Thank you for clicking onto my blog, I appreciate your support. One thing that drives me nuts about blogs, is when you keep reading a blog waiting for the information and it ends up being a weak sales pitch at the end. So, instead of a sales pitch, I am going to say how I handle the cost of listings right here, and then below, the truth behind 1% listings. I do not list my listings at 1%, I don’t agree with the business model. My listing costs are negotiable because every single listing is different. Each home will have different costs associated with it to market the home to its fullest potential. While meeting with my clients, we perform a needs analysis and create a win-win situation so that my clients receive the best service that fits their needs. It wont be the cheapest, it wont be the most expensive, but you will love me by the end of the transaction (seriously, click here for client testimonials). My clients always end up netting more money and our results set records. If you want to know more about how we sell, click here, otherwise, please keep reading.
Selling your home for 1% is tempting isn’t it? We see the flyers in our mailbox, we see that this house sold, another is for sale, and of course this one sold over asking! It really seems like these discount brokerages are taking the market by storm aren’t they? Since this is working so well, I might as well get them in here and see what they say right? I can save a lot of money!
Well, first off, the people running the 1% listing costs are a little deceiving. In Mississauga and surrounding areas, we see that 1% is the cost of listing the home however there is 2.5% that has to be paid to the buying agent, so now the total commission paid is 3.5% of the sale price of your home. So, if the discount brokerage is charging 3.5% total and the most expensive are changing 5% total commission, what is the difference?
The 1% brokerages are not uneducated or new to the business, they have a well determined business plan that relies on 2 main strategies, the first strategy is over price or “buy the listing”. This is when they give their listings presentation and give the seller a number that is too good to be true. They hand pick the comparable homes they care to share with you and have you very excited about the selling price of the home, and since you are only paying them 1%, it’s a great deal! Well, the truth is, the agent knows you wont sell at that price, but they get a sign on your lawn. Now that the sign is there, they can advertise your home and collect all the buyers who are interested in your home. These buyers will come to open houses, call the for sale sign, and call the agent about your listing. The agent will show your home, but then will take these clients to a few other homes that may be better value, show a little nicer, or be a little less expensive. The realtor will have those clients now under contract so they now have to buy a home from that agent, but they wont buy your home because the agent has already shown better value elsewhere. Instead, your agent is now working harder for their buyer client because in the end, when they buy, the agent makes more money and your home is still generating leads/new business for them. It is in their best interest to keep the selling home on the market as long as they can because they will keep getting calls and leads for potential home buyers until your home sells. Once the leads start to die down and the home gets stale, your agent will speak to you about a price reduction. They will show you different comparable properties that will justify you lowering your price to below market value. Now that the home is below market value, you will notice more viewings and then finally an offer. This offer will not be where you hoped but since it is an offer, you will start to negotiate hoping to get a better result. You would be surprised by how many times your agent is representing the buyer client in these scenarios. Now for the buyer, the agent looks like a super star because they got him a great deal on the home. The best time to sell a home is within the first 3 weeks of listing the property, this is when you will get the most traffic and the best sell to list ratio.
The person who just scooped up their home for under market value now has to sell their home and the discount brokerage doesn’t have the time to overprice and pick up leads, so they have to implement their other strategy, discount the price and sell it quick. This strategy is not as complicated as the other one, but they will again show not so pleasant comparable properties, highlight the faults of your home instead of highlighting its features and have you believe that your home is not worth as much. The agent will now put a price on your home a few percent under market value and agents who know the true value will be showing your home within hours. Smart agents will put in an offer right away, normally close or at asking price. The seller, now feels lucky they received asking price, accepts the offer and feels that they made out great! These are the results that you see which are heavily marketed so people think that everyone will get a great ask to list ratio and sell quickly… all for cheap!
A saying that I always love is “If an agent is willing to give up their own money so quickly, how hard do you think they will fight for you to keep yours.” With 1% agents, when negotiating for the seller, every $10,000 they lower the selling price, the agent personally loses $100 of commission, after the brokerages costs, taxes, business over head, that means the agent may only personally lose $20.00 (but hey $20 is a large pizza!)
If I was reading this article I would be saying to my self, well I get what you are saying, but where does the commission go? I’m still spending a heck of a lot of money to sell my house, and it is true, you are but there is a reason that when a company has to negotiate a contract worth hundreds of thousands dollars they will spend tens of thousands of dollars to hirer proper representation to negotiate the deal and watch out for the details. The commission paid to the selling agent is normally broken down like the following:
20% to the listing brokerage
20% goes to the tax man
40% goes to home prep and listing costs – Home staging, photography, virtual/video tours, web presence, marketing etc. (click here for what we do!)
20% agent take home pay
These numbers are approximate but every agent is an independent contractor, so these costs are typical to anyone in the business. The first 40% has to be paid, no matter who is doing the business, but the last two categories are the agents pay and the tools that actually sell your home. An agent may increase their profit margin by cutting a few corners by using their cell phone to take photos instead of hiring professional photographers, not stage a home, not create virtual tours or create a weak web presence, all items that can result in the seller netting less money in the long run. The big problem with this is, is that the large majority of buyers look at a home online before they visit. They check the agent’s website, watch virtual tours and share it with their loved ones before they view the home. By talking about the home, excitement is created. When someone is excited about a home, they leave their home to view it, they start the process of speaking to banks and realtors, they start imagining themselves in this home, then, finally, they put pen to paper to buy the home.
One thing that frustrates me with this industry is the lack of integrity you find amongst agents. You hear horror stories all the times, I have had clients be very standoffish because they were burned by a realtor before, once they start working with me they understand the difference but the walls those clients can put up can be a bigger obstacle than actually selling the home. There are over 45,000 real estate agents in the GTA alone, the majority do 3 or less deals a year and 80% of realtors are out of the business within 2 years. One of the reasons I got into this business is because I had an unpleasant experience when my wife and I purchased a property. I figured that if this person could be successful, then I should strive to become bigger and better and treat my clients with respect, knowledge and integrity they deserve.
Do your research, be a knowledgeable consumer and call LC Real Estate today. When I say we are here to help… I’m not kidding.
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