Buyer Agent Bonuses

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[photopress:50_50_1.jpg,thumb,alignright]For the purposes of this discussion, let’s assume that in normal market conditions, the division of the total commission agreed to by the seller in the listing contract is divided evenly between the agent for the seller and the agent for the buyer. In the diagram, the blue portion represents the listing agent’s compensation and only the yellow portion will be the subject of this discussion.

When a seller or seller’s agent is having difficulty “moving the product”, that being the house, sometimes they will raise the “offering” to the Buyer Agent as an incentive. For instance, if the price of the house is $350,000, each percent of price equals $3,500. So the seller could offer the Buyer Agent a bonus of 1% or 2% above the area norm, and spend less than a price reduction. Let’s say that it would take a price reduction from $350,000 down to $325,000 to get the property sold. That would “cost” the seller $25,000. Instead, the seller might increase the “offering” to the buyer agent in the mls by 2%, which would only cost him $7,000 in this $350,000 example. Even if the seller doubled the “offered fee”, it would cost him less than the price reduction, as doubling the compensation to the buyer agent might cost him $10,500, and dropping the price to the point where it would sell would cost him $25,000. So increasing the offering makes total sense from the seller’s side of the fence.

OK, now for the tricky part. Click here and read this before considering the rest of this post.

[photopress:33_66_1.jpg,thumb,alignright] The seller is increasing the fee to persuade “YOUR” agent to “SELL you” his house. By doing so, “your” agent can double his money. The idea that increasing the buyer agent fee will be effective in selling the house, is a holdover from the days before buyer agency existed. As the agent for the seller, I would still use this strategy when advising the seller, as it is a more cost effective method of selling a home that isn’t “moving”. However, as a buyer agent, the concept that I might be motivated by a higher fee to me, is insulting. While I generally do not believe in buyers signing buyer agency agreements, this scenario points out one of the advantages to the buyer for doing so. Even if the buyer cannot negotiate the buyer agent fee below the area norm, the buyer can stipulate that any Buyer Agent Bonuses would go to the buyer, and not to the agent. However, a more appropriate strategy might be to ignore them entirely, and simply focus on the attributes and value of the house, without regard to these incentives.

The yellow portion of the fee is the amount that the seller offers “to the person who brings buyers to his home”. It is also, and simultaneously, the amount that the buyer perceives that he is paying to the agent for representing him, the buyer, in the transaction. Until we all agree that it is the latter and not the former, buyers will never truly have equal representation in the real estate marketplace.

This duality of purpose for the same monies, continues to be a problem in the industry. One that should be talked about a whole lot more than it is. So let’s talk. What do you think? While you can comment anonymously, please note if you are responding from the point of view of a seller, a buyer, an agent, or a giraffe.

This odd duplicity of purpose regarding the yellow portion of the fee (the mls offering/buyer agent fee) has been going on for about 15 years. It’s time we began the process of coming to terms with it, by discussing it openly. There are NO easy answers to this one, but engaging in a dialogue might help move the topic out of it’s current “holding pattern”. Until and unless agents all agree that they are in the business of representing people and not in the business of SELLING anything, we can’t get to the appropriate answer. And then the consumers would have to likewise view what is happening accordingly, and not hire an agent “to sell” their house, but to “represent them in the sale of the house”.

But we can, at least, open up Pandora’s Box in the hope that the discussions will begin moving things in the right direction.

Free Class!

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If anyone is interested, I am offering a free class tonight at the Phinney Neighborhood Center (Blue Building Room 6, 6532 Phinny Ave. N. in Seattle) from 7:30-8:30. I’ll be addressing legal issues relating to the purchase and sale of a home, as well as the advantages and disadvantages of buying or selling without an agent. I hope to see you there!

Real Estate Tech Talk

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Back at MindCamp, Stewart Maxwell of Seattle Real Estate Talk recorded a podcast featuring me and Galen Ward discussing our ideas behind real estate technology.

While you’re on Seattle Real Estate Talk, check out their new layout. It’s very tight and I love the updated header graphic!

UPDATE
I just noticed that Galen wrote a little something about this podcast on the ShackPrices blog.

Multi-family investments – recommended reading

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Generally I have an issue with most real estate books as they are usually advise on how to make a million dollars in 90-days or some similar hype. So it’s refreshing to come across the few books that are sound, practical advise on investing in real estate. The latest that I’ve read that fits into this practical advise category is The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges.

Let’s face it, with high vacancy rates and low rents, multi-family hasn’t been a great place to invest the last few years in the Seattle area. But with the increasing prices of entry level homes, number of condo conversions removing units from existing inventory and the increased interest rates the rental market is seeing renewed demand. So where do you invest and how do you analyze the deal?

That’s why I like this book. Steve Berges doesn’t promise to make you a millionaire overnight. Instead he lays out tax planning, case studies and financial analysis examples that help you develop some investment strategies. I was a finance major in college, plus several years at Microsoft brainwashed me with the metrics mantra — if you can’t measure it, it doesn’t matter. So I really appreciated the financial analysis part of this book. Sample spreadsheets on how to calculate different ROI scenarios and determine the best investment among several properties.

This isn’t an exciting, feel-good rich dad, poor dad type of read. It’s practical advise on how to get into the game, analyze your investment and calculate your exit strategy. For anyone contemplating multi-family investments, I highly recommend this book.

One last note — don’t spend useless hours trying to recreate his spreadsheets from the book. I wasted several hours on that before realizing the obvious — all his analysis tools are available on Steve’s website www.thevalueplay.com

Getting Stylish

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[photopress:Seattle_Real_Estate_Guide_3_20_2005_11_44_34_AM.jpg,thumb,alignright]Merv makes some great points about the importance of style in blogging. (He hits the nail on the head when he says Curbed “makes me dizzy…”).

Here are some tips I would add to the discussion:

  1. KISS: Keep it simple, …
  2. Graphics/photos are great, but don’t let them overpower the conversation.
  3. Don’t start from scratch. Evey blogging platform has themes you can download and install for free. Here’s a great theme browser for wordpress with hundreds of (free) downloadable themes. Start with one of these themes and edit it until it matches your personality.
  4. All blogging platforms separate “style” from “content”. In practice this means that all of the posts and comments are stored in a database, while the way the posts “look” is stored in a simple text file (In WordPress this file is called “style.css”). An amazing amount of personalization can be done by editing this one file. If you get to this level, you might be surprised how quickly you can “own” the look of your blog!

However, at the end of the day, don’t lose sight of the fact that substance is what keeps readers coming back for more! In other words, I continue to visit the Property Grunt on a daily basis despite the fact that he has never modified his theme. Content counts more than style!

What is a view worth?

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[photopress:lake.jpg,thumb,alignright] The higest value attributable to the view component of a property, would be “an unobstructable panoramic view”. The lowest, would be a potentially obstructable “peek”, or a “winter view” meaning the view is totally blocked by deciduous trees, and the view only appears when the trees shed their leaves in winter.

The value of a view is built in layers. The value of the lot, with no house on it at all, contains the first layer of view value. Some people are amazed when they see a property with no view at all, that is practically falling down, valued at $800,000. Who would pay that? If the answer is that no one except a builder would pay $800,000 for that “house”, then the house becomes a “tear down”, as the “value is in the lot”.

How a house is constructed, and the positioning of the rooms, and the windows in those rooms, is ultra important to its value. Especially here in the Seattle area. If the best views are from outside on a deck, then the value is diminished to the number of days in a year you can be outside to enjoy that view. If the best view is from “all main rooms”, meaning those rooms where you spend most of your time and do most of your entertaining with guests, the value will be higher than if the best view is from a little “cozy art studio” perched high above the main living areas. If the view is only from a bedroom, the house will be worth more if the builder puts the master bedroom in that view corner, rather than one or two, or even all, of the “odd” bedrooms.

Then you have the “bad” side of the street and the “good” side of the street. For instance here in Kirkland, the Market Street side of 1st Street will have a lesser value than the opposite side of the Street, particularly in those blocks where the opposite side is higher…much higher. The noise factor from Market Street and the ability to see traffic going by at a steady pace, detracts from the value of the view, even if the long distance view is pretty much the same from both sides of the street. The house on the “bad” side of the street, blocks the view of Market Street from the “good” side of the street, so that house being there, adds to the value of the property across the street.

If all of the properties in your view have already been built out to max height, the value is more likely to be retained long term, than if all of the houses, between your house and the view, are older ramblers that could potentially be built up to max height. So when you look out the window, don’t just look at the view. Look to see if most of the homes, between you and the view, are newer construction at “max height”, or “tear downs”.

What is “max height”? You can do a quick and fairly accurate determination, by spotting the newest houses in each level of slope between you and the view. Construct a “view viewer” with your hands (thumbs together and palms up, the way movie directors used to do to construct a facsimile “frame”), and move your hands from the height of the newest house, scanning over the entire landscape in your vision. This is one of the cases when Zillow can’t value a property for you, because Zillow has no hands! LOL

When it comes to view…do not make the mistake of basing what you will pay, on “what you see is what you get”. You have to determine the long term probabilities of view retention. Don’t expect to be told by anyone that the view “may” at some point in the future, be obstructed. You are pretty much on your own in that regard, as what “might” happen to your view is usually not a disclosure item, unless the neighbors have already pulled permits to build. Even then, I have yet to see a property flyer say, “This great view is going to be obstructed by a condo complex going up sometime next year”.

All that being said, for a view-oriented person like me, a home with a view is indeed “priceless”. Waking up each morning to see the Seattle Skyline across Lake Washington, AND Mt. Rainier to the left, brings a joy to my life that is hard to place a “value” on. But being a real estate agent, I can place that value, and for my house it was $50,000 when I bought it, and hopefully will be $250,000, after I finish enhancing certain features to capture more of the view’s value.

So to Mr. Freakonomics, who asks “Why do agents get more for their homes than other people”? Maybe it is because we tend to choose homes where a seller “left money on the table”, and then make those minor changes that capture value, before we sell. Always choose an agent that helps you make the same kinds of decisions that they would make, if they were buying or selling the property themselves.

“Where are da blogs?”

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Richard Nacht of Real Blogging asks “Where are da blogs?” in his discussion regarding internet lead generation.

I thank him for the segway to a post I was preparing to write today.

Back in February I wrote three posts: Bottom Feeder Sites, Using the Internet to Buy Your New Home and Redfin-Something to Thing About. Since January, when I began “writing for” Rain City Guide, I have been running an experiment based primarily on these three posts.

A) Bottom Feeder Sites – My contention was/is that if an agent didn’t pay for leads to a Bottom Feeder Site, there would be more monies at play into the transaction for the benefit of the consumer. I am pleased to report that at present, the consumer direct benefit, so far, is running at 3.43 times what I would have paid to House Values during that same period of time. That is with only 4 closed transactions of participants in the experiment. Clearly the consumer is winning as of this date.

Bottom Feeder Sites $0 – Consumer $3.43 X total 5 mo. cost of HouseValues (plus $29,500 in direct seller to buyer concessions.)

B) Using the Internet to Buy Your New Home – In a stellar example, see As Good As It Gets post, the consumer hit a trifecta!

1. Using the “STI method” noted in that post, I found the house within hours, using the STI as the bogey and going one stroke over par.

2. Using the “peek over the price” method noted in that post, I found a house he had missed using the internet as a home search tool, and he saved $25,000 at the same time, at least $10,000 of which was money “the seller left on the table”. Clearly a rarity in this market.

3. He also participated in the $3.43 x the 5 month cost of HouseValues benefits noted in A) above, his single cash to close benefits exceeding the entire cost of 5 months of House Values alone.

C) Redfin-Something to Think About – for me this was the most exciting of all, in that it accomplished something I have been working on since 1998. A meeting with a buyer that replicates meetings agents have been having with sellers since the beginning of time. This one is hard to explain, since it is still “playing out”. The meeting I had yesterday with a buyer consumer, was as close to being the same as “a listing appointment” as I have ever had. Buyers and Sellers having equal footing in the marketplace, has been my “Crusade” for so long, I can barely contain my elation!

So to Inman, and our nomination for “Most Innovative Blog”, I would like to point out my contribution to the Innovation of Rain City Guide. That is to utilize the zero cost (in dollars) component of blogging, to directly benefit the consumer and promote TRUE buyer empowerment as opposed to PERCEIVED buyer empowerment.

Clearly breakthrough stuff going on here at Rain City Guide…the experiment continues.

Day Two – Realtor Mid-Year

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Yes, I am tardy with my report for Day 2. There was not much going on from an interesting meeting standpoint so I visited the tradeshow floor. For anyone that has not been to a Realtor tradeshow, it is certainly an experience. Flashing buttons, contests, people throwing free things at you. Having been to many of these, it always amazes me the types of companies that have booths. For example, there were several jewelry and makeup booths. While I am not a woman, it seems odd that they would come to a real estate tradeshow. It would be like having Titleist as a vendor. Lots of real estate guys like to play golf but they don’t really fit at a Realtor tradeshow. Then again, I am pretty dense about this stuff and they seemed to have a bunch of women buying stuff so I guess they are the smart ones.

I visited a bunch of booths but a couple stood out for different reasons:

Realtor.com – They intro’d a Zillow/HouseValues-like feature on their home page called “What’s Your Home Worth.” It is a lead generation system for agents that provides basic home value data and then let’s the consumer elect to get more refined info if they want from a “featured” agent. Agents can buy territories and they apparently will rotate as consumers access the feature. Once a consumer asks for more info, the “featured” agent will get an email and that consumer will see the particular “featured” agent for a period of time each time they return. With the large amount of traffic that R.com gets, it will be interesting to see how well the lead gen system works. I tried my zip code and there was already an agent signed up! I think this will be a winner for R.com and the agents that jump on it but I also think that agents will squak when their choice area is sold out.

HomePoint – This is a Trulia-like company (although the get data via the MLS directly) that is trying to become a portal of sorts. Agents sign up for territories and get “featured” when a consumer clicks on a listing. Again, this is a lead-gen system for agents that even extends to listing agents and FSBOs. The thing that I did not get was how they were going to generate traffic. No eyeballs, no leads.

More later….

Russ

There’s a Person Behind that Blog

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Robert Scoble (the excellent Microsoft blogger) has been writing about the pain of watching his mother die.

One of the things that shocked him was that even while he’s describing these events, people are still sending him PR pitches for new products. He follows up these comments by saying he doesn’t mind receiving product pitches, however, the people need to read his blog and be current on his situation if they expect a response.

He’s making some interesting points that are very relevant to real estate blogging… Always remember that there are people behind the blogs. Real estate is such a “people” business, and yet, when people get on the internet they sometimes act like they are only dealing with computers.

Before you pitch a product, website or service (either via comments or email) remember that it is not a computer reading your pitch but a human being. Write something that demonstrates you’re interested in the person’s writing.

Personally, I receive so many emails now that I couldn’t possibly respond to them all and still handle a full-time job. However, getting me (and just about every blogger I know) to respond is quite easy… Write something that shows your interested in their thoughts or opinions!

MLB defending copyrights for the MLS

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The New York Times has a story about Major League Baseball’s lawsuit aledging that use of MLB’s statistics and player names in fantasy leagues is infringing on major league baseball’s mojo (look and feel?):

“What a company like CBC is selling is not nearly a repackaging of statistics,” said Lee Goldsmith, a lawyer for Major League Baseball Advanced Media. “They’re selling and they’re marketing the ability to buy, sell, draft and cut Derek Jeter, Alex Rodriguez, Albert Pujols. And part and parcel of the reason that people are willing to pay for that ability is the persona of Jeter, of Rodriguez, of Pujols.”

The Washington DC MLS (MRIS) recently issued a couple of reports urging agents to consider statistics like list price to be copyrightable (Russ doesn’t agree with this analysis, follow the link to see why), but in the world of baseball, the decision has already been handed down:

Major League Baseball Advanced Media is not making a copyright claim to the statistics themselves; a 1997 decision in the United States Court of Appeals involving the National Basketball Association ruled sports statistics to be public-domain facts that do not belong to the leagues.

Perhaps the MRIS should look into hiring the MLB lawyers when they’re through with the case. By that time they’ll be experienced at explaining the difference between statistics and “right of publicity”:

Rather, the central issue concerns celebrities’ ability to control use of their names in commercial ventures, and how this “right of publicity,” which has developed under state common law and statute over the last half-century, may commingle with Constitutional press protections under the First Amendment.