Real estate professionals do a lot to try to get home sellers the maximum net from the sale of a home. That doesn’t usually mean that listing agents tell you to spend as little as possible to prepare and market your home, because sometimes spending less is “penny wise and pound foolish”.
For some reason, though, many home owners really fixate on what is easily measurable, such as the cost to paint or re-carpet a home, provide staging in a vacant or badly furnished property, or the amount to pay to a buyer’s agent in the commission. Sometimes saving money in those marketing areas will hurt you in the ultimate sale price and how much you take away when it’s all done. Best is focusing on your ultimate net proceeds.
Pay a lot of attention to what is visible
For instance, often the best return on investment is in the most visible areas – things like paint, carpet, sprucing up the front landscape, or just simply de-cluttering and deep cleaning. Home sellers who do not de-clutter, clean, and do a little sprucing may “save” on sale prep, but easily lose far more than that on the sale price. Many will argue that “the buyer may not like my color choice”. While that’s true, we’re not trying to guess the buyer’s color schemes. What we want to do is to make the property appealing so that the buyer can envision himself or herself there. Neutralizing your personalization of the home will often provide a good boost in the ultimate price.
Another reason to focus on what is visible is because today’s home buyers will pre-screen your home by viewing photos on line. Even the best photographer cannot mitigate an unattractive condition by adding HD to the quality of the photos shot. An overstuffed home will give a sense of crowding, and that’s exactly what home buyers do not want.
Finally, in terms of visual elements being of utmost importance, the buyers’ agents and the home buyers themselves will be looking for what we call red flags. They are hunting for clues that disaster lies just under the surface, waiting to emerge after the new owners move in. If you don’t paint that peeling gutter, or your front door looks like it has never been cleaned in the years you’ve lived there, the buyers will wonder what else has been neglected. There’s enough to worry about with a home purchase! By following some good rules of pre-sale prep, you will help to eliminate buyer worries. Confident buyers pay more. Nervous buyers pay less.
Remove worry, fear, and doubt as much as possible
In addition to the visually important areas, consider the things which may or may not cost a lot of money but if not done will scare buyers away from your property. These items usually come under the general heading of health & safety.
A good example is a house with a rodent problem. Even if the house is perfect in every way, if the home inspection reveals that it’s got a bunch of rats in the attic, the buyer will be extremely grossed out and then will start to ponder the health effects of the vermin. Eventually there will be a worry about whether or not the rats have chewed on the electrical wires and if the house will burn down…. Buyers “awfulize” situations. Whatever might be a problem begins to grow mentally until, in many cases, they emotionally move out of your home and just cannot see themselves living there.
Another example would include anything that puts the property at risk of being unusable, such as a bad septic system. The last thing buyers want is to move in and not be able to use the bathroom!
In a balanced market, home warranties often provide peace of mind that if some systems fail, they will be covered (lots of caveats, though – home warranties have plenty of exclusions from coverage).
Remember the buyer’s real estate agent too
So, too, the marketing dollar that is spent on the commission offered to the buyer’s agent should be a consideration. Here I must tread carefully, as commissions are not fixed by law and are always negotiable. But then, it’s negotiable whether you clean your home before selling or not too – but it’s well understood that selling a home in pig sty condition will hurt the seller more than anyone. Well, it’s not that different with the marketing dollar allotted to the buyer’s agent. It is negotiable but that doesn’t mean ignore the issue altogether if you want to maximize your home’s ultimate sale price.
I’ll present an extreme example here. I’ve seen homes offered for sale on our local San Jose area MLS with a commission rate offered of $50, and even $1. Obviously that’s not enough to cover anyone’s gasoline! The listing agent with that kind of “cooperating fee” doesn’t do it to lure another agent in with a buyer. In fact, the opposite is true: by offering out a super low commission, it’s a way of almost being certain that the buyers will go directly to the listing agent. Maybe.
Think sliding scale now. There is no “normal” commission rate. However, we do tend to see commissions falling in a range between 2% and 3% the majority of the time. Sometimes they are higher or lower than that range, but not too often in my experience. What happens if you go higher or lower than that? Traffic changes, that’s what – at least in most cases that is what happens. A participant in the MLS can get that data and find out whether the days on market are longer or unaffected, whether the sale price to list price ratio changes, whether the price per SF changes, and ad infinitum with the factors that might matter to a seller. Sometimes there is truly no difference if the commission rate changes. At other times, one or more of these factors do change. So I would always suggest that home sellers get the data and see for themselves so that they can make an informed decision on the likely impact of changing that figure one way or the other.
Yesterday I did a small study of homes in Los Gatos, Monte Sereno, and Saratoga with the Los Gatos-Saratoga Joint Union High School District and a sale price of $2 million or more. I wanted to see what would happen if the commission offered dropped from a more frequently seen 2.5 % – 3% range to just 2%. The days on market appeared to be unaffected. However, it was quite dramatic in terms of the sale price to list price ratio. The houses offered in the 2.5% to 3% range sold, on average, at 101% of list price in the last 180 days. Those at 2% sold at 97% of list price. If you play around with the math, you’ll see a savings in commission is hugely overshadowed by the loss in sales price, resulting in an anticipated net loss many times greater than the savings.
Why would this be the case?
On the one hand, it may feel grossly unfair that a lower buyer’s agent commission would result in a lower sale price. But it’s also possible that this is not the cause, but a coincidence. Perhaps that seller is unwilling to stage, to have the home well prepared for the market, or to hire a good Realtor who will fight for the sale price. Perhaps that seller is cutting corners on everything? Or has a listing agent who cannot help him, her, or them to analyze the data and act on it? Or perhaps the listing agent cannot negotiate with the seller (for the seller’s own best interests) – in which case, he or she may have trouble negotiating with the buyers’ agent and buyers, too.
With a more cynical view, let’s consider the possibility that at least some Realtors are more inclined to sell some homes than others. Why? Some listed homes for sale have good real estate agents who don’t play games and can be trusted to act fairly. Not all of them do. Some compensate decently, others do not. Some homes are hard to access (showing restrictions, bad roads, scary alarm systems, guard dogs), others are not. It’s a pile of things which can make a Realtor more interested in selling one property than another – and the commission counts as an important factor in the mix.
Consider this: some years, there are real estate agents who only sell one or two homes in 12 months time. Usually those agents are working all year but may be distracted by illness, divorce, family death, or any number of things. Those agents would have a very hard time showing or selling a home with a $50 commission because right now, buyers usually don’t pay the commissions in our area (yes, that may change in time). Homes offering a higher commission, such as 3.25% in some areas, may find a flood of traffic, due in part to better compensation which at least gets the real estate community’s attention. Dislike it as you may, the higher commission is a marketing tool (or real estate agent bait) that will get your home more attention, which frequently will result in better qualified traffic and eventually a better sales price. (You must run the data to know for sure!) But again, it’s only one part of the marketing! If you overprice your property by 5-10%, it won’t matter how much commission you offer: it won’t be enough!
For more information on selling a home in Los Gatos or anywhere in Silicon Valley, check out these articles on my popehandy.com website: