Working hard for the money...Earning the seller's commission?

It's not unusual to hear sellers mutter obscenities under their breath when they think of paying agent commissions in their homes sale. And in a market when trends are not the wild, out of control appreciation we've seen the past couple of years, sellers are paying far more attention to every cost associated with selling. That most certainly includes their largest closing cost expense - the agent commission. Or, as the Oregon Real Estate Agency now has us call it, "compensation".

I may be a Realtor®, but I am - first and foremost - a consumer and homeowner. So I well understand this scrutiny of such a large cost of doing business. I will also tell you that I support any one's right to buy or sell their own property, without the aid of a professional. This is as American as apple pie, and a right I'd never want to see changed by State's mandating all sales are overseen by 3rd parties.

So why so much? Why bother to pay it at all? And why aren't for-sale-by-owner (FSBOs) properties pushing agents out of business? I'll give you three reasons I earn my compensation... all from an Oregon Realtor's® perspective, of course. Laws differ from state to state.

WHY SO MUCH?
COMMISSION/COMPENSATION SPLITS

Generally listing contracts are set up to cooperate a transaction between two agents, and their respective brokerages. An agent is a sub-agent of the brokerage, and all listings are - in fact - the possession of the brokerage. You may deal with me as your representative, but the brokerage is the other principal to your listing contract, with me included as a liable party.

When a co-op transaction happens, the commission/compensation is split four ways. At closing, the title company pays the agreed to split to the two brokerages, who then creams off the top according to their agreed split, and forwards the rest to each of the two agents.

The percentage amount of the commission is an agreement between the sellers and their listing agent. The co-op split is generally determined by the listing agent. And like everything else in a transaction, nothing is carved in stone until that deed arrives at the county to be recorded into the new buyers names. So it's not unusual to find adjustments in the commission structure along the way. Most notably in "dual agency" situations -- meaning the listing agent also represents the buyer in the same transaction.

So why can't the buyers and sellers each pay their respective agents themselves, and lighten the load of the seller? It's not impossible. But you'll cut down the number of potential buyers, plus increase the chance of a failed deal by refusing to pay a buyers agent. Three good reasons:

1: Most RMLS rules require the listing offer a co-op or fee to buyers agents. No MLS exposure and you lose the largest audience of buyers.

2: Latest NAR stats state 80% of people still use agents to purchase homes. They already have a hefty nut to bring to the table - their own escrow costs, and the most expensive - the down payment, the lender origination and prepaids. Add another 1-3% of cash to close atop that (commissions cannot be added to financing) and many will just not be able to purchase with the aid of a professional. Do you really want to tap into just 20% of the buyer market?

3: Most important. You *really* - and I do mean REALLY - want your buyers to use a professional. If they don't use a professional? See my last category... "Chasing the buyers agent and paperwork".

RUNNING THE LEGAL MAZE

While selling your home isn't rocket science, it is a path fraught with a legal maze of fine print contracts, and a particularly high risk of litigation (or even small claims court) if the details of that fine print are not spelled out in advance. Quite simply, Realtors® are "special agents".. or an entity empowered by the principal (either a buyer or seller) to perform a particular act or transaction on their behalf.

As special agents, we are not lawyers. Quite the opposite, in fact, It would be more than foolish to for us to give, or for you to take, legal advice from an agent. We are, however, trained in the specifics of reading, writing and interpreting real estate contracts and offers to purchase - as well as other legalities of the process. In short, we are an affordable (compared to an attorney) guide thru the legal mass of paperwork that constitutes a real estate transaction in these times.

Or, as I describe my job, I'm charged with providing you with all the information, or links/referral sources to info, possible so that you are qualified to make an informed decision that best benefits your own interests. I will not tell you what to do, tho I may make suggestions at times.

For a seller, this means interpreting an offer to purchase from a prospective buyer, looking for the vagaries that pose a risk, then helping to construct counters that insure fair and honest dealings for all parties. While it may be tempting to just look at the offered price, there are considerably more details that can make, or break, the transaction. And the goal is a realistic dive that results in a closed deal - sans lawsuits.

MARKETING YOUR HOME

Notice I said "marketing" your home, not "selling" your home. Here's where I deviate from many a peer. I'll flat out tell you that I don't "sell" your home because selling implies I could get a mother goat to purchase weekly delivery of cow's milk for her kids.

Houses sell themselves. They speak to buyers. If I take buyers thru, and they need help imagining the home with their belongings, a different color, or visualizing a remodel or knocking out walls... yes, this I do. But there isn't an agent on the planet who should be forcing the sale of a house upon an unwilling buyer. Ensuing buyers remorse could include litigation, really blowing the chance for a good day.

Nope... I don't sell houses. What I do is MARKET your home. It's my job to get yours in front of the people who'd most likely be interested in purchasing it. This includes the wisdom to know to whom your home may appeal more than others. After all, short of the base MLS systems and the usual... Google, Yahoo, Truilia, websites etal... universal marketing is neither wise, nor cost effective.

Obvious examples of this would be an acreage home, maturing timber, very little clearing or pasture, and considerable slope. Certainly not a place I'd advertise primarily to equestrians or those hoping to have critters such as cattle, alpaca or llamas. A less obvious would be appropriate zoning for a buildable 2nd or 3rd residence - or perhaps a healthy year round stream offering a private pond potential(with WRD approval, of course). All of which are imaginative assets that contribute to rich "come on" ad copy and headlines.

CHASING THE BUYERS'AGENT,
PAPERWORK and TEAM COMMUNICATION

I have to admit, I favor doing buyer sides over selling sides. Perhaps this is the "control freak" in me. After the marketing and negotiations are navigated, sellers and their agent then sit... and wait... and hope that all is going smoothly on the buyers' side. It's appropriate to insert that infamous mushroom analogy, "in the dark and being fed...." uh huh.

To tell you the truth, I'm not one for last minute surprises and failures. In fact, one of the reasons I work for myself (a subcontractor) is because I want to be the first to know if I'm going to be laid off! So I'm quite the noodge as a sellers' agent when there's a distinct lack of communication going on. This, of course, doesn't happen when I am the buyers representative.

Buyers have their own hoops to hurdle... home inspections and putting the results into perspective (I'll get into that another time), repair negotiations, appraisals, septic or well tests, verifying tax deferral status for forest or ag tax breaks... there's a lot of activity on the buyers side. And most especially in rural properties.

So the paper chase not only includes the buyers agent and their tasks, but keep abreast of their lenders, the processor and underwriters as well. In short, it takes a skilled buyers team with good communication to get a real estate transaction completed ON TIME - or at all for that matter.

This is where I know what *should* be happening, and by what date to facilitate a timely close. I know who to call, and how to inquire (firmly, but diplomatically) to insure the process is on track. Truly this is the state at which most FSBO deals fall apart... Especially when the buyers do not have a professional helping them.

SELLING FOR-SALE-BY-OWNER
or USING FEE FOR SERVICE BROKERAGES

So why aren't there more FSBOs listings? According to the above linked NAR report, FSBOs have been in steady decline.

A downtrend in the number of for-sale-by-owner transactions is clear, currently at a record-low market share of 12 percent; it was 13 percent in 2005. The level of FSBOs has been on a sustained decline since reaching a cyclical peak of 18 percent in 1997. In addition, a higher share of FSBO properties are not placed on the open market - 40 percent of those transactions were "closely held" between parties who knew each other in advance (family or acquaintances), up from 39 percent in 2005 and 32 percent in 2004.

"When you factor out the properties that were not placed on the open market, the actual number of FSBOs is only 7 percent - the rest are simply unrepresented sellers in private transactions," Stevens said. NAR began tracking the FSBO market in 1981; the record high was 20 percent in 1987.

Add to that, most sellers do not have the marketing tools - access to the MLS, signage, real estate websites, ability to create flyers, etc. Getting into MLS is a breeze with the numerous "fee for service" sites that charge you merely to fill in a form and post it to their member MLS. But two caveats. First, you are paying for service up front, out of your pocket, with no guaranteed results. If it doesn't sell by the end of your contract, you may find yourself paying out again. When you list with a professional, we cover these expenses personally. No loss to you if the property doesn't get sold... UNLESS the agent puts a recompensation percentage into your listing contract. NOTE: *Read the fine print!*

Second, many of the fee for service brokerages offer little that can be construed as effective "marketing". In additional to charging you to input your home into the MLS system, they may provide you with a basic (color? sometimes) flyer (i.e. bedrooms, baths, size, etc... but no personalized, rich "come on" ad text), plus a yard sign. Not only is there no attention to marketing quality, they offer no help in interpreting the contract you receive, nor in constructing a fair counter offers to protect your interests. And frankly, where I really start earning my $s when I put a pen to paper. The specifics of the offer are the singlemost important factor in a transaction.

Nor will the fee for service brokerages keep tabs on the buyers' progress in the transaction. If there is the potential for a failed deal, you'll never see it coming. Fee for service or "limited representation"? It may be a good fit for some. But you will get only what you pay for. So choose your ala carte services wisely, if you indulge.

Many sellers have being burned by the lack of a professional's help in negotiations. And since many homeowners also lack the marketing tools and graphics skills to effectively spread the word... or perhaps are just too darn busy to juggle the details of a sale along with their jobs... most homeowners still opt to list with real estate pros for litigation safety and wise time management. Knowing how time consuming it can be, I don't see that changing any time soon.