The true ‘costs’ of selling your home
WARNING: Avoid the expensive traps made by most home-sellers.
by Neil Jenman
Here’s something that can save you tens of thousands of dollars. It’s something that most home-sellers never know. As you’ll see, it’s also why most home-sellers lose tens of thousands of dollars when they sell their home:
There are THREE ‘COSTS’ when you choose a typical agent.
The first cost is the agent’s fee (commission) – usually a percentage of the selling price.
The second cost is the advertising expenses – referred to as a “marketing campaign”.
The third cost is the biggest cost of all – it’s the amount by which your home is under-sold. Or “short-sold” as some industry insiders call it, such as the agent and author, Jim Grigoriou.
Together these three costs can easily exceed a hundred thousand dollars. That’s the real cost to so many sellers who choose a typical agent, one who doesn’t know how to negotiate.
Let’s look at each of these three costs.
Firstly, the selling fee – known as the commission. This might seem obvious, but most sellers overlook it. The first way to pick an agent who is likely to get you a low price is an agent who charges you a low fee.
Most “discount agents” don’t just discount the price of their commission, they also discount the price of your home. As Jim Grigoriou says: “If agents can’t negotiate a good price for themselves, they are highly unlikely to negotiate a good price for your home?” He’s right. If they give their own money away, what do you think they’ll do with your money?
But while an agent with a low fee often means a low price, an agent with a higher fee is no guarantee of a high price. The major point that sellers need to remember is this: You must never pay any fees – high or low – until your home is sold.
So, while the agents may quote you their fee when they are asking you to sign-up to put your home on-the-market, their selling fee is negotiable right up until the time you sell your home. Let’s say, for example, that an agent says: “The reason we charge a higher fee than other agents is because we get you a higher price than other agents.” Okay, then here’s how to see if that promise is true. Make sure the agent’s fee is clearly stated as “subject to future negotiation” in the selling agreement; if not, then simply write such a statement on the document the agent asks you to sign. And then, watch what the agent does to get you a buyer. If the agent clearly works hard and gets you the great price you were promised, fair enough, the agent may well deserve a higher fee. If not, you do not have to pay a higher fee.
One of the most obvious points that sellers overlook is this: If agents ask you to accept a lower price than they originally quoted you, then you can ask them to accept a lower fee than they originally quoted you. If you take a cut, so can they.
So, hold-off with your decision on what fee you will pay until you see what price the agent gets for your home. Just remember this: You pay NOTHING until you are satisfied with the selling price the agent asks you to accept.
Paying nothing also applies to the second cost, marketing costs. You must never agree to pay for up-front advertising or marketing expenses (or whatever name or ‘tag’ they give to this shameless rip-off). And be careful that you do not inadvertently agree to pay for advertising costs if your home does not sell.
Check that document before you sign; make sure there is no sneaky clause that says something like: “If your home does not sell, you will still get a large bill for advertising expenses.”
You hire an agent to get you a result – the sale of your home. No result then no cost. And that must be non-negotiable. If the agents bleat and say, “But look at all the advertising we did on your home,” then you simply reply, “And yes, you would have got plenty of leads which means you probably met many other sellers and buyers thanks to that advertising. Plus, of course, you got to promote your own real estate office. I am not going to pay hundreds or thousands of dollars to see my home get unsold and you get lots of free promotion for your agency at my expense. It’s not going to happen.”
So, remember the golden rule with all agents: ‘Never pay any money to any agent for any reason until your home is sold and you are happy with the price and the service from the agent.’
The last of the three costs of selling your home is a cost you will not have if your agent is a highly-skilled negotiator. Unfortunately, despite their claims, most agents are hopeless negotiators. Or, worse, they openly encourage or allow the buyers to pay less than the buyers are quite willing to pay. Many a buyer has made an offer to an agent only to have the agent say, “Oh no, I think you can get it for less.” Considering that most agents are paid by sellers, such common betrayals of sellers are outrageous.
Jim Grigoriou, who is currently writing a book called ‘The Real Estate Short-Sell’ believes that agents under-selling the homes of their seller-clients is the biggest and most costly scandal in real estate. And, worse, it’s largely a hidden scandal as most sellers never realise their homes have been short-sold. It’s as if they move out and leave a suitcase filled with cash behind.
According to Grigoriou, more than eighty per cent of homes sold by typical agents are sold for less than buyers are willing to pay. With some real estate offices, research shows that a hundred per cent of their sales are under-sold.
So, how do you know which agents are likely to under-sell your home? After all, the amounts by which homes are under-sold are not reported in the media and agents certainly don’t go around boasting about short-selling their clients’ homes.
The only way to know if the agent is going to sell your home for the highest price is to ask the agent this question: “How do you intend to get us the highest price?”
Now, of course, most agents – especially the more than eighty per cent who consistently under-sell homes – are going to trot out their standard lines to try and convince you that they will get you the highest price. But unless they can answer the following question, you can be almost certain that the agent is not going to get you the highest price for your home. This question reveals the agent’s true ability at negotiating – and here it is: “How do you know, when you bring me a buyer for my home that you have managed to persuade that buyer to offer the highest amount that they are willing to pay?”
Now, be careful. If the agent gives you an answer that you do not understand or that doesn’t make much sense to you, that’s probably because the agent does not know how to negotiate. So, if you don’t like their answer, simply keep saying: “Yes, but how can you be sure that the buyers truly are offering the highest price they are willing to pay?”
Please be absolutely clear on this point: A good negotiator, an agent who will get you the highest price for your home and will not cost you tens of thousands of dollars by short-selling your home, will give you an impressive answer to the question “How do you know you have got the best price from the buyers?”. If you are not impressed by the agent’s answer, then, no matter how much you like the agent, you should not give that agent the rights to sell your home.
Consider the mathematical difference between an agent who is good negotiator and who may also charge a higher fee than other agents with a typical agent who charges a lower fee.
Let’s say that your home sells for a million dollars with a typical agent. Now, remember, if you are like most sellers, you will never know – unless you send someone to speak to the buyers a few weeks after they move into your home (which is too late to get you the highest price) – that your home has been under-sold.
So, if the agent charges you a commission of 1.5 per cent you may be too busy congratulating yourself that you paid a low fee to notice that you also got a low price. The fee you will focus on is the 1.5 per cent which, on a million dollars, works out at $15,000. And then there is likely to be the advertising cost which, even if you only pay half a per cent instead of the typical one per cent, will still add another $5,000 to your cost.
Now, let’s get to the horrendous reality of the third cost, the one that most sellers never discover, the amount your home is under-sold. Let’s say you have been “lucky”, and you have not been short-sold by ten percent (the average amount that research reveals happens to sellers). If your home has “only” been short-sold by $50,000 that is still fifty thousand dollars you did not get that you should have got. So, instead of paying one fee – being the commission – you have done what most sellers do: paid three costs to sell your home: First, the commission of $15,000; second, the advertising costs of $5,000 and third, the cost of under-selling your home by a massive $50,000. Total cost of selling your home: $70,000.
Now, compare this with an agent who is a skilled negotiator, but you rejected this agent because you thought the commission rate of, say three per cent, was “too much”. This agent would have sold your home for one million and fifty thousand dollars (because the agent uses a system that ensures that buyers pay the most they are willing to pay) which means that you would have paid one fee of $31,500 (being three per cent of the sale price of $1,050,000).
So, the agent who first appeared to be the cheapest (at 1.5 per cent) ended up being the most costly because the total cost of using this supposedly “cheap agent” came to $70,000.
But the agent who appeared to be the expensive agent because this agent had a commission rate of 3 per cent ended up being the cheapest agent because the total cost of using this second agent, the good negotiator, came to $31,500.
This means that the agent with the higher commission rate was a massive $38,500 cheaper than the agent with the lower commission rate. The agent with the more expensive fee was half the ‘COST’ of the agent with the cheaper fee.
This proves what so many home-sellers never realise. It’s not how much you pay the agents, it’s how much they cost you. The total cost must be your main concern.
And there is nothing more costly than a cheap agent who gets you a cheap price because they under-sold your property.
So, here are the seven lessons on how to identify agents who cost the least and get the most.
Lesson 1. Ignore the quoted commission rates. What you get in your pocket is much more important than what the agents get in their pocket.
Lesson 2. Remember that all commission rates can be negotiated down prior to you agreeing to accept any offer from any buyer. If you are asked to accept less, make sure the agent also accepts less.
Lesson 3. Never pay any money to any agent or agree to pay any money to any agent until such time as your home is sold and you are happy with the price and the service.
Lesson 4. Select the agent based on their negotiation skills, not their rate of commission. A highly-skilled agent who gets you the highest price deserves a higher fee than agents who will under-sell your home by tens of thousands of dollars.
Lesson 5. Unless you are impressed by the agent’s answer to your question: “How do you know that a buyer is offering the highest price they can pay for a home?”, do not hire the agent.
Lesson 6. Agents who are genuinely highly skilled at negotiation will not mind you grilling them about their ability. Indeed, they will be proud to show you how they are, by far, the most cost-effective agent. Remember those words: “cost-effective”.
Lesson 7. It costs you nothing to find out if the agent who claims to be the best negotiator can get you the highest price. So, as long as you are impressed by the agents answer to your ‘negotiation questions’ and you are not obligated to pay any money until you are happy with the price and the service, choose the agent who appears to be the best negotiator capable of getting you the very best (highest) price.