Selling your home can be one of the biggest financial decisions of your life. Most sellers know little about real estate marketing or how homes actually get sold. In truth, many Realtors don’t know much about selling homes either. They take some photos, put the house on the local Multiple Listing Service (MLS), then run an ad in the local newspaper and hope that it sells. Because of this, millions of sellers each year get far less for their homes than they should.
Most people believe that homes sell because of conventional advertising. Conventional advertising includes: For-Sale signs, newspaper ads, open houses, fliers, mailers, and other print-advertising. The fact is that only 17% of homes sell from conventional advertising. So why do real estate companies even bother with conventional print advertising?
Real estate companies still rely on print-advertising for three different reasons, and none of the reasons have anything to do with selling the house in the ad. The main reason they advertise is to get future home listings. When people decide that they are going to sell, they often look around for the company doing the most advertising, and assume that company will be the best at marketing their home. The second reason real estate companies advertise is to get buyers. The more houses they run in the publications, the more buyers will call them. A buyer calling from a print ad has only about a 3% chance of purchasing the home they have called on, but the agent called will “adopt” the buyer in the hopes that the buyer will sooner or later complete a purchase. Finally, real estate companies advertise because the homeowners that gave them the listing expect their homes to be advertised. They may not understand that all of this gives them only a small shot at the market, but the real estate companies understand that their clients will get thoroughly upset if the client doesn’t see their home advertised in the Sunday paper every week.
If conventional ads, signs, open houses, and other outdated techniques only combine to sell about 17% of homes, what makes up the other 83%? The answer is Internet marketing and Realtor-to-Realtor contact. Here’s what sells homes: virtual tours on the internet, broker caravans, the Multiple Listing Service (MLS), lots of phone calls to agents, post cards to agents, marketing meetings, email campaigns, and web based virtual tours. Many old-school agents don’t even know what a web commercial is or how to make one. However, these are the things that sell real estate today; not passing out fliers; not open houses; not yard signs; not quarter-page full-color ads in magazines. Don’t get me wrong, those things can still result in a sale, but would you rather see advertising dollars spent on the techniques that result in 17% of sales, or on the techniques that result in 83% of all sales?
Choosing a Commission Rate and Method of Sale
What is best commission rate to pay in getting your home sold? Of course, most sellers will respond 0%! The fact of the matter is that it takes a big chunk of time and money to get a home properly marketed. People who use discount brokerages or try to sell their own home tend to get low selling prices. On average, people who successfully sell their own get about 14.9% below market rate. They also have about a 10 times greater chance of being involved in a lawsuit; all because they wanted to avoid paying a commission.
What is a typical brokerage fee these days? Commissions vary from area-to-area, from one brokerage firm to another, and from one property type to another. Typically, a commission rate will be 5% to 7%. Studies on house sales have shown that homes listed at less than 5% have a significantly lower final sales price than homes listed for between 5% and 7%. 5% is conservative, whereas 6% and 7% allows for more advertising, which will decrease sales time and increase the average final sales price. There is no advantage to listing a home for over 7%. In fact, the two most common rates seen in this area are 5% and 6%.
Where does the commission fee go? Most sellers imagine that it goes as profit straight to the listing agent, which is not at all the case. Let’s assume a 6% commission and see where the money actually goes. Right off the bat, 3% (half) of it will go to the buyer’s agent. On a rare occasion, the listing agent will also be the agent to produce the buyer, but in about 85% of sales the buyer will have his or her own agent. Of the 3% remaining on the listing side, about 1% goes to the parent real estate company. This parent company uses that 1% for advertising and also as profit to stay in business. The remaining 2% goes to the listing agent. When I list a home for sale, I plan on spending about half of that 2% on additional advertising, and have a take-home pay of about 1%.
Some discount brokerages make ridiculous claims such as “We will sell your house for only 1.5%!”. Well, of course that doesn’t include some of the most essential costs in actually selling a home. It would be similar to me saying, “I will sell your house for 1%!”. That 1% may be my anticipated profit, but it takes much more than that to effectively market a property. I high recommend that you do not trust the sale of your home to any brokerage that gets your business by tricking you into calling them.
So how do you make the most money and stay protected? Well, like the customers in the vast majority of successful transactions, your best way to stay financially and legally sound is to use a full-service brokerage. A full-service brokerage will likely make you the most money. It will also most likely do an excellent job of protecting your legal interest and making the total selling process as smooth as possible. Full-service brokers usually have home warranty plans, referral networks, teams of contractors and inspectors, in-house mortgage departments, and simply tons of different professionals and technological tools that help the whole process along.
The brokerage firm I most recently represented is Sotheby’s International Realty; arguably the most highly respected real estate company in the world. When we list a home for sale it gains access to an international client base that most other real estate companies simply do not have. In particular, when I list a property, I pay to make sure the home is posted on seven major websites, in additional to every coastal MLS system in Southern California. The properties I market get aggressive exposure from Paso Robles in the North all the way to San Diego in the South. Maximum saturation on the Internet yields maximum profits for my clients. If you are selling a home in Santa Barbara or Ventura County, I would be happy to assess your property’s value and provide you an overview of how I can help you achieve your goals.