robert foley

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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    Avoid Inherent Conflicts of Interest

    Under the current structure of most real estate markets and MLS systems, the seller of the home is responsible for paying the buyer agents fees.  In almost all cases, the seller will pay the buyer's agent a percentage, typically 3%, of the purchase price to the buyer's agent at closing. 

    This creates an inherent conflict of interest for the buyer's agent.  The buyer wants to pay as little as possible for the home and the buyer's agent has a legal responsible to look out for this interest.  However, the buyer agent gets paid more if the buyer pays more for the home.  Therefore, while it is not in the buyer's best interest, it is in the buyer agent's financial interest for the buyer to pay a higher price for the home.

    Buyers can avoid this inherent conflict of interest by hiring a firm like Flat Fee that rebates a portion of its commission to the buyer.  Instead of the agent getting paid more as the price of the house goes up, the buyer simply gets a bigger rebate check from Flat Fee at closing. 

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      Is My Home a "Good Investment"?

      Many people look at their home as an "investment".  This is an interesting phenomenon given that people do not evaluate their investment in their home in the same way they value and analyze other investments.  

      Most investments are made with the tastes and opinions of others in mind.  For instance, when you buy a stock or a piece of art you are conscious of how others value those things and what others may be willing to pay based upon their opinions and tastes. 

      In contrast, most people view home improvements, paint choices and other interior design choices solely on the basis of their own tastes, opinions and values.  This is completely understandable and one of the big reasons a home should not be viewed as an investment.  

      You should enjoy your home and be comfortable in your home.  Your home should reflect your personality.  If you want to view your home as an investment, then you would need to start making design choices based upon the opinions, tastes and personalities of others.  Living like that may be great from a financial standpoint but would be a terrible way to live in your home.  

       

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        Open House or Empty House?

        After decades of living in the shadows, the secret about open houses is finally coming to light.  Fewer and fewer agents are offering open houses because more and more agents are acknowledging the true purpose behind open houses.

        The big secret is that open houses are not designed to help sellers.  They are designed to help real estate agents get more clients.  Rarely is the ultimate buyer of a home introduced to the home through an open house.  Buyers are not waiting around until Saturday or Sunday afternoon to see a home with other people wandering around the house.  Buyers want immediate and exclusive showings where they can see the home unencumbered by other people.  The only people that come through your home during an open house are neighbors and busy bodies who are not serious about buying. 

        Don't waste your time fixing up your home for an open house only to help your agent get more business and new clients.  Instead leave your house empty and free of neighbors and tire kickers and have your agent focus their efforts on getting ready, willing and able buyers into your home. 

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          Why Do Sellers Pay Buyer Agent Commissions?

          Buyers have been convinced over decades of marketing that buyer agents are "free".  Some members of the National Association of Realtors continue to perpetuate this misconception in the hopes of maintaining the status quo.  Most firms charge between a 5% to 6% commission to the seller.  The firms then offer to split those commissions evenly with buyer agents or if there is no buyer agent they will keep the entire commission for themselves.  As a result, the seller ends up charging more for their home in order to offset the fees needed to pay the buyer's agent.  

          Flat Fee's model challenges the status quo in an effort to make the process fairer for sellers.  Flat Fee charges sellers $3,500.  Unlike most firms, Flat Fee does not get paid more if the buyer does not have their own agent.  Flat Fee collects its fee of $3,500 at closing when the house sells from the proceeds collected by the seller.  

          Flat Fee's clients do offer buyer agents commissions.  While we would prefer that our clients did not have to offer buyer agents commissions and would prefer that the buyers paid their own agents directly for their services, Flat Fee would not be able to compete under the current market conditions if our clients did not conform to the system currently in place and offer buyer agents a commission apart from our flat fee of $3,500.  

          There is a class action lawsuit currently working its way through the courts that may change this and allow Flat Fee to be competitive without requiring our clients to offer buyer agents a commission.  Flat Fee's clients have experimented with offering below market rate commissions to buyer agents in the past but the resistance from other firms and agents was stiff and the reactions from some agents were downright nasty.  We hope this lawsuit will bring consumers greater choice and options for using alternative models like Flat Fee's and in the end save consumers a lot of money. 

          The Power of The Rebate

          Believe it or not we have seen a resurgence in situations where multiple buyers are bidding simultaneously on the same home. In these situations buyers need to find a competitive edge when trying to outbid other buyers. There is no more powerful tool in gaining that advantage than "The Rebate".

          Here is an example to illustrate the power of The Rebate in these situations:

          Home is listed for $275,000 and the seller is offering buyer agents a 3% commission. Buyer X is utilizing the services of an agent that DOES NOT rebate a portion of their commission to the buyer. Buyer Y is utilizing the services of an agent that DOES rebate a portion of their commission to the buyer.

          Buyer X offers $275,000 for the home. Buyer Y offers $277,000 for the home. Buyer Y wins the bid.

          More importantly because Buyer Y's agent rebates more than $4,000 to Buyer Y, the net purchase price of Buyer Y's offer is less than $273,000.

          Not only did Buyer Y win the bid but it did not cost Buyer Y anything relative to what Buyer X was offering.

          A rebate is a powerful tool in all buying scenarios but particularly in multiple bid situations.

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                    Brief History on Rebating

                    In the world of homebuying the term "Rebating" refers to the practice of a real estate brokerage firm returning or refunding a portion of its commission from the seller or seller's agent to their buyer client.

                    For many years the large and dominant real estate brokerage firms with the help of the National Association of Realtors fought for rules prohibiting the practice of Rebating. These firms and NAR were very successful for many years. That was until their actions caught the attention of the Department of Justice Antitrust Division.

                    In 2005 the Department of Justice announced it had launched an investigation into two rulings by the South Dakota Real Estate Commission prohibiting brokerage firms from Rebating in South Dakota. Shortly after it began its investigation, the Department of Justice announced that the South Dakota Real Estate Commission had rescinded its rulings and that Rebating was now allowed in South Dakota. Thereafter the Department of Justice began investigating bans on Rebating in other states, resulting in several more states lifting their bans on Rebating.

                    Now that the legal framework is set allowing more competition in the real estate industry, we hope that more firms like ours take advantage of that framework to provide consumers more choice when it comes to buying a home. Thank you.

                    For more on the Department of Justice's efforts visit their page on Rebating: http://www.justice.gov/atr/public/real_estate/rebates.html

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                              Happy Holidays!

                              Thank you to all of our clients, friends and supporters for making 2013 our best year yet. Happy Holidays to all and we look forward to another great year in 2014.

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                                Bargain Shopping

                                It seems like with every new Holiday Season American consumers are demanding more and more value from retailers. In our technological age shoppers have become ultra savvy when it comes to value and price. No longer are consumers fooled into simply assuming that the most expensive item is the highest quality item. Consumers instinctively understand that value is more important than price and that with just a little extra research they can usually find a high quality item at a better value than the highest price one.

                                The question then for me is why has the American consumer not been more discerning when shopping for a real estate agent or firm? With a little extra research the consumer would realize that the highest price agents and firms are not necessarily the highest quality and that there are far better values available than the highest priced firms and agents.

                                Thanks to advancements in technology and overall efficiency, real estate agents can now provide the same if not higher quality services at a fraction of the cost. Why then have the prices for services not changed for the vast majority of providers over the past 30 plus years?

                                When the precursor to today's modern cellphone was introduced in the 1980's the original model cost $4,000 per phone. Can you imagine if you walked into Best Buy today and saw a cellphone listed for $4,000? Let's see do I buy an Iphone for $300 or the $4,000 phone that takes 10 hours to charge for 30 minutes of talk time? That would be a "no brainer".

                                If consumers were complacent the quality and value of goods in America would never improve. Thanks to American consumer demands the quality of almost every product has improved over time and the value of those products has increased immensely. If consumers start demanding better value and quality out of real estate agents and firms things will change. However, until consumers start flexing their purchasing power, the value provided by most firms will remain poor.

                                We encourage you to demand better value out of today's real estate industry. Thank you.

                                Is The Prevailing Compensation Model Outdated?

                                The median home price in Chittenden County Vermont is roughly $262,000. Under the prevailing compensation model in Chittenden County, real estate firms charge 6% to represent a seller and 3% to represent a buyer in Chittenden County.

                                Assume that an agent completes 12 transactions in a year or 1 per month. At the median sales price above that agent would have sold $3,144,000 of real estate throughout the year. Assume that 1/2 of the transactions were at the rate of 6% and the other 1/2 were completed at the 3% rate. The total fees collected by that agent during the year would be $141,480.

                                Assume that the agent retains 70% of the fees and the other 30% goes towards overhead, costs and expenses. The agent would collect $99,036 for the year.

                                $99,036 and only completing 1 transaction per month? Assume that a transaction took 40 hours of the agent's time (which based upon my experience as a real estate agent, real estate lawyer, buyer and seller is on the extremely high side), the agent could essentially make $100,000 working 1 week per month.

                                With all of the advancements in technology and agent efficiency, don't you think that the prevailing model is outdated?

                                For a more equitable model check out our buyer agent services where we rebate our fees to our clients.

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