Blog :: 2011

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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Get Paid to Buy A Home!

Recently a person made what I thought was a great observation about our services for buyers of real estate. He said to me, "so I get paid to buy a house. That is a smokin deal."

I had never thought about our service in that sense but I guess he is correct. Essentially our buyer clients get paid to buy a house.

Because the buyer agent commission is baked into every transaction and the seller is going to pay it regardless of which firm the buyer uses, then this person's observation is absolutely correct. When our clients purchase a home and we give them a check back, they are getting paid to buy that home through us. As far as we know we are the only firm in Vermont sharing our commission with buyers and thus our clients are the only ones getting paid to buy homes.

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

Why Flat Fee Real Estate Canceled Its Realtors Membership

Many people believe that in order to be a real estate agent, you need to be a "Realtor". This is incorrect.

A "Realtor" is simply a person that is a member of a trade association or lobbyist group. The most well known real estate trade association and lobby group is the NationalAssociation of Realtors. In Vermont, we also have other real estate trade associations and lobbyists, including the Vermont Association of Realtors and local Realtor associations.

The primary goal of these real estate trade associations and lobby groups, like any trade group or lobbyist, is to promote the interests of its members. The overwhelming majority of the members of these associations are real estate firms that offer traditional models of brokerage services based upon a percentage of the sales price. These firms typically charge between 5-6% of the sale price as their fee.

Because the majority of members and those making the policy decisions for the "Realtors" associations support a 5% or 6% commission based model, their policies, practices and decisions are aimed at preserving this model.

While these trade associations have done a very good job of marketing themselves and conveying concern for the interests of buyers and sellers of real estate, they actually care much more about ensuring that their members continue to profit enormously from buyers and sellers of real estate by preserving the 5-6% commission based model.

Because their primary goal is to ensure that the 5-6% commission based model continues to enjoy a market dominance, they must take action against any threat to that market dominance. Flat fee real estate services such as ours represent the greatest threat to this market dominance.While it is possible that a decade ago a business like ours would not have been competitive, thanks to the great advances in technology and the internet, a business like ours is now not only competitive but represents the wave of the future in real estate brokerage services.

FlatFee RealEstate was a member of the NationalAssociation of Realtors, the Vermont Association of Realtors and the NorthwesternVermont Board of Realtors from 2008 until late 2011. During this period, there were several instances where it became clear that these associations had no interest in having FlatFeeRealEstate as one its members or protecting the alternative commission model we were promoting. In fact, at one point they demanded that we remove the blog post regarding real estate agent pay from our website because they were clearly concerned that the public would be alarmed by the outrageous commissions of "Realtors" inVermont.

It was after the "Realtors"Association demanded that we remove this posting that we decided to voluntarily cancel our membership in these trade associations. We could no longer in good conscience be a member of a lobbyist group like the NationalAssociation of Realtors. Like many lobby groups today, the National Association of Realtors is designed to protect the business interests of its members to the detriment of the pulic and FlatFee does not believe that the public's interest should take a back seat to those of lobbyists.

In addition to canceling our membership, we also ceased using the forms created by these trade associations. The Purchase and Sale Contract that members of the Vermont Realtors Association utilize was drafted by an attorney for theVermont Realtors Association. While most Realtors do not bring it to their clients attention, the Contract actually includes two provisions which limit the liability of the Realtors even though the Realtors are not a party to the contract. We believe these provisions, at a minimum, violate the agents fiduciary duty and loyalty to the client and may even represent a violation of the State of Vermont Consumer Fraud Act. This is yet another example of the Realtors Association putting the interest of its members above those of buyers and sellers inVermont.

FlatFee believes deeply in the spirit of healthy business competition inVermont and cannot in good conscience be a member of any organization which cares more about the interest of its members than it does in ensuring business competition.

To learn more about cases where "Realtor Associations" have been accused by the FederalTrade Commission of restricting competition visit the FTC's Website OnRealEstate Competition

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Real Estate Agent Pay - Chittenden County

The average Vermont family makes $51,200 per year. What do you think real estate agents make?

According to data from the MLS and based upon the traditional 6% commission model charged by other firms, the top 5 agents in Chittenden County so far this year (January to July 22nd) have made between $292,000 and $587,000. Thus, they are on pace to make between $600,000 and $1,000,000 this year alone.

It is remarkable during the worst recession in history that real estate agents in a small community like Chittenden County can make in excess of $500,000 per year, much less $1,000,000 per year, and continue to get away with it.

We believe the public should demand fairer compensation models from real estate agents. We believe that our flat fee model represents a fairer compensation model and keeps our compensation much more in line with average Vermont incomes.

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

Comments

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      • Gabriel on

        Oh what a good question.People buy life isranunce, usually in trust so it doesn't also get included in the estate, in order to pay estate taxes. That's about 97% of what you need to know. Outside of that you just need to look around for the specific information you're looking for.

        What's Behind the Numbers?

        Many real estate agents throughout the Country tend to claim to be the #1 agent. Some claim to be the #1 agent in a State, County, City or even for sale of a particular type of property (such as condos or apartment buildings).

        It is unclear to me what agents base these claims upon. I assume they base their claims upon data found in their local Multiple Listing System or MLS. If this is the case, then the numbers may actually be somewhat deceiving.

        The MLS data does not necessarily represent the performance or statistics of an individual agent. For instance, if an agent has "team members" that work for them, then the team leader may be taking credit for sales actually procured initially by another agent. Also, in some firms around the Country, the owner of the firm will take credit for all of the transactions completed by the agents in the firm. Thus, while the agent may technically be "Number 1" in a particular area, there may be more to the story.

        At Flat Fee Real Estate each agent is given credit for his or her own transactions. While our agents may never be able to market themselves as "Number 1", our clients will know that each agents statistics represent individual performance and not the statistics of a team or group of agents.

        I encourage every buyer and seller to question agents on how they recognize individual performance in their firm. This may help buyers and sellers to have a better understanding of the marketing claims made by agents in their area.

        Flat Fee doesn't go out-on-a-limb to make claims, we just give you the facts. To learn more about Flat Fee or to contact us, click here.

        Real Estate Agent Pay - Chittenden County

        The average Vermont family make $51,200 per year. What do you think real estate agents make?

        According to data from the MLS and based upon the traditional 6% commission model charged by other firms, the top 5 agents in Chittenden County so far this year (January to July 22nd) have made between $292,000 and $587,000. Thus, they are on pace to make between $600,000 and $1,000,000 this year alone.

        It is remarkable during the worst recession in history that real estate agents in a small community like Chittenden County can make in excess of $500,000 per year, much less $1,000,000 per year, and continue to get away with it.

        We believe the public should demand fairer compensation models from real estate agents. We believe that our flat fee model represents a fairer compensation model and keeps our compensation much more in line with average Vermont incomes.

        Thank you.

        Comments

        1. rfoley on

          Thank you for your comment. Our model is doing quite well. Thank you for asking. Our sales volume has been growing by approximately 100% annually since our inception. In regards to skills and knowledge base, I used to be a real estate lawyer. I also have bought and sold for myself over 20 times. I now own over 60 units with approximately 180 tenants. Additionally, I own a property management company that manages over an additional 300 units. In regards to clients suffering, you can read the testimonials on our website. Our clients do not suffer. They are grateful that someone has finally offered an alternative to the overcharging model of 6%. On average our clients save between $5,000 and $12,000. In regards to marketing, we probably spent more per client than any firm in Vermont. I assume you are not in Vermont otherwise you would know that we run tv ads and our one of the primary sponsors at the largest athletic events in the State. However, I digress to the real point. Rather than attacking our model, I think agents that charge 6% need to begin justifying their rates. We can justify ours. How do you justify charging 6%? (3% to the seller's agent and 3% to the buyer's agent). Most agents try to cry poverty when asked to justify their rates. They will tell sellers that "I only make 1% after I pay my firm and they pay their national franchise fees". If that is the case then the overhead in your model is too high. Just like any business with high overhead, it is doomed to fail. You need to reduce your overhead, as we have, so that you can reduce your rates. We are a full service company. We simply charge a fair rate and that is why the market has embraced the model so quickly and wholeheartedly. We look forward to helping more and more people realize that they do not need to pay 6% to get high quality real estate services. Thank you again for your comment.
          • Derek Gilbert on

            To all the seller's reading this Realtors typically make 3% of a sale. 1% goes to the broker. 1% goes to taxes, fee's, admin, & marketing, 1% actually goes to the broker. If the genius that posted this blog is trying to get your business how much do they spend on selling your home. Like any successful business there is always a 95/5 rule. 5% of the agents perform 95% of the business because they are good at what they do. Ask this company to show you their books and business volume. It's probably crap. Good luck trying to discount your service because you don't have the skill to do it any other way. In the long run the client suffers. There is a reason why the founding CEO of helpusell sold his house with a full service company. The model is a failure.
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              What Is Important to You?

              In an effort to create a more interesting blog, we at Flat Fee Real Estate want to know what is important to buyers and sellers of real estate in Vermont. Please post questions or topics you would like to see discussed regarding Vermont real estate and we will do our best to answer your questions and/or write a meaningful post regarding the topic.

              Thank you from Flat Fee Real Estate.

              Leave a commen below or contact us here.

              Public Buildings and Fire Marshall Inspections

              Any residential multi-unit building in Vermont is considered a "Public Building" and subject to Vermont's Public Building Regulations. Multi-unit buildings are any residential building other than a single family detached home. Thus, a duplex, a condominium unit, an attached townhouse and apartment buildings are all subject to the Public Building regulations in Vermont.

              Over the past 3 years, attorneys have developed a belief and standard of practice for Public Buildings. Attorneys have begun requiring that every seller of a Public Building, including a condominium unit, provide either a current Public Building Certificate of Occupancy or have an inspection performed by a Fire Marshall proving that the building meets current life safety codes.

              Despite the best of intentions of attorneys to protect their clients, this new system created by attorneys is a nightmare for anyone selling an apartment building or condominium building in Vermont.

              Prior to attorneys insisting upon inspections, sellers of a condominium units and apartment buildings did not have to conduct inspections because the Public Building Regulations specifically allowed existing buildings to remain in use unless they were deemed an imminent threat to human safety.

              Under the new system, the current owner becomes solely responsible for bringing their building or unit into compliance with current codes even if the building or unit complied with the code that existed at the time that the current owner purchased it. For instance, many condominium buildings were built in the 1980's in Chittenden County. Many of these buildings have windows that met 1980's egress standards but do not meet 2011 egress standards. If the owner of one of these units wants to sell, they will have to replace the windows to meet current egress standards. For many owners who are simply trying to break even on the sale these days, the extra expense for new windows is often cost prohibitive.

              In addition to the additional costs to sellers, the new inspection requirement has created a bureaucratic mess. The State Fire Marshall's office was never consulted on this new inspection requirement. The system was created by lawyers to protect their own liability. As a result, the State Fire Marshall's office does not have the resources to conduct the number of inspections required.

              I recently had a client who called the Fire Marshall's office to schedule inspection. The client called three times over a two week period and left messages. He finally received a call back. The inspection was scheduled for the following week (3 weeks from the initial call). At the inspection, the Fire Marshall told my client that he would get the report to him as quickly as possible. My client did not receive the report for 3 weeks. So in total, it took 6 weeks to simply receive the report.

              Upon receiving the report, there were errors in it. In order to rectify the situation my client had to get in touch with the Fire Marshall to get a corrected report. Additionally, although the building was built in 1900, the Fire Marshall required the building to be brought up to 2011 standards. In order to bring the property into compliance, my client had to obtain a variance for certain items and spend approximately $5,000 to rectify other issues.

              The whole inspection process delayed the closing and put the entire transaction in jeopardy.

              I do not have a problem ensuring that buildings are safe, but laws provide for "grandfathering" for a reason. To place the entire financial burden on the existing owner even if the building has been considered safe for more than 100 years seems absurd. Furthermore, to have a system that takes 6-10 weeks when most parties want to close within 45 days of the contract being signed, places a tremendous obstacle on an already battered real estate market.

              Flat Fee takes pride inadheringto regulatorybuilding safety codes. We do everything we can to make our properties safe for all who may enhabit them. Questions? Concerns? Contact us here... or leave a comment below!

              Comments

              1. Yanan Shang on

                Can I not sell my condo (1/2 of a house) until I have a Firemarshall inspection? We live in Colchester near Mallets Bay. Thanks
                • Tom Cull on

                  From my experience as a first time home buyer, make sure that the Fire Inspection happens as soon as you have made an offer. The seller may not be aware if they are FSBO and bought years ago, when it might have been up to code. Egress windows are no drop in the ocean to install and the seller may or may not be willing to pay for it or at least split the cost. It's so easy to market a property as 'finished living space' but a seller needs to be cautious if that's really not the case. Very interesting post!
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                        Flat Fee Facebook Contest and Giveaway

                        We are proud to introduce the Flat Fee Facebook Contest and Giveaway. As of right nowour Facebook Page has 75 fans. Our goal is to reach 100 Facebook fans. We are challenging our current fans and their friends to help us achieve that goal.

                        If our current fans are succesful in convincing their friends to become fans of Flat Fee Real Estate on Facebook and we reach our goal of 100 Facebook fans, we will begin giving away a prize to one of our Facebook fans every 2 weeks.

                        The prizes will be merchandise such as Apple and Sony electronics products. Thus, we encourage everyone, even those with no connection to Vermont to become a fan of ours on Facebook.

                        Thank you and we look forward to seeing you on Facebook.

                        Comments

                        1. Jamika on

                          People buy life insurance, ualsuly in trust so it doesn't also get included in the estate, in order to pay estate taxes. That's about 97% of what you need to know. Outside of that you just need to look around for the specific information you're looking for.
                          • Jussara on

                            Thr'ees nothing like the relief of finding what you're looking for.

                            Proposed Bill Requiring Sellers to Get Energy Audits

                            A bill was recently introduced in the Vermont Legislature which would dramatically change the requirements for selling a home in Vermont. Under the bill, sellers of a home in Vermont would have to hire a professional to perform an energy audit of their home. The seller would have to pay for this audit. The seller would be required to provide the results of the audit to every prospective buyer of their home. The audit will contain a scoring system based upon the home's efficiency relative to other homes in Vermont. The audit will also contain a list of recommended improvements to make the home more efficient.

                            While well intentioned, this bill would actually impose a penalty on owning a home in Vermont.

                            Here is an example of the average transaction in Burlington, Vermont and how this bill constitutes a penalty on existing homeowners:

                            A young couple owns a small ranch house in Burlington that was built in the 1950's. It is their first home and they bought it in 2006 during the peak of the market for $220,000. Because an energy audit was not required or the routine practice when buying a home in 2006, the owners did not have an energy audit at the time they purchased.

                            The young couple has a child who is 3 years old and are expecting their second child in a few months. They determine that their new family will need more space and decide to sell their home.

                            If this bill is adopted, they will have to conduct an energy audit. Their home will likely receive a low score because their home will be compared to new homes in Vermont rather than being compared to other homes in their neighborhood.

                            The owners now have to provide the low score to prospective buyers. The buyers will require that the recommended energy improvements found in the audit be made by the seller before the closing. The owner will have no choice but to acquiesce if they want to sell their home.

                            The home ultimately sells for $205,000 because of the decline in the market over the past 5 years. In addition to getting $20,000 less than they paid, the buyers spend an additional $7,000 to make the home energy efficient. Thus, their total loss is $22,000 or 10% of their initial investment.

                            The buyers now have an energy efficient house at the sole cost of the esellers. The buyers benefit because they happen to be the first purchasers of the home after the law was adopted. The seller is the only loser because they happened to be the owners of the property at the time the law went into effect.

                            Why should current property owners bear the entire burden of making existing homes more energy efficient? Property owners have already paid a transfer tax to the State for purchasing the home. Property owners have already paid annual property taxes to the City to help fund the City's services. Property owners have already stimulated the economy by purchasing the home and paying third parties in Vermont for appraisals, inspections, legal advice, brokerage advice, title insurance, bank fees and other fees associated with purchasing a home. Instead of rewarding homeowners for their commitment to Vermont, this bill would penalize for it.

                            The Legislature should allow the free market system to work here. Homeowners will make an energy improvement to a home if the cost of the improvement justifies the savings that will be achieved. Why should a property owner have to spend $7,000 in energy improvements if the savings will be $5 per month? It would take almost 12 years (without factoring for inflation) for the improvement to pay for itself.

                            In Burlington there is currently an Ordinance that requires apartment owners to have an energy audit performed in buildings where the tenants pay the heat prior to the sale of the property. The City can require energy improvements to be made. However, the property owner is not required to make more than $1,300 per unit in improvements and does not need to do any improvement if the savings achieved per year is less than 10% of the total cost of the improvement.

                            While I do not think that any bill should be adopted for existing single family homes, at a minimum, the State should look at a program like the one Burlington has for apartment buildings. At least then property owners would know the maximum cost and there would be equality when selling a home.

                            If this bill is adopted, owners of older homes will see their values plummet even further. This is not the time nor place for this type of legislation.

                            Feel free to contact Flat Fee at anytime, here.

                            Comments

                            1. Park city ut real estate on

                              Hi, The introduction of mandatory energy audits marks a government intrusion into the free marketplace, which is unprecedented in Canadian history. Thanks, Perk.
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