Blog :: 11-2011

Why Do Real Estate Agents Still Use Print Ads

Why do real estate firms continue to run traditional print ads of their listings in newspapers and other circulations?

A common immediate response is that they do so to help market their clients' properties. However, this is not true.

Since the proliferation of the internet, buyers no longer wait for print ads to find homes. Buyers are looking almost exclusively on the internet. Buyers have instant access to every listing and unlike print ads, the internet allows buyers to limit their search to certain criteria.

If buyers are not looking at print ads to buy homes, then why would agents spend millions of dollars annually running print ads of listings in local newspapers? The answer is simple. Real estate firms and agents run ads simply as self marketing tools to promote their own businesses and not their clients' listings.

Real estate firms use traditional print ads to create a perception that they are the better than other firms in town because they have more listings in the paper. Sellers are duped into thinking that if their ad appears alongside these other ads in the Sunday paper that somehow a buyer is going to be more likely to buy their home than if they listed with another firm. This is a ridiculous concept.

In fact most firms do not have enough space in their allotted newspaper ads for all of their clients' listings. Many firms will allow each agent to publish only one of their listings in the weekly paper. Thus providing further proof that the primary purpose is not to market the client's listing but to market their own businesses.

Sellers actually are paying higher fees because of print ads for listings as well. Firms claim that part of the benefit of listing with their firm is a weekly print ad in the newspaper. Firms say that they need to charge a 6% commission to cover these listing costs. However, the benefit of the ad is for the firm and agent and not the seller. As a result, sellers are subsidizing their agent's marketing efforts.

Sellers should not be asked to subsidize the marketing costs of their real agent and firm. If agents and firms want to market their business with print ads, then they should do so with ads touting the benefit of their services. Unfortunately, because all firms charge the same 6% commission and offer the same services, the only way they can distinguish themselves is by showing more listings in the newspaper.

As I stated before, buyers are not looking at print ads. They are looking online. Sellers need to stop being coerced by real estate agents into thinking that print ads still matter for marketing property. Print ads work very well for products such as small electronics or supermarket coupons, but print ads are dead as far as real estate is concerned. Agents should stop asking sellers to subsidize their marketing efforts and pay for their own ads.

We know the trend of the modern person. At Flat Fee, we're doing all we can to help make the real estate buying and selling process easier than ever before. We've set up an easy-to-use website that will help with all of your property needs. Still have questions about Flat Fee? Contact us here.

Why Do Agents Double Dip?

While many of you may think that this article refers to the classic Seinfeld episode where George Costanza dips a chip, bites it and dips again, it is not. It is however about something equally ridiculous: real estate agents double charging their clients.

The typical commission in a real estate transaction in Vermont is 6% of the sales price (I think it is well documented in this blog and on our website that this amount is excessive so I will refrain from commenting on that aspect in this blog). Typically the listing agent will split the commission equally between themselves and the buyer's agent. Thus, in a typical transaction the seller pays a 3% commission to their agent and a 3% commission to the buyer's agent.

The ridiculousness comes when the buyer is unrepresented. Instead of doing the decent thing and reducing the overall commission to 3%, the seller's agent will insist upon keeping both their 3% commission as well as the buyer's 3% commission. Thus, the agent gets paid twice for a total commission of 6%.

How can these agents possibly justify this "double dip"?

Some agents will attempt to justify this "double dip" by suggesting that the transaction will require twice as much time. This is absurd. The transaction may require a couple of extra minutes or possibly an hour, but certainly nowhere near double the amount of time. The amount of work certainly does not justify insisting upon a double payment.

At Flat Fee Real Estate we learned from Seinfeld and do not double dip. We believe other firms should follow. To learn more about how Flat Fee works, click here. Still have questions? Contact us any time of day.

10 Tips for Selling Your Home

The 10 Home-Selling Tips

Most Real Estate Agents Wont Tell You

How to market and sell your home with minimal stress and maximum profit

New technologies and real estate resources have made it easier than ever for real estate buyers and sellers to connect directly, without the assistance of an agent. Some of these game-changing developments make it possible for the average person to perform services which were once only attained by contracting a real estate agent, who would then collect a customary six percent commission of the homes selling price. Robert Foley, a real estate lawyer and the owner of Flat Fee Real Estate in Burlington, Vermont helps explain the growing list of alternatives to the traditional six percent commission model and provides tips for a successful sale.

1. Know your marketing options

Most sellers assume that they need to hire a realtor in order to gain access to the areas Multiple Listing Service (MLS). Thanks to the internet, homeowners have the ability to list in the MLS system without hiring a full-service agent. Depending on the area and MLS, the companies that offer this typically charge between $300 and $500.

In addition to access to the MLS, sellers can utilize free services such as Craigslist to help market their property without the use of a full-service agent.

2. Determine if you need professional guidance

Based on knowledge and experience, some sellers are able to sell their home without the guidance of a real estate professional, like an agent. First-time sellers and those who do not have a firm grasp on the market or process of selling will likely benefit from professional guidance. For those who have sold a property before, understand the market, understand the process and have the time, hiring an agent may not be beneficial.

3. Explore market alternatives and insist upon competitive rates

For sellers who choose to hire a real estate professional, it is important to investigate what market alternatives exist in their area for services. While professionals in some markets continue to charge the same rate (typically a six-percent commission), most markets have competitive alternatives, such as firms that charge a flat fee regardless of the price of the home. These flat fee realtors are growing in popularity often offer the same services as more traditional professionals.

Even if a homeowner resides in a market where all professionals claim to charge the same 6% commission rate, homeowners can still try to negotiate. Real estate professionals know that consumers have many choices when marketing and selling their home, and therefore have become more willing to negotiate.

4. Be realistic and dont let professionals buy your listing

Every homeowner wants to sell his or her home for as much money as possible. Knowing this, real estate agents will often tell homeowners that their property is worth more than it actually is, with the hopes that the seller will choose them over another agent that provides a more realistic house value. This practice is commonly known as buying a listing. Agents who utilize this practice first secure the listing, and then after the property has been listed at the overpriced amount, the agent will suggest a price reduction to something more realistic.

To avoid this coercion, sellers should first try to determine a realistic value of their property. There are many online tools to help with this, and the best method is to look at the recent sales (within the past 6 months) within their neighborhood.

5. Try to remove emotion from the process

Selling a home is naturally an emotional experience given the many memories tied to a home. Because of the emotional attachment, decisions made regarding the sale of the home can oftentimes be less than rational. Although it is difficult, sellers need to do their best to look at the sale of their home objectively. It is common for sellers to overlook or downplay the homes shortcomings, while placing too much value on the homes features. By looking at the home through the eyes of the prospective buyer, sellers will make more rational decisions throughout the process.

6. Dont go overboard with staging your home

It is important that the home is staged so that it shows well, but oftentimes there is a tendency on the part of seller to go overboard in creating a natural setting. Most buyers are not impressed with techniques like lighting scented candles or playing music, and these effects can sometimes even turn them off to the home.

7. Dont get offended by offers that seem low

Due to the emotional attachment to a home, many sellers get offended when a buyer makes what is perceived as an insulting offer. It is important to keep in mind that selling a home is a business transaction and the buyer is trying to get the best value for his or her money. Sellers should try to appreciate that the buyer is also trying to protect their financial interests and not overpay relative to the market.

8. Dont be afraid to make the commissions part of the transaction

Rarely a buyer will make a full-price offer on a home. Typically, they will offer anywhere from 5-15 percent below the asking price. Sellers should understand that the realtors commissions can become negotiated as part of the transaction, with the exception of cases where a buyer makes a full price non-contingent cash offer.

For instance, consider that a home is listed for $275,000.The buyer makes an offer of $265,000, and the seller is not willing to sell unless he or she receives a net a profit of $270,000.Thus, the parties are $5,000 apart.

If the sale does not materialize, the agents make nothing.The seller should tell their agent that in order to make the deal work, the seller's agent and buyer's agent should each reduce their commission by $2,500 (for a total of $5,000).In this case everybody wins because the seller receives the amount desired, the buyer pays an acceptable amount and the agents make something rather than nothing.

9. Understand the purpose of a home inspection

Most contracts between buyers and sellers are contingent upon the buyer having the property inspected and being satisfied with the inspection results. If the buyer is not satisfied with the results of the inspection, they can terminate the contract.

Despite what many buyers believe and despite with many real estate agents advise their clients, sellers are not required to remedy every issue raised during a home inspection and in fact, it is not fair to ask a seller to remedy each issue raised. Homeowners are not selling brand new homes, and the price reflects the natural wear and tear on the home. The seller should be willing to fix code violations and immediate safety threats.

10.Dont look back!

Sellers will sometimes reflect on the sale at the closing and think that they could have received more money if they had waited for another buyer. Once the closing is concluded, the seller should take their check and not look back. Life is too short for regrets!

Still have questions? Contact Flat Fee here.

The Pyramid Approach

A pyramid scheme is a business model that involves promising participants payment for enrolling other people into the scheme rather than really supplying any real value to the public. The business model is unsustainable and eventually collapses when the public realizes that they are not receiving any real value for the amount of money being paid. Pyramid schemes are a form of fraud.

While real estate agents do provide a service to the public, the business model employed by every larger real estate brokerage firm is akin to a pyramid scheme. Even though a service is provided, the scheme is built upon the overcharging for those services. Instead of charging the public a fair price, larger firms charge the public 5-6% of the sales price as a commission. Thus, there is no "real value" provided to the public and the overcharging of the public establishes the foundation of the scheme.

The next element of the pyramid scheme is to enroll participants into the scheme with promises of lucrative payments. Larger firms recruit as many people as they can as quickly as they can. In most cases, these firms will hire anybody that holds a license to sell real estate. These firms do not care about background, experience or qualifications. Their primary concern is to get bodies to help spread the scheme to a wider array of the public.

Like most pyramid schemes those at the top of the pyramid show their recruits just how successful they have been in selling the scheme to the public. They convince these recruits that they can be equally successful by first joining the scheme and then recruiting other agents to help grow the scheme.

The next element of the scheme is for the participants to convince the public that they will receive real value by hiring their firm. They often use their size, which is the very essence of the success of the scheme, as a selling point for their services. Larger firms will, without support, tell people that their size will help get their property sold faster or that they will be able to secure a better deal for their buyers.

The participants in the scheme will prey upon their social networks, friends and family to help perpetuate the scheme. They will use the trust established through their relationships to convince their social network, friends and family that they are receiving real value for the 5-6% commission. All the while these participants know that the services can be provided for less and in fact are provided for less by other firms.

Like every pyramid scheme the large firm real estate brokerage model is unsustainable and will eventually collapse. As the public becomes more knowledgeable about the true value of the services provided, the public will begin to question the participants in the scheme. As more and more people lose confidence in the participants in the scheme and less and less fall victim to the scheme, the dollars necessary to perpetuate the scheme will disappear. As with any other pyramid scheme, once the dollars dry up the pyramid will topple.

It is amazing that the pyramid has lasted as long as it has.

At Flat Fee, we don't believe in the Pyramid approach. We work with an honest business model to provide the best real estate services for both buyers and sellers. To learn more about Flat Fee, or to contact us, click here.

Debunking the Myths: Listing Agents Do Not Sell Property

There are many myths about real estate agents that have been engrained in the consumer public by decades of clever marketing by the real estate industry and its huge lobbyist, the National Association of Realtors.

One of the biggest myths is that that the agent that lists your home actually sells your home.

Buyers do not care who the listing agent is. In 70% of the transactions, the listing agent is not even the agent that shows the ultimate buyer the home. The buyer typically utilizes a separate agent to show them the home and to negotiate the offer on their behalf.

One of the ways in which agents have convinced the public that the identity of the listing agent matters is to somehow convince sellers that they have a "network" of buyers just waiting for a home.

How ridiculous is this notion these days? Agents do not have some secret network of buyers just waiting for a home. Buyers no longer rely upon agents to find them homes. Buyers find their own homes on the internet.

The buying public has become extremely savvy. In fact, they are now suspicious of listing agents. They typically have a distrust for what a listing agent will say about a home. This is yet another reason why so many buyers seek representation from their own agent.

Even though a person's home typically represents their most valuable asset, selling a home is now more commoditized than ever. The proliferation of the internet and available information has made the searching for a home easier than ever before.

Today's agents are no longer expected to be salespeople. Agents today are expected to be advisers of the process of buying and selling a home. Thanks to the internet buyers and sellers can find one another without agents. They just need a little advice on how to negotiate the process.

Given that agents are now advisers and their services are more of a commodity than ever before, shouldn't their fees have gone down from their historic 6% commission model?

We believe that eventually the market will see through the clever marketing and myths created by the real estate industry and will be forced to change their pricing structure.

From the beginning Flat Fee has taken the approach that our most important role is to be an adviser and that we should charge a fair price for that service. Hence, we never adopted the ridiculous 6% pricing model and instead have charged a flat fee for our services.

To learn more about Flat Fee's pricing model, click here.

Why Assisted Showings Can Hurt Sellers

Agents are constantly trying to justify their 6% commission model. One of the ways they do so is by telling sellers that they will attend showings of the property even if the buyer has their own agent. Agents convince sellers that their presence will help sell the home because they will be able to highlight the home's features better than the buyer's agent.

Unfortunately, assisted showings actually reduce a seller's chances of selling a home.

Buying a home is a very emotional experience. Buyers typically choose a home that provides them a positive visceral feeling during a showing. If the buyer feels comfortable and "at home" during a showing then they are much more likely to buy the home.

Buyers rarely feel comfortable when the seller's agent is hovering over them. Despite what seller's agents tell prospective clients, buyers do not appreciate a home more when the seller's agent highlights features of the home. Instead of appreciating those features of the home, the buyer feels like the seller's agent is giving them the "hard sell" like a used car salesman.

The buyer would prefer to be able to speak freely to their own agent about the home rather than having to temper their remarks and questions about the home because of the presence of the seller's agent. Because most buyers do not know which questions should be shared with the seller's side and which should not, they often forego asking questions that may have actually helped sell the home.

In most of the Country these days, selling agents can no longer convince their clients that assisted showings are beneficial. Selling agents have acquiesced into the use of lockboxes to allow buyer's agents to show property without the seller's agent being present. In my opinion this practice has helped greatly in making buyers more comfortable and sellers who do not utilize this practice are simply hurting their chances against sellers that do.

Flat Fee does things different. To learn more about Flat Fee's process, visit us here.

How Realistic Is It To Negotiate Commissions

You would think that in these challenging economic times that all businesses would be willing to enter into negotiations for the price of goods and services. However, the real estate industry continues to resist attempts by consumers to negotiate their price for services.

Most real estate agents will not even entertain a conversation of negotiating their commission. Most agents will say that their non-negotiable price is 6% of the sales price.

In some instances agents may be willing to reduce their commission to 5% of the sales price if they think it means they will secure the listing away from another agent. However, attempts at negotiating lower than 5% will usually fall upon deaf ears.

Why are agents not willing to negotiate their commission? For instance, if your home is $1,000,000, why do they insist upon the same 6% as they would if your home were worth $100,000. They could reduce their commission to 3% for the $1,000,000 home and still make $24,000 more than they would selling the $100,000 home.

The only logical explanation is that the industry continues to manipulate pricing to ensure that the consumer has limited choices. Some might call this a classic example of a monopoly and a restraint on free trade.

However, thanks to business models such as ours, the consumer now has a choice and can exert influence over pricing in the real estate industry. Market competition is good for consumers and at Flat Fee we believe that the consumer should dictate pricing, not the other way around.

Interested in Flat Fee and our sustainable business model? Contact us.

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