Category Archives: Investing

Is the Seller a “Foreign Person”? Buyers, FIRPTA Says You Better Find Out

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ID-10075952This is not legal advice. For legal advice, consult an attorney in person about your specific situation. Never rely on a blog. [Updated 12/17/14]

The Foreign Investment in Real Property Tax Act (FIRPTA) is a federal law that requires a “foreign person” to pay tax on the gain realized upon the sale of real property owned by that person. However, the law does not make the seller responsible for paying this tax.  Rather, the law requires the buyer to determine whether or not the seller is a “foreign person” (basically a non-resident alien).

If the seller is a “foreign person” as defined by the statute,then the buyer must withhold 10% of the sale proceeds at closing. These funds are to be forwarded to the IRS to insure that the foreign person pays tax on the gain realized from the transfer. If the buyer fails to determine that the seller is a foreign person and thus fails to withhold 10% of the proceeds, the buyer is liable for the 10%. WOW! That’s significant. If you just bought a $400,000 house from a foreigner and did not satisfy your obligations under this statute, you may be liable to the IRS for a cool 40 grand. Ouch.

The NWMLS, recognizing the serious risk to buyers, has included a “FIRPTA” provision in the standard Purchase and Sale Agreement (PSA):

j. FIRPTA – Tax Withholding at Closing. The Closing Agent is instructed to prepare a certification (NWMLS Form 22E or equivalent) that Seller is not a “foreign person” within the meaning of the Foreign Investment in Real Property Tax Act. Seller shall sign this certification. If Seller is a foreign person, and this transaction is not otherwise exempt from FIRPTA, Closing Agent is instructed to withhold and pay the required amount to the Internal Revenue Service.

So that’s good news! The PSA specifically instructs the closing agent, aka escrow, to make sure the buyer complies with this legal obligation.  Whew!

Wait, there’s bad news? Yep. Virtually every escrow company has its own “escrow instructions” that elaborate on the terms of the PSA.  And guess what?  Those instructions relieve the escrow agent from taking any steps to make sure the buyer complies with FIRPTA.  Here is the language from some commonly used escrow instructions:

Seller warrants to Escrowee [i.e., the Closing Agent] that if Seller is an individual, Seller is a non-resident alien for purposes of U.S. Income taxation, or if Seller is a corporation, partnership, trust or estate, Seller is not a foreign entity. The Foreign Investment in Real Property Tax Act of 1980 as amended by the Tax Reform Act of 1984 places special requirements for tax reporting and withholding on the parties to a real estate transaction where the transferor (seller) is a non-resident alien or non-domestic corporation or partnership or partnerships. It is understood and acknowledged by the undersigned that (a) Escrowee will not take an active role in either the determination of the non-alien status of the seller transferor or the withholding of any funds; and (b) Escrowee makes no representations and (c) Buyer and Seller are seeking an attorney’s, accountant’s, or other tax specialists opinion concerning the effect of this Act on this transaction and are not acting on the statements made or omitted by the Escrowee.

So what protection the PSA provides, the escrow instructions take away. “Whew!” is grossly premature.

Obviously, “consulting with an attorney or other specialist” is simply the escrow company engaging in a little CYA.  The closing agent, and only the closing agent, is in a position to obtain the necessary signed certification. The PSA instructs the closing agent to do so.  But the closing agent promptly tells the buyer that it will not do so. If you’re a buyer in this situation, watch out. You could get some exceptionally bad news from the IRS long after you’ve purchased the home.

Not convinced? Check out my follow-up post where I flesh out my opinion with those of several other residential real estate lawyers.

Finally, this is a fantastic illustration of how a buyer can benefit from having an attorney on board from the get-go. At Quill Realty, we provide every client with an attorney (and we pay the attorney’s fee). So if you’re a Quill client, you can rest assured that your attorney will identify and resolve this issue (usually by demanding that the closing agent comply with the terms of the PSA and not those of the escrow instructions, to which they usually agree).  Not a Quill client?  Well, good luck in seeking to eliminate this very substantial post-closing exposure to the IRS…

Redfin – Scouting Reports – Nerd Values – Craig Newmark

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So…you may be wondering what all the Hoo-Ha is about.

The posts and comments in the above links are embarrassing to the Real Estate Industry at best, and convey a HUGE misunderstanding between the “Agents and the Nerds”.

Remember Glenn’s “Memo from Nerd-Land to Realtors: Drop Dead” post? Well…let’s just say the Industry’s immediate response to Redfin’s Scouting Reports was that same message…in reverse…for now.

The issues are many and varied, as they always are.

How many transactions does an agent have under their belt was the primary focus of this Redfin attempt at “transparency”.

* * * * * * * * * * * * * *Why is TRUTH creating so much controversy? Simple. Who’s Truth???* * * * * * * * * * * * *

Redfin Scouting Report

LET’S LOOK AT ONE OF THE KEY POINTS OF THE DISPUTE

USING THE CHART and SCREEN SHOT BELOW.


RedfinScoutingReportSellers2

OK…Right off the bat…HOUSTON…WE HAVE A PROBLEM!!!

In this corner…we have Ms. Traditional Agent with 8 sellers and 7 buyers in a 12 month period.

In this corner…we have…drumroll please…Ms. Redfin Agent with 37 “deals” in a 12 month period…no destinction between listings sold or buyers helped and 212 “DEALS IN A LIFETIME!” with no “lifetime” stats for anyone else.

Since every ONE Redfin agent is FIVE licensed agents, per the Redfin site,

that 37 for “the Redfin Agent”
is really only 7.40 compared to Ms. Prudential’s 15,
isn’t it?
37 “deals” divided by 5 licensees = 7.40 each.

C’mon Matt…I love ya. But treated everyone “the same”? I know you truly believe that in your heart of hearts…but your model is just so different that it stacks the deck in your favor. I’m sure after reading this, you will understand what all the hoo-ha is about. That is my goal…to bring both sides a little closer together, so Scouting Reports may in fact BE a future reality.

It would be great! It could be great! But, you can’t expect mls sytems or other agents to “stack their deck” the same way that your model does, can you? I mean really.

If one Traditional Brokerage put ALL the company’s sales in the names of TEN of their 100 agents…wouldn’t you call them “Liar, Liar…pants on Fire?” …and yet, that is what you are doing. God Forbid a Traditional Company would do that…you’d tear them to shreds!

Below, See Why the Redfin Data is SO MISLEADING! in a comparison of this type.

Redfin Scouting Reports

There are tons of comments all over the internet freaking out about all this, and rightly so, and from both sides of the equation.

To my good friend Jeff Turner who said to me that Homebuyers Didn’t ASK For THIS, I offer this quote,

“Steve Jobs Knew What We Wanted Before We Knew We Wanted It.”

THAT is what Redfin, and as Glenn Kelman put it “Nerd-Land”, is all about. The Traditional Industry makes what THEY want consumers to want…and then spoon feeds it to them with a little bit of sugar to make the medicine go down.

It is near impossible for Traditional Agents to understand Redfin, or Glenn Kelman, or Matt Goyer, because we are in the same industry, kind of. That makes every act of theirs “suspect” in the minds of their traditional brokerage “competition”. Or…perhaps…the darts are thrown merely to hold them at bay.

BUT what OUR INDUSTRY needs to “get” in order to understand Redfin and the Future of Real Estate, is the understanding of “Nerd Values”. I stole that term from Craig Newmark.

If you can understand Craig Newmark…even just a little bit, and I urge you to try, you will understand Redfin and what Redfin is about.

A few relevant quotes from Craig Newmark as seen in this video:

“Doing WELL by doing GOOD.”

“The SEA of Goodwill”

“…good intentions are REQUIRED…”

“LikeMinded.Org”

Nerd’s WILL: – “Annoy Them Into That Mode That Has Value.”

People Call Redfin “an outsider” BUT…remember this…Craig Newmark when creating Craigslist was ALSO “an outsider”.

Redfin is to Real Estate as Craigslist is to Classified Advertising.

The Nerds will be heard, and will infiltrate every aspect of our lives, until they beat down the selfish intentions and replace those with good intentions. That is the FUTURE. That IS Social Media. That IS blogging. That IS The Internet.

“People are normally trustworthy and generous, and the Internet brings the good out far more than the bad.” Craig Newmark

The Future of Real Estate will lie in these principals. The Nerds will “annoy (us) into that mode that has value”. In the meantime…the industry as a whole…well most of it…will keep responding with THIS.

Today’s Homebuyers Like Hardwood Floors

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Whether it’s a new house or an old house, people like hardwood floors better than carpet, especially on the main floor.

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.

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

It’s time for a ban on all third party short sale negotiators.

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Not a day goes by that I do not hear a story from a Realtor, loan originator or consumer about a questionable if downright bad experience with a third party short sale negotiator. We’ve reached a point in time where we ought to consider eliminating all third party short sale negotiators. At the end of this article I will provide suggestions for home sellers, home buyers, real estate brokers/Realtors, attorneys, and regulators in order to maximize good consequences and minimize bad consequences for all parties.

Yesterday I received a frantic call from a homebuyer we’ll call Maggie, who found me online via this blog post. Maggie fell in love with a short sale house but after her offer was accepted and moving toward the close of escrow, the third party short sale negotiator announced that since the lender would not pay his full fee (short sale negotiator was already being paid $3000), as the buyer, she would have to come up with an additional $7,000 at the close of escrow.  Maggie was in love with the house but didn’t have the extra 7K so the third party short sale negotiator suggested she get a loan and pay him after the close of escrow.

There are so many things wrong with the above scenario I don’t even know where to begin.  So let’s begin at the beginning. The growth of fee-based, third party short sale negotiators was fueled by a perfect storm:

1) Collapse of the real estate bubble and resulting growth of over-mortgaged homeowners.
2) Rapid growth in the need for real estate listing brokers who know how to negotiate a short sale.
3) Decimation of the subprime industry and resulting out-of-work loan originators and Realtors.
4) “Get rich quick

Is King County at 2001 or 2005 price levels?

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Was reading the questions in the comments over on The_Tim’s post about “The Bottom Falling Out on the Low Tier”. That prompted me to run some numbers on two cities in King County. One of which is moving more solidly back into the low tier…and quickly. Another that has been in the high tier since before prices started increasing dramatically in the credit boom years.

Before I post the data, I think we should strike the tiers of 2001 and 2011 based on all Single Family Home sales in King County only, since Case-Shiller tiers are based on a different set of criteria. For this purpose I remove single and double wides, houseboats and townhomes and deal only with detached single family homes. I am using the first 5,000- homes sold in each of those years to set the tier values, since my home calculator stops at 5,000 homes. For 2001 that is the 1st quarter sales. For 2011 that is through the end of April.

2001

Low Tier – < $216,000
Mid Tier – $217,000 – $310,000
High Tier – $311,000+

with median of high tier at $400,000

2011

Low Tier – < $274,000
Mid Tier – $274,000 – $447,000
High Tier – $447,000+

with median of high tier at $614,000

For those wondering why these Tier Pricings are so very different from Case-Shiller numbers, it’s because Case-Shiller combines King, Pierce and Snohomish Counties. These are for King County only. ALSO, I’m pretty sure Case-Shiller uses resale (matched pairs) and pretty much excludes New Construction entirely, and a lot of Redmond’s story and the high price tier story is in that New Construction.

The dramatic change in the median price of the high tier tells us A LOT!

Obviously based on median prices, King County is no where near 2001 levels, BUT the following data is a bit startling.

graph (16)

Redmond running a hair under 2005 median home price, but no where near 2004 median pricing. Federal Way on the other hand quickly degenerating toward 2001-2002 pricing.

Of course once you have some more information…you have to keep going to determine the why of it. “Why” never has ONE standout answer…but the mix of foreclosures is clearly a BIG part of the story.

2011 fwr

I remember reading a question on a general forum asking why a person can’t find a foreclosure home to buy in their area of preference, when all the news stories are pointing to the DELUGE of foreclosures? Well, ZOMG! that snapshot of the market above “tells a story…don’t it?” to quote Rod Stewart.

Now compare that to 2010 and you will quickly see why the Bottom Tier is pulling away…and getting HAMMERED!

2010fwr

The % of Foreclosures and Pre-Foreclosures (short-sales) in Redmond has barely changed. Federal Way? Well…maybe they have no place to go but up? Certainly hope so.

Now let’s look at the HUGE decline in Price of Bank Owned Property 2010 to 2011. This is going to knock your socks off.

Sorry…have to throw this in as a link over. The chart won’t load.

The short of it for people who don’t like to click on links is that the Bank Owned Solds in Federal Way not only jumped UP from 28% of total sales to 47% of total sales, but the median price of those Bank Owned sales declined from $191,000 to $156,000. WAY below 2001 pricing, and with the volume of them, they dragged the median overall sold price down from $246,000 in 2010 to $199,000 YTD 2011. Maybe it will swing back a bit by year end. But Holy Caboley!

As you will also see in that link, Redmond Bank Owned solds did not change much at all as a % of total sales, BUT the median price of those dropped from $475,000 to $330,000. Still…not enough of them to impact the overall median sold price much in Redmond.

Redmond is easier for me to explain, since I don’t work in Federal Way. Let’s see if I can get another graph to load up. WordPress is liking graphs better than Raw Data Charts.

age

I combined these two so you can see the dramatic difference. Homes Sales in Redmond are being bolstered by the fact that a LOT of new and newer homes are being sold. You may see that change dramatically in 2012 as the builders seem to be shifting over to Sammamish due to the fact that they have used up a lot of the available land in Redmond.

To some extent the shift will move from 98052 to 98053, 98074 and 98075. But will the buyers shift with them? Probably yes, unless there are a lot more newer homes on resale in 98052 to compete with the travelling builders. You may say there are still plenty of newer resale homes in 98052, but track that against school rankings, and you will see what is happening there with regard to Elementary Schools.

So the drastic decline in Redmond Bank Owned Sold Price from 2010 to 2011 has a lot to do with the % of homes that are, or more aptly said WERE, newer homes. It looks like the glut of spec home leftovers here and there were pretty much sucked up in 2010 when 80% of the Bank Owned Sales were NEW…built since 2005…and most never lived in. Those empty new homes, some completely finished…some not so much especially as to landscaping, are pretty much gone.

Scanning at my notes here (my desk looks like the whacky professor after doing all of these stats on scribbles before processing them into charts and graphs) I’m seeing that the total # of foreclosed properties in Redmond 2011 that were built prior to 1980 are equal to the total # of foreclosures in 2010 of which 80% were built after 2005.

So the decline in price of foreclosed homes in Redmond (as noted in the link above) has more to do with the AGE of those homes, than a drop in prices.

Why the big drop in price in Federal Way? Age of homes does not seem to account for that. I don’t work in Federal Way…so it’s not as easy for me to read reality into the data there, as it is for me in Redmond. My best guess is that it is a degenerating market…like a cancer growing…each new set of foreclosures running off a discount of the current median price. Each new wave of foreclosures dragging that median price down due to sheer volume…and the downward spiral is feeding on itself.

Will be interesting to see if any of this swings back into place by year end. My gut tells me 2012 is going to be a wild ride. Looks like Federal Way has no place to go but up, let’s hope so.

Redmond on the other hand is likely going to lose a lot of that huge support from the new construction homes over to Sammamish, unless we start seeing a whole lot more newer home resales coming on market. That may also be good news for people in Redmond who have been trying to sell their built prior to 2000 homes. I have a feeling it will.

I just don’t see all of the Redmond buyers running over to 98074. Some, yes. Relocation Buyers, yes. But for the most part, either sales volume is going to plummet…or people are going to starting getting a whole lot more interested in some of those older homes that have been languishing on market during the new construction surge up on Education Hill. Probably a little of each.

More graphs and data on the above HERE, HERE and HERE. The last one helps you track the median price for these two cities in each year since 2001, so you can see the rise and fall to and from peak.

(Required Disclosure – Stats in this post and it’s graphs and charts are not compiled, verified or published by The Northwest Multiple Listing Service.)

King County Assessments Wins National Award

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“The King County Department of Assessment this week won the National Distinguished Jurisdiction Award from the International Association of Assessment Officials (IAAO) for innovative use of technology to map and locate properties to be assessed for local tax rolls.”

WooHoo!!! I love the King County Assessor’s Office, as most people know, since my color-coded valuation system is strongly linked to Assessed Values in King County. In fact one of my favorite mantras is “Trust Your Tax Assessor”. A lot of people don’t understand what I mean by that, as mostly it has to do with footprint per floor and relationship of land to house percentages, vs using Assessed Value as “market value”. but that’s OK. I love and appreciate them!

Kudos! Well deserved Kudos!

FULL PRESS RELEASE BELOW

King County Assessments Wins National “Distinguished Jurisdiction

Should the Washer, Dryer and Refrigerator go with the house?

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french door frigThe Washer, Dryer and Refrigerator are generally NOT Real Estate items that go with a house. They are considered to be Personal Property. That is why sometimes you will see a spot where these things go…but no appliance there. That will pretty much NEVER happen with a stove or oven or dishwasher.

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.

Should you buy a New home or an Old one?

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Education Hill RedmondLots of people want a NEW Construction home, the same way they want a new car vs a used car. However starting the home buying process at “I want NEW” is just as wrong as starting the home buying process at “I want a foreclosure”.

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.

Do “discount” Commissions = More Failed Pendings?

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Everyone has been asking why there are many more failed pending sales these days.

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.

Do you want a “full service” real estate agent?

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Do you WANT a “full service” real estate agent?

Many will say “NO, I don’t want my agent 2nd guessing ME!” Then don’t pay the price for one. Don’t hire one in the first place. Instead, find a lower cost “service provider” who would not presume “to tell YOU, the customer, that you are wrong”. Hire “less for less”.

But if you want someone 2nd guessing you, every step of the way from start to finish, so that you do not make even a tiny mis-step, without knowing it, when buying or selling something that costs hundreds of thousands of dollars…then you may not want to save those dollars by choosing “less for less”.

The reason we need many and varied “models” in real estate, more than are currently available, is because not everyone wants or needs a “full service” agent. If you need “less”, then “less” is full to you! Let’s explore the “full service” model so that you know when “full” is paying too much for what you may need.

The key is knowing which model suits YOUR needs best.

Full Service-1

The FULL service agent is represented by the blue person in the middle

who is managing and 2nd guessing ALL of the people

who will be involved on your behalf.

ONE of those people is YOU!

A “full service agent” is not a service provider who is giving you what you ask for and doing what you tell them to do. A “full service agent” is helping you get the right answers to the RIGHT questions…not merely those you happen to ask.

A “full service agent” also does not fully delegate the other services like lender and escrow and home inspector and does not keep their nose out of those valued roles in the transaction.

A “full service agent” does not merely help you buy a house that is for sale. A “full service agent” tells you when all of the best houses have just been sold off, and you are picking from an inadequate selection, and should wait for the next better home to come on market.

If you go to the market an hour before the next bread shipment comes in, and the only bread on the shelf is day old bread, do you buy that bread? No! You ask when the next shipment of bread is coming, and if they say in 20 minutes..you do the rest of your shopping and come back to the bread aisle when the fresh bread is available. When you choose from only those that happen to be “for sale” at the time you are looking, you are not doing “it” right. You may be buying “the day old bread” at a GREAT price!

You should not be looking at homes with your agent to pick one to buy.

You should be looking at homes with your agent to determine what it is,

that may not be for sale today,

that you should buy.

IF you are looking for a hot commodity…one that the majority of home buyers want…then the one you are standing in with your agent is NOT likely “it”.

The odds are not in favor of it being for sale…and OMG! no one else found it in 72 days.

Let’s get the wrong “it” for less, because it is stale on market, is NOT how you buy a home for your family

to live in for 10 years or more.

Homes value on a relative basis. YES you can pick a lesser location or lower valued home style and pretty much anything you want. BUT a full service agent will make you think VERY HARD about your choices, and how they will impact you on resale…some day…in the future. A full service agent will tell you what price that “what you want” SHOULD BE…not what price you can get it for based on negotiations with the seller.

If the Seller is asking $700,000 and the “fair” price for that is $550,000, you need to know that. That is not a ludicrous example…I just ran into that the other day with a client. Do you want an agent who tells you that you can get it for $650,000 if it is only worth $550,000? Will you feel great that you saved $50,000…but paid $100,000 too much?

Most importantly…will you resent the fact that the agent pointed out it is only worth $550,000?

Will you hate the agent who is giving you a headache by forcing you to see all of the important things you need to consider before spending hundreds of thousands of dollars?

The NUMBER ONE feature of a lower cost service

that says they are FULL service…

is they do not 2nd guess YOU…the client.


Examples:

1) Seller wants to price his house at $700,000. There is no way a buyer should pay more than $550,000 for it. $500,000 would be a screaming deal for a buyer. Anything OVER $550,000 would be great for the seller.

A FULL service agent will help the seller do what it will take to get $575,000 or $585,000 before it is listed for sale, and price it at $599,950.

A “service provider” will list it at whatever the seller wants to list it for and stick a sign out front and a lockbox on the door…and charge LESS for that and CALL IT FULL SERVICE for less. What it IS is “less for less”.

2) Future home buyer wants what 65% of all home buyers want. A new(er) home (or older one that needs NO repairs or upgrades) in the BEST schools in a quiet location that is near parks, playgrounds, stores and work…AND he wants it for $100,000 LESS than what it costs to get one of those. (Pretty standard scenario, BTW.)

A FULL service agent will show the buyer where they can shave off that $100,000 by compromising on the “correctable” deficiencies vs the NOT correctable deficiencies. OR, at mininum, HIGHLIGHT the deficiencies that come with that $100,000 “less” price. Often the buyer will put their head in the sand as to the weaknesses that cause the price to be $100,000 less than it should be. Some buyers want the agent to not mention those deficiencies. They want to pretend they don’t exist. A FULL service agent will make sure they are buying with “informed consent” regarding those deficiencies.

A “service provider” will help them buy the home they want and say “who am I do say “that” is a “deficiency”. If the buyer likes it…and is willing to pay for it…a “service privider” is there to help them get what they want. If they are happier not knowing…then it is the “service provider’s job” to make them happy and not point out the negatives. If the husband knows about the deficiency, but says “don’t let the wife know about that”…then that is the “instruction” a “service provider” will follow. That is “LESS for less.”

When is “less for less” FULL to you?

1) IF you don’t want your “agent” to 2nd guess YOU…less is FULL.

2) If you don’t want your agent treating both spouses as equal clients. If you want to keep things from “The Mrs.” because she over-reacts to negatives…less is FULL.

3) If you don’t want an Agent telling you that you are asking TOO MUCH for your home, or telling you what you need to DO to the house to maybe make it worth THAT much by creating a lot of “extra” work…less is FULL.

4) If you want your Agent to do what you say…

never tell you that you are wrong…

even when you are wrong…

less is FULL.

Do YOU want a “full service” real estate agent?

There is no ONE “right” answer to that question.