I had a young couple ask me if they should submit a “love letter” to the owners of the home with their offer. I had not heard the letter called “a love letter” before, but it reminded me that I had used a letter like this back in 2006 or so when the home had over 20 offers. I included a lovely picture of the couple and their two children.

Fast Forward to 2012. This year there were many multiple offer situations and in one case a lovely old couple who had lived in their home since it was brand new and for over 30 years did not choose my clients and I was told it was not about price. ??? What WAS it about then?

Long story short…my clients did get the home. Sometimes Sellers say “I want a nice family who is going to raise their family in “our” home the same way we did”. They identify with the buyers of the home and want to picture a “loving family” in the home that they love so much. They don’t intend to discriminate…but…net result???

There has been a lot of talk over the last 5 or more years about “Why do we NEED an agent?” A reminder that often the agent is the ONLY one in the room who can see when a law is about to be broken…intentionally or not.

We are not licensed to SELL Real Estate.

We are licensed to represent people who Buy and Sell Real Estate.

Many agents believe that they are simply passing paper back and forth between buyers and sellers and must follow the instructions of their clients. This is a CAUTION that many people need to be told when they are entering into that gray area of “unlawful” as it is not always blatant discrimination.

Sometimes the seller asking

“which offer is from that cute couple with the baby?”

IS discrimination.

The agent should say: “Let’s look at these offers on their merits, without regard to WHO is making the offer”. People who discriminate often do it quietly, without notice, and sometimes scream the loudest that they are NOT…when someone calls them on it.

The post Discrimination – “Love Letters” to Sellers appeared first on Rain City Guide.

I am answering a more complex one for a family member who hopes to purchase a home vs rent. Scenario is they are graduating with an RN and looking at:

Los Angeles $82,000 Salary
Seattle $74,000 Salary
Colorado $71,000 Salary

The issue when people ask me is usually whether or not the salary differential makes up for the difference in the cost of the housing in various places. The offered salary is $11,000 more in Los Angeles than in Colorado, but does that compensate sufficiently for the difference in housing cost? In the past the scenarios presented to me were about renting vs buying, and often the differential did make up for that difference in rental cost. But when someone is buying vs renting…not necessarily the case.

In this particular example I am looking at Entry Level housing, VA Loan with zero down and a family that already has two children and is planning to have more children. So I need at least 3 bedrooms on this entry level housing.

Starting with “Seattle”…I know that the person is interested in The Eastside Cities of Kirkland, Bellevue or Redmond. For this “entry level” example, I am going to use a home that closed on Wednesday for one of my buyer clients BUT putting in the loan scenario of the family member of mine who is asking the question.

Price SOLD is $355,000. Plenty of space and yard for a growing family. Cul de sac lot. Could use some updating, but no expensive fixes needed. Had one owner for 44 years since it was built, in 1967. A good indication that a family can live there indefinitely without needing to upgrade to a larger home.

Now we’re matching this home purchase up to the above RN Salary for “Seattle” of $74,000 for the person asking the question, vs the person who actually bought it the other day.

First we’ll use the “rule of thumb” of 3 to 4 times annual income for the loan amount. That would put the loan, based on $74,000 Annual Income, at $222,000 to $296,000. A little short based on Zero Down for this home.

I’m going to move this WA scenario over to a home I sold in Mt. Lake Terrace that is a similar home, big lot, with a one car vs two car garage, but that sold for $250,000 vs $355,000. Edmonds School District. A reasonable example for Mt. Lake Terrace or Brier.

Now we go back to our 3X to 4X Gross Annual Income “rule of thumb”. and we can fit $250,000 into that $222,000 to $296,000 equation without approaching the upper limit. NEXT we go into the actual real detail of payments, which isn’t worth doing if the Rule of Thumb = No Way, Jose.

Conservative numbers put monthly housing payment, whether that be rent or mortgage payment, at 28% of MONTHLY GROSS income. VA guidelines are usually 40/40 ratios, allowing people with no debt to put the entire debt budget on home. This Family is a Zero Down…but also a Zero Debt, so they can go somewhere between 28% and 40% as the housing payment.

I am not a Lender…so you have to check the ratios with an actual lender before making offers, but since I don’t recommend going to 40% on housing payment even if you have no debt…as you may incur debt at a later point, let’s proceed.

This family would have ZERO Closing Costs on the above $250,000 scenario as they can be included in the price with a Seller and/or Agent Credit to cover the Closing Costs entirely. So we don’t have to factor in Closing Costs on the WA scenario. That will change for the other cities.

Rates are very low today…too low to use for this scenario, so I’m going to pump the rate up to 3.75%. We are going to stack the VA Funding Fee on top of the price for Loan Amount and Payment purposes. That amount is $5,375. It can be fully or partially paid as part of the Closing Costs, but let’s assume a stack on this one taking the Loan Amount up from $250,000 to $255,375 at 3.75% is . Property Taxes are $250 a month. Homeowner’s Insurance is $50 a month.

NOTE: There are different VA Funding Fee rates for different scenarios. Putting 5% vs ZERO down can reduce the Funding Fee by almost 2%. I have used a rough scenario based on the person who asked the question. These Funding Fee rules change from time to time, are different for Refinance vs Purchase Loans, whether you were in Regular Military or National Guard and whether it is a 1st time or subsequent use of the privelege. See your local lender for specifics.

OK…back to the payment on the $255,350 Loan Amount at 3.75%. $1,182.57 for the Principal and Interest plus $250 for RE Taxes plus $50 for Home Insurance (Fire, etc.) gives us a monthly payment of 1,482.57. That happens to be pretty close to what the home would rent for, probably less than rent for this style of home in other nearby places like North Seattle or Lake Washington vs Edmonds School District. Not sure about Northshore School District, which would also be in the mix as to Bothell homes. But all in all, a good basic scenario.

Back to $74,000 Salary in WA and $1,482.57 a month housing payment. $74,000 Annual Gross Income divided by 12 gives us $6,166.67 Gross Monthly Income which puts $1,482.57 a monthly PITA at 24% of gross. At 40% of Gross Income the monthly housing allowance would be substantially more at $2,466.67. $2000 a month PITA would be a loan amount of $430,000. hmmmm.

Let’s go back to the Rule of Thumb. $430,000 is 5.81 X Annual Income vs 3 to 4 times Annual Income. Low Interest Rates do impact this rule of thumb issue, but still…going over 4X Annual Income just doesn’t look right.

Let’s go back to the first house at $350,000. That payment would be $1,679.41 plus taxes of $330 a month plus insurance of $75 a month would be $2,084.41 a month or 34% of monthly gross income. That’s really enough to spend on housing, and likely appropriate in this case as we are only using one income at an entry level salary. So the payment will become more affordable with some supplemental income from the other spouse and future raises.

So let’s say either of the above examples will work…as well as something in between.

That’s the hard part. Now let’s throw up a $250,000 home and a $350,000 home in Colorado in the Cities of preference as noted by the person asking the question.

Most Every Home in Parker Colorado fits the bill. No problem there. So Parker Colorado, even at a few thousand less in Salary down from $74,000 in WA to $71,000 in Colorado…very easy to get a house for $300,000 give or take.

This big 5 bedroom, 3,200 sf home in Parker is listed at $314,900 and there are plenty of others to choose from. Easy to see why Parker Colorado made the list of options.

Castle Rock, another choice in Colorado, is even lower priced. This new 3,530 sf new home is listed at $288,000. But Parker doesn’t seem so far out of the way, and is plenty affordable.

That’s all I can say about Parker and Castle Rock Colorado, as I don’t know the area at all. It works, so it would depend on the salary offers in the various locations. WA works. Colorado works. Now to L.A.

We have a bit more room here, as the salaries are higher by $10,000 or so as the average. Using the same 34% of Gross I used above vs the 40% allowance, and using $82,000 as Gross income is $2,325 for housing payment. Let’s use $1,900 after taxes and insurance. That gives us a home price of $400,000 allowing the extra $10,000 for VA Funding fee on top of the mortgage.

What does that buy in L.A. in the specific areas of interest?

It doesn’t buy us anything in Walteria, one of my favorite not too Ritzy places.

It doesn’t buy us anything in Redondo Beach, even when I throw in 3 bedroom condo-townhomes.

There are a few in NW Torrance that would work, but they are short sales, so not sure if that price is reflective of “the going rate” for the area.

This 3 bedroom 2 bath, 1,468 sf home at $365,000

This house looks nice, but you can see a huge electrical tower behind the house.

Obviously L.A. is not as doable as WA or CO, so the salary difference would have to be higher. If the salary offer in L.A. was double that of WA and CO…well we can revisit this. But for a small difference…may not be worth it.

Let’s find an L.A. house and work the salary backward.

Well…I can’t find any for sale BUT the GOOD NEWS is I did find a few in Redondo Beach that SOLD. So the answer is there are a few…but the sell very quickly.

This one sold for $419,000. It’s only 914 sf though. 3 bedroom, 1 bath, but small. Nice sized lot and yard though…and it is warm and sunny enough to be outside most of the time year-round, unlike WA and CO.

This 3 on a lot sold for $410,000. Nice Street. 1,612 sf with 3 bedrooms and 2.5 baths.

BOTTOM LINE: All three are potentially doable…enough so to put out resumes in all three areas and see what kind of offers come in. WA is probably the best option for several reasons. L.A. is doable IF the salary offered is high enough…OR…if you rent for a bit until the salary improves by raises. Parker vs Castle Rock is probably an excellent option. Depends on how close to the actual work site they would be.

The purpose of answering the question “Where Should I Live?” is not to really answer the question, but to give some food for thought. There are some other considerations like schools and safety, but I already know the not Colorado options well enough to factor that in and the Colorado Cities seem to have pretty much ALL good schools. There are a couple of exceptions in Castle Rock, and I still prefer Parker for several reasons, but most Castle Rock Schools are pretty darned good except for one or two.

Shooting this link to the person who asked the question. Hope it helped someone else with the general “thought process” and work through format. No matter where your thoughts travel as to “Where Should I Live?”, it’s not to hard to do a comparison based on Salary Differences and Home Price differences. The cheapest homes are not always the best choice…nor is the highest salary.

Of course I’d have to say WA vs CO, but to compete, I’d have to throw in a nice looking house for $350,000 in Duvall.

The post Where Should I Live? appeared first on Rain City Guide.

Generally an agent calls to make an appointment and says something like: “Hello. I am planning to show your home today between 4 p.m. and 5 p.m.” The potential responses from the other end of the phone should be:

1) Thank You
2) NO…sorry, that’s not a good time.

Answers come in all forms:

1) Well I was going to go to the store, but I guess I could stay and clean up and go to the store later…

2) Can you come on Tuesday instead of today? Tuesday is a good day for me.

3) Can you call my agent because I like her to be here when agents show the home so she can tell you about all of the wonderful things about my home?

4) Is it a “serious” buyer? Because I don’t want people coming who aren’t serious buyers.

It’s a yes or no question. If your home is for sale and an agent calls to show the home, remember that is what you are supposed to WANT to happen!

Say Thank You and Yes…whenever possible.

The post “Motivated Seller” ??? appeared first on Rain City Guide.

Let’s look at a small subsection of a fairly standard looking new construction development as to variations of lots available.

Choosing the lot is likely the most critical phase of buying a new construction home that is not a spec home. It used to be a lot easier to pick the best lot…or at least a good one. A standard lot was built into the price of the home and there was a “lot premium” for the other lots. Let’s say the lot premiums ranged from $2,000 to $15,000. That gave you a gauge as to how much better than a standard lot, the lot you were selecting was.

Unfortunately those days are gone and most salespeople will tell you they are all “best” lots.

Looking at lots 1,2,3 and 4, lot 4 would usually have a premium as it sides to an “open space”. You might say the same for the corner Lot 1. But if the street to the left of Lot 1 is a very busy road…now it is a lesser lot without benefit of no neighbor to the left. In essence your “neighbor to the left” is a bunch of dirty, noisy traffic. Some people feel the same way about the drainage basin to the right if it is ugly and attracts mosquitos. Sometimes people think the drainage area is going to look like a “pond” the way it states on the site plan…and sometimes it does. But more often it looks like an unkempt ugly drainage pool.

Trees? Good Drainage Issues? Can you see a green, yellow, red blinking street light from your master bedroom window? All too often someone picks the lot without standing on the lot…bring a ladder. Stand higher.

Choose the best lot and the worst lot and assign values from there. Don’t do this from a site plan like the one above without walking the entire area to see what is on the outside of those perimeters. Will there be more new homes to the North or are there existing run down homes with a few junkyard dogs.

You have to get very close to picturing the home on this lot the same way you would if you were buying an existing home on that lot. This is VERY difficult for most people.

Generally speaking only people who buy the BEST lots choose the lot and build from scratch. It makes little or no sense to build a home on a substandard lot vs waiting to see what the home looks like on that lot.

So if all of the best lots are gone…you are often better off buying a spec home or a newer resale home, than building on a substandard lot with no recourse to not “like” it once the home is put on it.

New Construction is not for everyone. If you can get the biggest and best lot in the neighborhood…go for it! The end result can be very rewarding.

The post Buying New Construction – Choosing the Lot appeared first on Rain City Guide.

Yesterday, Division I of the Washington State Court of Appeals (which handles appeals from King Co. north to Canada on the west side of the Cascades) handed down a decision that addresses the terms of the standard NWMLS Form 51 Rescission. This form is routinely used by agents to formally and definitively rescind one contract before a client enters into another. The Form, drafted by attorneys on behalf of the NWMLS, includes this rather self-serving provision:

RELEASE. The parties agree that the Agreement between them and all other agreements or undertakings between them in respect to the Property are hereby rescinded; and each releases the other and all real estate firms and brokers involved with this sale from any and all present or future liability thereunder and/or in connection with said sale, other than as set forth hereinafter, provided, that nothing herein shall be construed to terminate any existing agency relationships or agreements unless otherwise agreed in writing.

(Emphasis added.) There is no reason to include the release of the real estate firms and brokers involved in the transaction from any liability, other than of course to protect the real estate firms and brokers.

In the case of Hanks v. Grace and RE/MAX, the agent represented both the buyer and the seller. Notwithstanding the instructions from the seller to not present an offer contingent on the sale of the buyer’s home, the agent presented such an offer (albeit one without the correct addendum, the Form 22B, which specifically renders the contract so contingent; instead, buyer simply submitted an offer subject to a 22A Financing Contingency with the “contingent on sale of buyer’s home” box checked). Not realizing that the offer was contingent on the sale of the buyer’s home, seller accepted the offer. This happened in March of 2008.

Three months later, buyers having not sold their house — did I mention this was all happening in the spring of 2008? — the agent decided for reasons known only by the agent to buy the home himself. So they needed to formally rescind the prior PSA, and naturally the agent selected the Form 51 for this purpose.

Needless to say, the agent couldn’t complete the purchase either. Seller eventually sold the home two years later for $158k less than the amount of the original offer. When seller realized that the agent had attempted to get over on her by concealing the contingent nature of the original offer, seller retained counsel. Further investigation revealed a second interested buyer who expressed an interest in making a full price, non-contingent offer at the same time as the original buyers. But the listing agent never so informed the seller.

Following a jury trial on buyer’s claim of negligence against the agent, the agent was found liable and the seller was awarded $195.5k in economic losses and another $170.5k in non-economic (i.e. pain and suffering) damages.

Before the case got to trial, attorney for seller convinced the trial court that the release provision of the Form 51 was void and unenforceable as a violation of public policy. Otherwise, by having seller sign the rescission necessary for a new contract, the agent would have shielded himself from all liability to the seller arising out of his negligent representation. In a nutshell, the law should not — and now does not — tolerate an agent shielding himself unfairly in this fashion. It is not consistent with good public policy.

And the Court of Appeals agreed. It found that the release violates public policy, in part given the role of real estate agents in the purchase and sale of property.

Given this decision, any future attempt by a real estate agent to avail themselves of this shield from liability is likely to be unsuccessful. It remains to be seen if the NWMLS will simply revise the document to elimate the objectionable term. Certainly doing so is consistent with the role agents are supposed to fill and which they regularly hold themselves out as fulfilling, the protection of their client. That protection should not be sacrificed for the self-interest of the broker. Its simply not good public policy.

The post New Case Strikes Down Release Provision in Rescission Form 51 appeared first on Rain City Guide.

I was looking at the numbers over on my blog, which likely gets a fraction of the activity as my writings here. But once in awhile I get surprised by a single post getting over 20,000 views…for just one post. Usually they are posts that spark an interest nationally vs primarily local here in “The Seattle Area”.

Here are the blog posts with the most views, not necessarily in the order of highest to lowest:

Sex and Real Estate – AKA What’s Cooking in the Master Bedroom?

How is a Real Estate Transaction like a Pregnant Woman?

Negotiating Real Estate Commissions

Should I Buy a House Now? (Amazing how this post from Summer of 2008 is still equally as relevant today.

For Buyers Who are Relocating to Seattle – The Yes, No, Maybe tour method

Split Entry Homes and the different names they are called around the Country.

Ardell’s Anatomy of a Real Estate Transaction which is the older and longer version of This Year’s “From Contract to Close of Escrow”, written here on Rain City Guide.

What Does a Real Estate Agent Do?

Is your townhome a condo or a single family home?

Do I need to Sell My House before I Buy a New One?

Home Sales Way Down October 2007

Who do you make your Earnest Money check payable to?

The Appraisal in the Home Purchase and Sale Process

Sample Closing Statement – HUD 1 I posted the link to the source I now use vs my original post, given there have been changes over time. I used this the other day for a client who is closing in January. You can plug in the estimated numbers and save it and email it. It’s a very good idea for buyers and sellers to see these numbers on the form they will be signing at closing, as early in the process as possible.

Kirkland Real Estate Stats as of Today (that “today” was a long time ago. I’m doing the 2011 stats now. Will be interesting to do them on the same basis for comparison purposes, with the same type of charts.

Pottery Barn Paint Colors and other tips on your Seattle Home

Homes “Sold” by Ardell DellaLoggia – a running and updated catalogue of homes where I represented the Buyer or the Seller, noting which I represented for each home.

The post Ardell’s Seattle Area Real Estate Blog – Most Visited Posts appeared first on Rain City Guide.

Looking at the stats for North King County, a home without hardwood floors is about 2X as likely not to sell, especially at a price point of $400,000 or more for the home. About 24% to 26% of homes that “expire”, or homes still on market and not sold, do not have hardwood floors. Compare that to only 14% of SOLD homes without hardwood floors and you see that 86% of recent home buyers chose a home that had hardwood floors.

Wide plank, narrow plank, light oak, dark finish…lots of variances as to preference of TYPE of hardwood floor. But hands down, even if the new buyer refinishes the floors to a different color, they choose homes with hardwood floors that they can refinish over homes that would need hardwood floors installed.

While “What type of carpet to use to sell your home?” has not changed much…the better answer for the main living areas is hardwood…hands down.

The “new” preferred color of hardwood is less red than the once popular Brazilian Cherry, darker than the blonde tones of yesteryear, but not quite as dark as the short lived chocolate brown craze that lasted about a millisecond.

A warm chestnut brown is the color of the day.

It’s great for the floors…but a little dull for the kitchen or bathroom cabinetry. The new warm chestnut brown hardwoods are best used when the kitchen and main floor baths are a light colored ceramic tile or a laminate floor that blends the color.

Armstrong calls the color “gunstock”. It’s darker than light…lighter than dark…and solidly BROWN vs orange or red tones. Much easier to decorate a room without clashing with the tone of the hardwoods when using this color in many and varied rooms in the house. As a matching cabinet color choice though…I don’t think that trend will last. It’s just too darned dull to have as a kitchen cabinet color.

If after reading this you have any questions as to the color I am talking about…just visit any new model homes…it’s all the rage…and they are pretty much ALL using it in their model homes.

********
(Stats in this post not compiled, verified or published by The Northwest Multiple Listing Service.)

The post Today’s Homebuyers Like Hardwood Floors appeared first on Rain City Guide.

A house comes with a stove and oven…pretty much always. It either comes with a dishwasher or it doesn’t, but if it doesn’t have one, it’s not because the seller took it with him. It’s because he never had one. More typical in very old homes, of course, than newer ones.

Because they are personal property, even when the washer, dryer and refrigerator ARE included, they are not usually inspected by the home inspector, nor are they covered appliances in a normal home warranty basic package. Yes-Stove. No-Refrigerator. Yes-Dishwasher. No-clothes washer.

Now let’s look at the odds of your getting a washer, dryer and/or refrigerator in your home or condo purchase.

72% of the sellers of homes sold that were not bank owned or short sales, offered the refrigerator as included in the asking price.

47% of the sellers of homes sold that were not bank owned or short sales, offered the washer and dryer as included in the asking price.

90% of the sellers of condos sold that were not bank owned or short sales, offered the refrigerator as included in the asking price.

70% of the sellers of condos sold that were not bank owned or short sales, offered the washer and dryer as included in the asking price.

52% of the short sale sellers of homes offered the refrigerator as included in the asking price.

29% of the short sale sellers of homes offered the washer & dryer as included in the asking price.

Before I post the stats for Bank Owned Property Sales, note that a bank generally makes “no representations” or guarantees. So there may BE a refrigerator or washer and dryer in that bank sold home, but they are not warranting that it will still be there at closing. If it’s there; it’s there. If it’s not; it’s not. In other words, you can’t refuse to close because the refrigerator took a walk during escrow. Nor can you demand that the bank seller buy you a new washer, dryer or refrigerator if that happens. It’s treated like any other Personal Property left in the home by the previous owner before it foreclosed. It just may happen to be there.

That said, some REO property listing agents did note the following as included.

Only 4% of REO homes sold noted the washer, dryer AND refrigerator as included.

17% noted the Refrigerator as included.

6% noted the washer and dryer as included.

So you are more likely to get a refrigerator in that home purchase

than a washer and dryer

by all accounts.

By no means is it a “given” that the washer, dryer and refrigerator will be included. On the other hand if there is a stove, an oven, a dishwasher and a garbage disposal, it would be rare indeed if any of those appliances were not included and those are usually all covered in the home warranty basic plan.

Microwaves? Most always yes if they are built in like a range hood…and not if they are sitting on the kitchen counter like the toaster and the coffee pot.

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(Required Disclosure) Stats are not compiled, verified or published by The Northwest Multiple Listing Service.) Seems odd to have to disclose that, given I’ve never seen an mls do stats about appliances…but just to be safe, including the required disclosure.

The post Should the Washer, Dryer and Refrigerator go with the house? appeared first on Rain City Guide.

As I have said many times, in my experience more people HATE their “home”, and want to move to a different one, because of WHERE it is vs WHAT it is.

“…and underneath all is the land…” and land is a limited commodity. So where is that NEW home going to be built? Maybe…just maybe…on the wrong piece of land. The lot no one built on prior to 2011…for good reason. Even NEW(er) home will raise this issue. So if you have your heart set on a NEW home…the number one question you need to ask is:

WHY DIDN’T ANYONE BUILD A HOUSE ON THIS PIECE OF LAND BEFORE TODAY?

So many people limit their looking to the obvious and the house itself. If you are looking at new or newer construction…begin your investigations at the land that home is sitting on. Looked at one yesterday…without going to it…via Google Maps and the Stormwater Management Comprehensive Plan for that area, and the house was built on a lot IN “The Wetlands”.

Think about that for a minute. What are the various reasons a lot might be available for someone to build homes on today…that is close in to work and good schools and shopping? It’s common sense really. Especially today…after a huge building surge from 2004 to 2008…was there really a piece of land the builders didn’t find and build on during that time? Yes…a few…but not many.

IF wanting a NEW house is your goal…you would be wise to first examine the land of it…and why no one built on it before (unless it is a tear-down lot). Oddly, the one I checked that was “in the wetlands”, well…really, you have to ask yourself. How DID it get built there? Basically one is not allowed to build a house in Wetlands. Why does it not require flood insurance with drainage basins to the north, east AND south of the house?

Think you can “see” all that? Well what about too close to underground gas pipelines? Can’t see that.

My point is you are better off listing all the things you want from a neighborhood, a location and a home, without regard to AGE of home. Then…if none that have the best location are new…well, maybe NEW Construction should not be the FIRST item on your “wish list”.

Prioritize that wish list by the where…before the what in that where. It’s common sense really, isn’t it?

If it has been a Best Place to Live for 10 to 100 years…it was likely built on before yesterday.

The post Should you buy a New home or an Old one? appeared first on Rain City Guide.

One of the answers is that historically, a portion of “high” commissions has often been spent to keep the sale together through closing.

Let’s use a $450,000 house as the example.

In today’s market conditions, the seller may have “wanted” $500,000 for his house, and is “forced” by market conditions to sell it for $450,000.

In today’s market conditions, the buyer is fearful of future loss of value, and may have agreed to paying $450,000…but the buyer really wanted to pay $400,000.

A sale #FAILs over small things when the contract is on the low side as far as the seller is concerned, and on the high side as far as the buyer is concerned. That describes almost every pending escrow these days., except for short sales and bank owned property.

SO…let’s say that the agent for the seller is going to charge 2% at a 1% discount…and the agent for the buyer is going to charge 2%…at a 1% discount. That frees up $8,000 to handle “stuff”. BUT if the commission is simply discounted from the getgo…well, it may be setting the transaction up to FAIL.

IF EACH AGENT held 1% (2% total) as a “reserve for negotiation disputes”

vs reducing the commission on day one…

less transactions would fail.

The seller and buyer would pay less to get SUCCESS

vs paying less to get FAILURE!

1) ALSO the seller is often OK with giving $3,000 for “this” but not for “that”…so holding a reserve removes the emotion from the equation.

2) ALSO sometimes the seller is OK with giving the buyer a credit for that repair…BUT the buyer’s lender will not allow the credit. So you need to do a bit of juggling, often involving commission dollars vs “seller credits”.

You have to be creative in a weak market…and often juggling commission dollars is what makes the difference between “sale FAIL” and “sale CLOSED”.

This post is in response to a request I got from an agent in my email:

Agent asked me this: “I am a relatively new Agent (less than 1 year) in (X)  I was very interested in your input on Redfin regarding working with using a bit of the commission for payment of inspection repairs.  Any chance you have a moment to give me specifics on how this is accomplished? Uncertain on how, and when, this would be setup?  I still struggle a bit with staying exactly within the MLS formats.”

In response, in addition to the post, I will give a few recent examples.

1) I listed a home for $399,950. In this case I was going to charge a $10,000 flat fee for me and a 3% offering to the Agent for the Buyer. Instead I did a 6% contract, knowing I would not charge the seller more than $10,000.

Everything went fine…got an offer…went into escrow…we told the buyer 3 things that were broken. During inspection negotiations, oddly, the buyer asked for $1,300 for 5 things…but not for any of the things that were broken. The seller would want to argue the point of “for what??”.

By reserving $2,000 for inspection repairs there was NO dispute…The buyers got the $1,300 that they asked for and by agreeing to the buyer’s request…the seller got $700 change. Win-Win by using commission dollars vs letting the buyer and seller negotiate it to the point of “Sale Fail”.

2) I listed a much older house than the one above for $600,000. Same scenario. I was charging the seller a $10,000 flat fee…but stated that as 3% with $8,000 as a reserve from commission for repairs.

At time of inspection the buyer wanted the roots in the sewer drain fixed and $6,000+ for repairs, including the things we told the buyer were in need of repair. In a hot market…that repair was not needed or requested. In a WEAK market…there are more things “broken” to cause a #FAIL. Market conditions will change a “no problem” item into a $5,700 “fix”, as it did in this particular case.

The front porch of an old house leaning a bit in a hot market is a “no-nevermind” with multiple offers. In a WEAK market the buyer wants money to fix the slight tilt of the front porch. Same house…same problem…different markets = different inspection request.

Long story short…with no commission dollars to fix the problems…the sale would have failed. By reserving $8,000 toward repairs…the client was successful. IF I had listed it for a $10,000 flat fee…on day one…the sale would have failed.

So giving that discount up front would have caused the sale to fail.

3) The house I sold in about 20 days that was the subject of my “Why Agent’s Are Better than Lawyers” post. Sold at Full Price with Max Credits from seller to buyer. Lender would not allow any more seller credits. As I noted in the post, I charged $5,000 BUT what I don’t say in the post is I reserved the $2,500 in a 3% charge toward repairs.

At time of inspection, buyer wanted several things. Neither I NOR the seller could give a credit for them. The buyer’s lender would not allow the credit. At least one of the things was not needed at all…and pretty costly.

The sale would clearly have failed over that item without the reserve from commissions. No question about it.

By doing the repairs prior to closing and paying for the repairs from my commission at closing…the seller and buyer had a successful closing with all repairs DONE! Awesome result. Quick sale..everyone happy.

Moral of the Story?

Saving Money…and losing the “successful closing”

by discounting UP FRONT

vs when needed MOST…

may be a Lose-Lose for everyone.

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