This regularly-scheduled sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty, voted one of Arlington Magazine’s Best Realtors of 2013. Please submit follow-up questions in the comments section or via email.
Question: I own a townhouse in a community in Falls Church where demand outpaces supply. Houses consistently go on the market and receive multiple offers above asking price within a few days. If and when I decide to sell, what are my options for negotiating compensation with my agent? I want to ensure the agent is fairly compensated while taking into account the fact that little time and effort is required on the agent’s part. Any info on negotiating commission, proposing an hourly rate, or using a real estate attorney (FSBO) is greatly appreciated.
There really isn’t a one size fits all answer to your question, but I’ll provide you with some things to think about so that you can decide which option is the best for you.
For Sale By Owner
The easiest option to address is selling the home on your own as a for sale by owner (FSBO). You live in a desirable neighborhood so it sounds like you are confident your home will sell quickly. You can go bare bones and just put up some signs and a Craigslist ad. Hire an attorney to help you with the contract and save most of the money you would have paid a real estate professional. In fact, the broker / owner of Frankly Realty wrote an article that discusses this very strategy: Go FSBO! Save $20,000! Realtor Tells All!!
Five Reasons To Hire A Listing Agent
Even if you are confident in your home’s ability to sell and have plenty of free time, you may still want to consider hiring a real estate professional. Below are five points I recommend that you consider.
1) Maximum Exposure: My goal is to generate as much interest as possible so that my clients hold the upper hand in our negotiations with potential buyers. It’s the key to maximizing the sales price and negotiating terms that are preferable to my clients.
I think of the listing as a unique brand that requires a professional image and a custom marketing plan. High quality professional photographs of the home and community are the cornerstone to our marketing. Depending on the home we may also include evening photos, aerial photos and video. These are used in the MLS listing and throughout our print and online marketing. I am happy to show you any of my past listings so you can see how they stand out from the crowd.
Though the MLS is an important tool for reaching thousands of homebuyers and their agents, I feel that it is only one of many other marketing channels that should be leveraged. I utilize every website and social media channel available to reach our target market and create interest in my listings. I would be happy to speak with you about this more specifically, but I can’t give away all my secrets in this forum. Some of our marketing plans also include a strategic dose of direct mail and print advertising. I also place an emphasis on pre-marketing the listings so that there is buzz before the listing goes live and begins collecting days-on-market.
Of course you can also count on the essentials like signage, professional quality brochures, open houses, broker open house events, community insights and inclusion in our monthly e-newsletter.
2) Proper Pricing: The real estate market is very fluid and fluctuates constantly. Knowing what nearby homes have recently sold for is only one component. The art of properly pricing a home requires you to have a finger on the pulse of the market and the ability to predict how the market will react to your pricing strategy. It’s a fragile balance between pricing too low and possibly leaving money on the table and pricing too high where your listing gets rejected by the market, lowering the perceived value.
3) Preparation for Market: Do not underestimate how valuable it is to get your home in the right showing condition to maximize your profit on the sale. It’s invaluable to have a market expert help you weigh the cost/benefit of making improvements to your home before it goes on the market. Improvements can be as minor as rearranging furniture a different way and painting a room the right color. We’ve also helped clients who were able to attain significant return on investment by updating major items like the kitchen and flooring in their home.
4) Costly Details: It’s important to think several steps ahead when negotiating the contract. When possible, you should be countering in a way that allows you to proactively avoid costly issues later in the process with items like home inspections and appraisals.
Once you have a ratified contract, there are a number of steps that must still take place even in the most vanilla transactions. A few examples:
When the home inspection is complete, you will need to look objectively at the requests without taking them personally. You will need to know which items are reasonable requests and which ones should be countered. You will need to keep track of how much time you have to respond so that the contract does not become void.
You will need to manage the appraisal contingency and be able to assist the lender with their requests.
You will need to know how to modify the contract so that it does not become void if one party can not close on time.
You will need to prepare for the final walk through inspection.
As I pointed out in my last article, these details can become very costly if not managed properly. By the way, even if you hire an attorney to help with your contract, they are unlikely to manage the steps from contract to closing for you.
5) Remove Emotion: It’s often during the sale of a home that people’s emotions begin to peak. Sometimes it’s from the stress of moving and leaving behind so many pleasant memories. Sometimes it results from stressful encounters with the buyers. Other times it’s the sheer gravity of selling your most valuable investment. Regardless, it can lead to emotional rather than rational decision making, which can erode your effectiveness or even kill a sale. Part of what you hire a real estate professional for is to negotiate aggressively on your behalf without becoming emotional. They are also there to be your guide when important decisions are to be made. And to take the majority of work out of your hands so that you can focus on the move rather than the sale.
Negotiating Lower Fees
I recommend narrowing down your list to the best real estate professionals for the job and taking the whole package into consideration, including their fees. From there, decide who you would like to work with.
I can’t speak for anyone else, but I usually offer a discounted listing fee to return clients, military and those people who are also buying a home. There are other cases where I might be willing to consider the unique situation, especially if I think that it can lead to a long term relationship.
Remember that you also have control over what you offer to the buyers agent. There is not a set fee. Rather it is part of the marketing package. One would hope that agents aren’t discriminating against listings that offer a lower fee to the buyers agent, but it is something you’ll want to consider.
Contingency vs. Hourly Compensation
By far the most common method of compensating real estate professionals is via a contingency model. Using a contingency model, the real estate professional gets paid a pre-negotiated commission rate when the home is successfully sold. If you change your mind about selling or are unable to sell the home, the real estate professional not be compensated regardless of how much time and money they have invested. I would venture to guess that on average, real estate professionals only earn a commission from about 60% of the clients they work with. It is a low risk model for you that doesn’t require any money up front, but understand that this model includes a premium on the compensation for the risk the real estate professional takes on.
Compensating by the hour can be a good idea that I don’t think many people consider. You can obtain the expertise you need without paying a premium for a contingency based commission. It’s a model that I have been a proponent of for a while, but have not found many people who are on board with it yet. The downside for you is the financial risk now falls into your hands if the home doesn’t sell or you change your mind about selling. An hourly based compensation model is not something that every real estate firm will be willing or able to entertain, but I am happy to discuss it with you in greater detail if you like.
The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of ARLnow.com.