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Posted by on Apr 30, 2008 in Thinking of Selling? | 25 comments | Print Print

One-Month Listing

 

Recently I had a very unusual experience – I got to see a potential real estate transaction blow up from an outsider’s perspective.  I happened to know both the sellers and the buyers involved, but didn’t represent either of them.  The sellers had already been listed with a local agent when I ran into them, and the husband who wanted to purchase their home was an agent himself.

The buyers had done their inspection, and requested about a dozen things to be fixed in a house that was only five years old.  The sellers begrudgingly agreed, but gave the buyers a short time frame - only three more days - to release all contingencies.  For the buyers that was too short – they hadn’t done their appraisal yet, so they cancelled the sale.

The listing agent didn’t question how smart the short time frame was, and instead went on to berate the buyers, called them manipulative, and accused them of never being serious in the first place.  The sellers shrugged their shoulders and figured there will be another deal in the future.

After asking a few questions, I think I got down to the problem – the sellers and agent had a six-month listing.  Both parties must have figured that this will be a long haul, and more opportunity will be had – and causually chucked away this deal.

You don’t know if there will ever be another buyer, so sellers – and agents especially – need to create a win-win with the buyers that do step up.  What can be done to ensure the sellers and listing agents recognize this?

Sign a one-month listing.

If both the sellers and agents operated like they had to find a buyer in 30 days, they wouldn’t be so casual about price, about inquiries, and about offers & repairs.

Extend the listing beyond the one month if you have to, but only under these terms:

A price reduction of 5% if there had been offers, or a price reduction of 10% if there were no offers tendered during the first 30 days.

Because of the internet, the listings are distributed to all waiting buyers within seconds, and literally by the next day everyone knows your house is for sale.  After a home is one the market for two weeks, the traffic dies down considerably – don’t think it is going to get better after 2-4 more months, it isn’t.

 

25 Comments

  1. The sellers begrudgingly agreed, but gave the buyers a short time frame – only three more days – to release all contingencies. For the buyers that was too short – they hadn’t done their appraisal yet, so they cancelled the sale.

    Three more days. Whether it was wise or not the buyers had just been presented with a dozen ‘fix-its’ so it isn’t unexpected that the reply is ‘fine but this has to stop.’ Why didn’t they have an appraisal yet? Were I buying in a region that Case-Shiller says is falling by 4% per month 2 weeks is worth 2% to the buyer.

  2. The inspection happened the first week of the deal, and the agent told the buyers on a Friday that they had to release all contingencies by Monday, which was only halfway through the agreed-to 17-day contingency period.

    I took exception to the agent’s unwillingness to try and save the deal – instead, she pushed them out the door. But if you are under the illusion that you have six months to find another buyer, you must think there will be plenty more.

    My point was to think of a way for other sellers and agents to avoid having this happen to them. A one-month listing should set a fire under both parties to get ‘er done!

    Add in my other rule-of-thumb, that once your house is on the market, the buyers’ expectations are dropping about $1,000 per day, and six months later you’re toast.

  3. 17 days is 17 days. the buyer has every right to demand repairs. it is up to the agents to negotiate if the seller is willing to do ALL of the repairs as well as the price of the repair, not to all of the sudden demand a shortening of the 17 day contingency.

    these days, you got to bend over backward for the buyers. you p!ss them off? they walk.

    as for this being a 5 year old house. that doesn’t preclude a house from having problems. in fact, if the house is really new and you worry about a builder rushing thru things to get something built prior to the bust, then there may be a lot of problems with the house.

  4. OCRenter brings up a good point about the 5-yr old house. I rent a 5-yr old house in cv. It’s nice on the surface, but it has issues with cabinets, drawers, windows, leaky walls, etc. I think this house probably was built in a hurry because there were so many to build. There’s another 30 just like it jammed on the same block.

    I admittedly don’t have much experience with houses, but it’s not nearly as "polished" as I would expect for something built in 2003, and would list for over $800k. That’s what really scares me about some of these listings.

    As for the scenario above, good for the buyer.

  5. If I had been the buyer I might have considered it reasonable for the seller to ask for the removal of the *inspection* contingency upon their agreement to do the fix-its. Expecting the fix-it agreement to somehow accelerate my lender’s completion of the appraisal or financing (as if there’s *anything* either a seller or buyer can do to make lenders accelerate any part of their process) just tells me that the sellers, their agents or both are living in fantasy la-la land and the best thing for me to do is get away from them as fast as I can and not waste any more time with them before they do something else to make the deal not worth the effort.

  6. It does not make sense for the buyers to pursue transaction by paying for appraisal if there are other potential issues that would cost the deal to collapse. Shortening the contingency period tells me the sellers are hiding something or still in fantasy land of a seller’s market. With the current market, the listing agent should have been more accommodating in trying to work out a deal for a win-win situation. Some agents just need to get a clue with the current market situation.

  7. Jim,

    What do you thin of this strategy for dealing with agents. I was successful with negotiating this with an agent in Vegas back in 2004. Since sellers are often influenced to pick the agent that recommends the highest initial asking price, agents sometimes suggest a high asking price to flatter the prospective seller. Back in 2004, every agent was playing this game…so, my agent agreed that if she could sell my house at the price she suggested then she would get the full 3% commission. From there is stair-stepped down…If the sales price was less than list price then 2.5% commission. If sales price was < 95% of her suggestion then 2%. If less than 90% then 1.5%. She ended up selling it on the very last day before our agreement expired and earned 1.5%…and I had already told her she would be fired when our agreement expired. By the way, I did not choose the agent that suggested the highest list price. She was in fact a top-notch ReMax agent. I liked this strategy and it saved me over $10K. My agent’s motivates were lined-up with my interests all the way around.

  8. Why does it take so long for most escrows? A friend of ours just purchased a home and says he did it in 4 days, from offer acceptance to having the keys in his hands.

    Where’s the hang-up for others, is it the loan funding? Or are inspectors so busy they can’t come out when you need them to?

  9. Mike – Don’t know about JtR, but I like it.

    The first 80-90% of a reasonably-well priced home (all things considered) should be a no brainer, no agent needed. It is only the last incremental 10-20% that the selling agent may have some influence over. Should be a fixed fee ($5-7K or whatever), plus a much higher percentage (e.g., 33%) of the amount over list price (or over 95% of list).

    I know, I know, … how do they "split that" with the all-important buyers’ agents. Another problem with sellers paying for buyer agents.

  10. For the homes we’ve bought so far, the property-related loan activities (appraisal, title search, etc.) was always the longest thing.

  11. I like it too, Mike, and ideally I would prefer a net listing, where I control the price. These listings where the seller determines if and when the price gets reduced, are discouraging and counter-productive for me.

    I’ll kill myself to sell your house if I can control the price – which is how a net listing works.

    I commit to delivering a net price to the seller, and I’ll get the remainder – and I pay closing costs too. I’m still trying to figure out if they are legal these days, but I haven’t pursued it too far. The times when I’ve suggested a net listing I got shot down pretty quick by the seller.

  12. JtR – How do you pay the buyers agent with a "net" listing, and isn’t that an even more blatant conflict of interest than the normal conflict of interest percentage of total sales price?

  13. The buyer’s agent commission is a fixed percentage, not subject to change. The MLS rules state that whatever percentage is listed in the MLS, that’s what they get. Sellers/listing agents will try to whittle it down during negotiations, but the buyer’s agent doesn’t have to budge.

    My commission is the only flexible amount, because it wouldn’t be based on a percentage, it would simply be what’s left over after the smoke clears, if anything.

    But when posed with the thought of their listing agent potentially making a ton, or doing it for free, the sellers have always assumed that selling their house for top dollar will be no problem, and hestitate at my idea. Plus they want to "see how it goes" before committing to any price reductions in advance.

    It regularly happens that sellers will agree verbally to lower their price in 2-3 weeks, but when that day comes, it’s the old standard; "let’s give it just a few more weeks before lowering, we just started" or "we have six months" or "what’s the hurry?" or "I’m NOT going to give it away".

    A net listing puts the price lever in my hand – and you can bet it would be a 30-day listing too.

  14. This sounds like a ticking timebomb to me. In order to make an informed decision about what "net" amount to set, the sellers would have to have a good idea of the value of the house, in a market where the prices are changing rapidly and where predicting what a house is really going to sell for is like reading tealeaves. I foresee a large number of these deals ending up in court with sellers claiming that their "net" price was set too low because their realtor misled them about the market value of their homes.

  15. Agreed, it would take an unusual seller with loads of equity and lots of trust or market savvy. That might have something to do with why I’ve been unsuccessful in procuring one.

    The net listing isn’t for the average realtor – they aren’t going to take the risk of working for nothing.

    But we work for nothing anyway if the seller holds out on price, what is the difference? Realtors tend to hang out with the sellers in la-la land, thinking some magic buyer will come along and make everybody happy.

  16. Could you maybe establish a net listing floor and commission ceiling?

    For example: Set a net list price of $1.0M, and a commission cap of $50k. This gives the agent an opportunity for up to 5%, but keeps the seller from missing out on higher sale proceeds. Let’s say they start at $1.1M to leave some room to fall back. If they get it, the agent gets full commission (well over 3%) and the seller also participates in the profits of a higher sale than expected.

    It’s basically putting collars on the deal. Would a savvy seller go for that?

  17. I agree with GeneK in that there is major potential for conflict of interest with a net listing.

    For example, let’s say a seller is clueless about values, and has a house with a market value of $800K. The realtor tells the seller that it’s valued at $700K and they agree to a net of $650K.

    Because it’s priced below market (listed at $700K instead of $800K, but sells "above market" for $775K or so), the house would sell very quickly (less work and expense for the Realtor) and the Realtor walks off with the $125K (difference between net of $650K and sale price of $775K).

    I’d guess that’s why it would be illegal, as there would be no protections for the sellers.

  18. Please, please, please keep up this conversation going folks.
    I would really like to see a new payment plan to better align the agents with my interests.

    When I signed my buyer’s agent agreement I pointed out to the realtor that the deal was totally not in my interest and that it only would benefit her. Boy that sparked a nasty conversation for 20 minutes! She just couldn’t see how the deal meant she had no motivation in getting me my desires for less money; she would benefit more if I paid more not less.

    From the buyer’s side, I wanted a way to pay her for how much she saved me from the OLP (original at the time she went in for discussion). Or for instance, if I say yes I am willing to buy today at this price, I want her to say ‘no’ let’s wait a day for a discount or I think you can get a home warranty out of this too if I demand it. Then I would give her 30% (or whatever percentage) of said discount.

    But I guess this too requires a savvy buyer.

    So like I said, keep going…so that we can build a new model.

  19. Or what about this?
    My buyer’s agent agreement says she will spend n number of hours for y dollars on helping me get my house. If I spend more of her hours I pay more, if I spend fewer of her hours I pay less.
    Hours would be a sum of time chasing title searchs for me, property searchs, home visits, driving around, negotiating, paperwork, etc. The more I do for myself, the less I pay.

    Does this not work?

  20. One last note.
    There is no reason why such agreements between either type of agent and me can’t be significantly complex. Computers are just fine at doing the final calculations.

    No reason why we can’t have time components, dollar components, subsequent pricing changes of comparables, etc all be considerations.

    If the neighborhood is going down in value my buyer’s agent should tell me so that I delay my purchase (if I can). If I buy at today’s price and the value goes down in relatively short time, then the buyer’s agent gets less money later and the seller’s agent gets more money later. However in an appreciating market, the buyer’s agent could get more later if they get you to buy now (they profit if you profit).

    If the price is negotiated down, the buyer’s agent gets more money and the seller’s agent gets less. If the price is right and thus no change occurs, then everyone gets paid appropriately. Of course such a situation becomes suspect if both agents work for the same real estate company.

  21. I’d like to see flat-rate fees for everything.

    For instance, $400 just to list on the MLS — no other help from the agent.

    or $30-$50/hr for doing paperwork or showing houses, etc.

    This would be ideal for those who want to do most of their own work.

  22. Great discussion, Jim (as usual)
    Having things stacked so everyone wins, and everyone’s interests are aligned makes a lot of sense.
    So, does keeping it simple.
    The first suggestion you made has the charm that the seller will reduce the price IF they renew. However, with such a difference – 5% vs. 10% – it might tempt some realtors from holding back offers around that last 30 days. You know, cuz the seller might agree to a 10% price drop but the agent wins the day by selling at only 5% or 8% lower than before.
    I once offered a realtor a bonus if they sold within the first 30 days of a 90 day agreement. They liked the idea, but the Internet wasn’t as well-established then, and it took them too long to get the word out beyond MLS. I had told her I wasn’t going to renew past the initial 90 days and she didn’t believe me until day 88. On day 89 she brought a bonafide buyer. Nothing like deadlines to get everyone motivated!
    Just keep it simple and fair.

  23. The market conditions are causing people, especially sellers, to look past the cost and appreciate how hard it is to find a buyer. Once they get to that point, then the focus shifts to just hoping to find an agent who can get ‘er done.

    You can hire an agent for either $100 or 6% and fail.

    What and who can close a deal?

    There are people like CA renter that can do their own work, and most realtors they come across have nothing to offer – heck, the client knows the market and the business better than the agent does. You’ll end up closing your own deal.

    I hope this blog has contributed to that. Agents can read here just like civilians, but do they? I don’t think they do – if you’re an agent and have a few deals under your belt and made some money during the frenzy, you think you’re somebody.

    These market conditions are making nobodys out of a lot of realtors. Are they willing to work harder and smarter to keep up? Or will they offer their services for $30-$50 an hour for doing paperwork.

    They’re going to go the easy road. If you are CA renter and know your way around the business, then good for you – you can make it to the finish line even with marginal help and save some money.

    But for many, they want and need more convenience.

    That’s what I do, I sell convenience – I make it easier for you.

    P.S. Referring to CA renter’s post higher up, there are no protections for sellers or buyers. You can get ripped off regardless of commission program, famous company, age or looks. Client Beware.

  24. Hey, Jim, don’t sell yourself short. You know a lot more than most realtors, and it shows. Sure, convenience is nice when handling paperwork, but a lot of sellers and buyers need someone who knows more about the market than they do. If they want fine penmanship and careful data entry, they’ll hire a scribe.

  25. I agree, but don’t sell convenience short either. When I was a student I had tons of time and no money. Now my wife and I both have heavy workloads, enough money to get by, but no extra time. The time it would take as a newbie to properly sell a house just isn’t practical for us to spend. A good realtor’s services are quite valuable in such a case.

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