Why Selling Your Home Can Be Hazardous To Your Wealth
The following article is written by Jim Hart from an American perspective. However, much of what the author discusses is universal in its application to real estate agents and the industry in which they operate.
An EzineArticle by Jim Hart.
If you are planning on selling your home through a real estate company it may pay dividends to read this article to better understand the role of the agent you select to represent you and your property.
In the real estate business there is an old saying that goes; “If you don’t list, you don’t last”. What this means to you as a home seller is CAVEAT EMPTOR or” buyer beware”—you may not be getting the truth, the whole truth and nothing but the truth from your friendly real estate agent.
Everybody knows real estate agents get a commission when a home sells but did you know that the bulk of the commission goes to the listing agent and their company and NOT the selling agent and his or her company. An exception to this rule is that if the listing agent is also the selling agent, which is rare. How does it work? For simplicity, if a home is listed with sales commissions of, say seven percent (7%) then 4% goes to the listing company and 3% goes to the selling company. If the agent lists AND sells then the agent and company get the full 7% commission. Why is this important to you as a home seller? The answers are multidimensional…
First, let’s understand how the listing game gets played: A real estate agent’s (herein referred to as agents) primary goal in life, set by the company sales manager and any smart agents, is to focus their attention on getting listing contracts with home sellers. Obviously the incentive is the larger commission when the home sells. But there is more—agents want to build up an inventory of listings so that new inexperienced agents, or any agent for that matter, can do the work of meeting with buyers, showing property and selling the property for the listing agent. There is power in numbers, the more listings in the hopper, the greater probability that any one of them will be selling per month generating income for the listing agent.
If agents don’t list they won’t have any inventory built up to sell during the year as season fluctuates through time. Besides, it’s a lot less hassle to get a phone call from a seller, set an appointment to meet them at their home and get a listing contract and throw it into the MLS then it is to run around town with a multitude of unqualified buyers, showing property, etc—and there is less operating expense. In other words, experienced agents spend their time getting listing contracts while letting new or inexperienced agents do all the hard work. Why? Because inexperienced agents wear the rubber off their tires trying to make a sale and IF they sell a home, they find themselves starting over again to try and make another sale. Whereas, the listing agent spends their time getting listings so that when it sells, they get the bulk of the commission without losing any momentum in the listing process, keeping inventory high and property turnover (sales) active by the poor slobs who spend all their time actually selling the property.
How does this effect you as a home seller? Simple, you can expect to be fed every line of BS required to get you to sign a long-term listing contract (one year) with the friendly agent who is promising you the earth, the moon and the stars about selling your home for you. There are a number of sneaky things agents can do to convince you to sign the dotted line and the most common is: LIST HIGH, SELL LOW. This tactic involves giving you wonderful news about the selling price of your property—those magic numbers that spew forth profits at you, promising they can sell your home for much more than you anticipated. Sometimes they can, most times they can’t, especially in a buyers market. Nevertheless, the excited home seller signs the long term listing contract in an overwhelming whirlwind of emotion and that is the single most unintelligent thing a seller can do. Here are a few perspectives:
Think about the math of a simple deal— Let’s say an agent promised you they could sell your $75,000.00 home for $100, 000.00 if you sign a one-year listing contract. If you are selling a $100,000.00 home listed at 7% commission and that home sells, you will pay $7,000.00 in commission fees. Not bad considering the $25,000 profit you think you are going to make. But then comes the bad news—the offers on your home are coming in at market value say, around $70,000.00. Run the math, in this case, you would suffer a loss of ($100,000.00 minus $70,000.00 = $30,000.00.) But the agent’s commission would only drop from $7,000.00 to $4900.00 or ($7,000.00 minus $4,900.00 = $2,100.00). The major point here is that catastrophic adjustment to the selling price of your home only has MINIMAL IMPACT on the agent’s commission. So if they list you HIGH and sell you LOW then YOU are the one that is going to take the financial bath, not them.Shocked? It happens much more than you realize. It’s a pressure tactic to convince you to sign the dotted line.
Problems for home sellers (and buyers) goes on and on and on and there is not room to describe all the things consumers need to know to protect their legal and financial interests during a real estate transaction. Keep in mind that agents are trained in real estate principals, practices, and some law and finance. They are licensed salespeople, trained to make money for their company. Agents will do and say almost anything to get your listing contract.
Speaking of listing contracts—keep your listing contracts limited to 30 –90 day increments. If you are hooked up with a non-producing agent you can get out of the listing contract within 90 days or so rather than being legally bound to a dud on a one-year listing contract you can’t get out of. Additionally, when you sign ANY real estate contract have these 5-magic-words written right above your signature “Subject To seller’s Attorney Approval.” If the listing contract is funky or you change your mind after you cool down, you can get out of contract if you need to.
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