care about the 5% your agent is collecting, there is a chain of questioning that flows from the answer to this question.  If the buyer has an agent then it is likely that your agent is going to split the commission with the buyer's agent.  Therefore, it is likely that your agent is willing to represent you for a 2.5% commission.  

        You should next ask "what happens if the buyer does not have an agent?  Do you still get paid 5% or 2.5%?"   The answer is likely that your agent will still get paid a 5% commission even if the buyer does not have an agent.

        The next logical question to be asked is "why should I pay you a 5% commission when you are willing to provide the same service for 2.5%?"  We already established that if the buyer is represented by a buyer's agent then your agent is likely going to represent you for 2.5% and pay the buyer's agent the other 2.5%.  Therefore, we know your agent is willing to work for 2.5% but they will charge you a 5% commission for their representation if they can.  

        Would it not make more sense for you to simply pay your agent a 2.5% commission and if the buyer has an agent you can pay them the additional 2.5% directly?  That way if the buyer does not have an agent you don't end up spending twice as much as you should have.

        At Flat Fee we charge $3,500 for our seller representation.  If the buyer is not represented by a buyer's agent then the total fee due from the seller is $3,500.   If, however, the buyer has an agent, our clients pay the buyer's agent directly.  Our clients pay a 2% buyer agent  commission (rather than a 2.5% or even 3%) directly.  That way our clients know that they will not be charged twice should the buyer not have a buyer's agent.

        Be smart and ask your agent a lot of questions.  Sellers should demand transparency.  After all it is your money not theirs. 

        For a free consultation email rob@flatfeevt.com or text (802) 881-6377.  Thank you. 

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          Should I Sell My House in Vermont in 2020?

          Thanks to our innovative approach to selling real estate, we provide home sellers in Vermont superior services at a fraction of the cost.

          Flat Fee utilizes state of the art technology and better processes to provide sellers with an unparalleled selling experience.  First there is our full array of services:

          In home evaluation and pricing consultation; Expert market analysis;  Local professional photographer for photos; Digital lockbox and lawn sign;  MLS listing; Zillow Premier Agent listing; Realtor.com listing; Trulia listing; Facebook push to our 1,845 followers; Dedicated showing scheduler; Showing unrepresented buyers; Showing feedback; Evaluate offers from buyers;  Help negotiate offers;  Review contracts;  Prepare and present counteroffers;  Coordinate inspection and appraisal; Coordinate with attorneys and lenders; Schedule the walkthrough and closing; Attend closing;  and Post closing follow up. 

          Not only do you receive a higher level of personal service and care than other firms provide, you will save thousands of dollars in the process.

          Here is how it works:

          If the buyer has no buyer agent then the total cost is $3,500.

          If the buyer has a buyer's agent then the total cost is $3,500 + 2% of the sales price.

          Contrast this with other firms that will charge you 6% of the sales price even if the buyer does not have an agent.

          A quick example:

          If your home sells for $300,000 and you use Flat Fee's services you will pay as little as $3,500 and at most $9,500.

          If your home sells for $300,000 and you use another firm, you will pay $18,000.

          You will save between $8,500 and $14,500 by hiring Flat Fee to help sell your home.

          Call us today at (802) 318-0833 for a free consultation and to learn more.  

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            What is the Best Time of Year to Buy a House in Vermont?

            Every person that buys a home is motivated by different factors so there is no right or wrong time to buy a house in Vermont.  However, there are some seasonal factors that you may want to consider when looking for a house to buy in Vermont.  

            The biggest factor is inventory.  Historically, there is significantly more houses on the market in Vermont in the Spring and Summer than in the Winter.  A larger inventory means that as a buyer you will have a greater set of choices and options.  Because of the seasonal nature of the inventory buyers with very specific needs and/or desires in a home will be better suited to looking during the Spring and Summer.  While buyers that are more value driven will likely benefit from looking in the Winter when there are fewer buyers looking (i.e. less competition). 

            Another factor that families with children will need to consider is the policies regarding public school attendance.  If you are looking for a home in the Winter you will want to check with your existing school and your new school district so you understand their policies on whether your child can finish out their school year at their existing school or if they will not be allowed to remain if you purchase a home in a new school district. 

             You will also want to understand all of the tax implications.  One unique aspect of Vermont is our "Education Tax Prebate".   This is an income sensitive payment from the State of Vermont to local cities and towns helping offset the property tax costs for those who qualify.  Many people do not think about this as a "seasonal" or "time of year" issue but it can impact the short term financial requirements when you purchase a home in Vermont. 

            In most cases the seller of a home will want to be reimbursed by the buyer for any payments made by the State of Vermont on their behalf to their city and town as an "Education Tax Prebate payment".  Because Vermont's fiscal year runs from July 1st to June 30th of the following year, the amount a buyer may be required to reimburse at closing will depend upon when during the year the buyer closes.  

            For instance if you buy your home in July or August, you may be required to pay most of your property taxes for the year in advance or up front.  You will do so by reimbursing the seller for the balance of the subsidy from the State of Vermont.  The larger the subsidy that the seller receives from the State, the larger your payment will be at closing.  

            On the other hand, if you purchase in May, even if the seller receives a large subsidy from the State, your payment will not be large because the seller will have been credited for most of their subsidy prior to the closing.  

            Finally, whether you are planning on buying in the Winter or Summer, do not ever pay more than $3,500 to a buyer's agent.  You should ask your agent how much they will make if a buy a home and whether they will give you a rebate or not.  Here at Flat Fee, we provide the Flat Fee Rebate.  This is where we rebate any fee we collect in excess of $3,500.  Last year our buyer clients received an average rebate check of $5,500.  As a result, our buyers end up paying less by hiring us.  

            For a free consultation call us at (802) 318-0833.  

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              Are Vermont house prices going up or down in 2020?

              This is a very difficult question to answer.  Obviously if you are planning on selling your home in 2020 then you want the answer to be yes, home prices will continue rising.  On the other hand, if you are planning on buying in 2020 then you want the answer to be yes, home prices will be declining in 2020.  

              Regardless of whether you are planning on buying or selling in 2020, you should be wary of anybody that tells you that they know for certain where home prices are going in 2020.  

              The biggest problem with predicting future real estate values is that real estate agents rely upon historic data (i.e. past sales) to predict future values.  Therefore, the predictions about future values are only as credible as the data.  If prices begin to decline, the sales data will not immediately show it.  There will be a lag from the time sales prices begin declining until the point where the pattern in the data reveals itself and it becomes clear that there was a change.  

              Like most things in our world, the real estate market is constantly evolving and changing.  We need to be humble enough to acknowledge that predictions about future home values can be wrong.  We need to admit that we make educated guesses based upon the patterns seen in the historic data and should those patterns change, our educated guesses will, for a short period, miss their mark. 

              If done properly, agents will be transparent with their clients and acknowledge the limitations of using historic data.  If agents are honest with their clients then there is no reason for consumers to be concerned.  However, without the proper disclosures, an agent could try to manipulate and lure unwitting consumers with promises of ever higher sales prices and 100% certainty in what is really just their best guess.  Only charlatans make promises based upon claims of possessing the gift of clairvoyance.  Nobody can tell you with 100% certainty where prices will be in 2020. 

              We certainly hope that the price increases we saw in 2019 continue into 2020 but real estate markets tend to have peaks and valleys.  We have seen ten plus years of straight growth.  It is possible that we will not see another dip in values in our lifetime.  However, it is equally possible that we will see a dip as early as 2020.  

              The most important lesson to be learned from past dips is that you never want to rely solely upon the equity in your home as your sole source of income.  A home is a place where memories are created.  A home is a place to be cherished.  A home is a place to revel in the warmth of family and friends.  Combined these qualities add up to the true  "value" of your home.  

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                Should I Sell this Winter?

                Most people we meet with automatically assume that Winter is not a good time to sell your home in Vermont.  This is not necessarily true.

                While it is certainly the case that there are more buyers looking to buy in Vermont during the Spring and Summer, there are also many more homes for sale during the Spring and Summer months (i.e. much more competition).

                In addition to fewer buyers, there are a couple other disadvantages of selling during the Winter.  Homes with mature landscaping certainly show better during the Spring and Summer when the landscaping is in full bloom.  Also, many families prefer not to move during the middle of a school year so there are fewer people looking for larger family homes during the winter.

                On the flip side, there are advantages of selling during the Winter.  The biggest advantage is that there is less competition.  Buyers that are looking during the Winter tend to be more eager buyers than those looking during the Spring and Summer.  Many people who buy during the Winter in Vermont need to buy immediately so they often will pay a premium for a new listing that comes to the market in the Winter.  

                If you are considering selling during the Winter in Vermont, you need to analyze whether you think that your home is one that will benefit from a larger buyer pool during the Spring and Summer or your home is unique enough that a "Winter Buyer" will pay a premium for it because there is a lack of similar houses for that buyer to choose from.  

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                  Are Buyer Agents Really "Free"?

                  No buyer agents are not "free".  The proof of this is the fact that the buyer's agent leaves with a check at the end of the closing.  Someone is paying for that check.  The question is who is actually paying?

                  Ultimately it is the buyer who pays for the buyer's agent.  Here is how it works.  

                  The seller of a home decides that in order for them to sell their home they need to walk away from the closing table with $260,000.  If they cannot net at least $260,000 it does not make sense for them financially to sell.

                  Enter the buyer.  If the buyer showed up to this home without an agent and offered the seller $260,000 then the seller would be happy.  The buyer and seller would sign a contract and the two parties would both be satisfied with the transaction.

                  Now instead of just the buyer, we have the buyer and their agent enter together.  In most cases the buyer will have signed an agreement with their agent to pay a 3% commission to the agent.  However, most buyer's agents will tell the buyers that the "seller will pay this fee" and not to worry.

                  The buyer now offers that same seller $260,000 but unlike the first scenario the offer will include a provision that says the seller must pay 3% of the $260,000 to the buyer's agent.   Where the seller was happy before, they are no longer happy.  In order to walk away with $260,000, they now need to sell their home for $267,800.  Therefore, they reject the buyer's offer and counteroffer at $267,800.  If the buyer wants the home they now have to pay the higher price.  

                  Assuming the buyer still wants the home, they now have paid the seller $260,000 and their agent $7,800.

                  Doesn't sound "free" to me. 

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                    How Much Should I Pay My Agent?

                    Pre-internet age, real estate agents provided more value to buyers and sellers than they do today.  In those days, agents were responsible for helping buyers locate properties and for helping match sellers with those buyers.  Now that nearly almost every property listing is online, the value agents previously provided has diminished.  

                    Agents still provide a valuable service as advisors.  Agents help advise their clients through the process and are able to utilize their experience and knowledge to help relieve the stress and anxiety involved in buying or selling a home.

                    The question then is "what is fair pay for an agent in this day and age?"  

                    It seems like the concept of paying an agent a commission based upon the price of the home is an antiquated one.  If the sole role and value being provided is advice, as opposed to helping buyers and sellers find one another, then should the amount of an agent's pay really vary based upon the price of the home?  The advice from an agent about buying or selling a home does not change based upon the price of the home.  Agents utilize the same knowledge and experience regardless of price.  Also the time involved does not typically vary from one price point to the next.

                    At Flat Fee we believe that it is time to abolish the 6% percent commission based model and for the real estate industry to adopt a fairer one.  It may not be our model of charging a flat fee of $3,500 but it should be fairer than it is today.  

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