Mr. and Mrs. Holmes saw a house listed for sale in Huntington Beach, California on the Realtors' Multiple Listing Service with an advertised price of $749,000 to $799,000.  The listing indicated that the "seller was motivated."  The Holmes made an offer, and after a counter-offer they agreed to purchase the home for $749,000 with a 30-day escrow.

In order to close on this purchase, the Holmes sold their house. What the Holmes did not know was that this was a short-sale involving three lenders and a total of $1,141,000 in loans. And, the lenders had refused to lower their payoffs to accommodate the short sale. Appearing that the property could not be transferred to them free and clear of all liens because the debt on the property far exceeded the agreed sales price, the Holmes filed suit against the real estate broker for failing to disclose this situation.

There are certainly variations in custom from state to state, and even county to county.  In some locations, the seller is required to furnish an owner's policy to the buyer, in others the buyer pays for it if owner's coverage is desired.  I have always wondered about this difference and I thought it would be worth taking a closer look to see which makes more sense.  Add a comment and let us know what the custom is in your area and what you think about it.

"We want to make sure people notice with all the other promotions we doing that we're ready to make some deals happen, and the car just one way of showing that we're a cut above of what's going on in new housing market in Marina," Smith said.

Please walk in our shoes for just a bit. When was the last time the cost of these items, which significantly affect my profit potential, had a signigicant decrease? Gasoline, cost of a vehicle in general (I mention these because we use them much more than the average wage earner) advertising (for self or listing), office space, utilities, paper, office equipment, furniture, cell service and land lines. Sellers want exposure TO THE MAX, this means franchise fees and buyers want fast websites with pictures and more pictures (bandwidth, bandwidth, bandwidth). I won't even get into the support staff to maintain all this STUFF. We can't begin to put a price on the family functions missed or interrupted. I've worked in several different industries and real estate is, without a doubt, the most demanding on my time.

Redfin, the online realty company, was featured on 60 Minutes last night. I have written a couple of posts about discount real estate brokerages recently; see Selling Your Home May Get Cheaper and Competition For The Six-Percenters. It was good to see the subject get some national attention. If you missed 60 minutes, you can get the full story, Chipping Away At Realtors' Six Percent, on CBSNews.com.

They featured a couple that both sold their old home and bought their new home online. They saved $26,000! Redfin charges the seller a flat fee of $3,000. And, when they represent the buyer they only keep one-third of the selling agent's split of the commission and they refund the rest to the buyer. Redfin claims to have refunded over $3 million dollars to their customers.

One of Redfin's agents had this to say about her experience as a traditional real estate agent:
 

"I had done quite a few deals where I spent maybe five hours total working on the deal. I never saw the house. My client found it online and, you know, I would make $12,000 for four hours of work. And I thought this cannot keep going on like this. Someone, I felt like I was going to get caught! You know, someone’s going to see that this is happening and I think a lot of them hold that truth inside of them right now. They’ve got the clients that are finding houses on their own. They make $20,000 and did 10 hours of work."

With a six percent commission there is a lot of fat that can be cut - a lot of money that home sellers can save. Its not really all that surprising that someone would try to leverage the power of the Internet to try to find a better solution. But, as you might suspect, traditional Realtors and the National Association of Realtors aren't exactly excited about the concept. Leslie Stahl, the 60 Minutes correspondent, spoke with a traditional Realtor. She asked the tough question:
 

"Now here's what Glenn Kelman of Redfin says: 'The price of homes has gone through the roof, pardon the pun, over the last several years. And yet your commission has still stayed at six percent,'" Stahl remarks. "You're not lowering your commission to give the buyers this advantage. You're just raking in the money?"

You will have to visit CBSNews.com for the full story. Its worth the read.

People are starting to see that a six percent commission is absurd in a housing market that has seen home values quadruple in the past 25 years. It was the perfect set-up. There really weren't any alternatives and the seller pays the whole commission. Thus, there were always plenty of buyers who couldn't care less about the six percent commission. Now, the numbers have gotten so big and there are some alternatives out there. Its only a matter of time until the "new" brokers dominate the market. Will the traditional Realtors lower their commission to compete? Competition is a good thing, isn't it?

Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com
 

The existing home sales figures are disheartening, to say the least, and they effect all of us. Fewer home sales means less work for Realtors, appraisers, surveyors, title companies, and abstractors. What will it take to spur more home sales? Perhaps the innovation of some of the discount brokers is the key.

I mentioned one of these companies last week, in 'Selling Your Home May Get Cheaper,' but another company recently made the news. The 2007 edition of the Swanepoel Trends Report ranked Help-U-Sell Real Estate the second best new national real estate franchise brand. Help-U-Sell provides an alternative to the 6 percent commission structure, offering consumer-focused, full-service real estate at a low set fee. According to the company, Help-U-Sell has challenged the commission structure by perfecting a full-service set-fee model and delivering more for less.

Its really pretty simple math. 95 percent loan-to-value mortgage, plus 3 percent decline in home values, equals 2 percent in equity. Any second-grader could tell you that 6 percent is more than 2 percent... so how can any of these people afford to sell? Well... a discount, flat-fee, real estate brokerage may be the only answer for many.

Even for those who have the equity, six percent is a but much to swallow for many home sellers. From an article in Realtor Magazine Online, one discount broker had this to say:
 

We often get customers who were listed with a traditional broker, but the listing expired. The sellers don't feel as if they got the service they deserved. Very often, the salesperson they were listed with is a name you'd recognize, a high producer.

But the sellers say, "The salesperson didn't do anything. For the open house, the salesperson sent someone else." The sellers’ perception is that they didn't get the service they expected. I hear it time and again.

So the sellers are happy to come to us---and pay a lot less.

I have a friend who had a similar experience recently. He hired a traditional realtor to sell his $400,000 home. He said that it was advertised very little, aside from the brokers own publication, and they held two open houses. The Realtor he hired didn't even show up to the open houses. She sent her assistant. He was frustrated at the thought that she had the potential to make a $24,000 commission on the sale, and he didn't see $24,000 worth of effort. Where is the value in that?

He cancelled the listing when it was up and has decided to sell it himself. He is going to purchase a domain name and put up a Website devoted to the sale of his home, with much more than the few pictures the Realtor had on their site. He plans to advertise the home himself in the real estate section of the local newspapers in the area. If he is successful, he can sell the home for less and still net more money from the sale.

But if that doesn't convince you of the tremendous market for discount brokers, maybe this will. About a year ago I was shopping for used car. I spoke to one of the salesmen at a dealership about what I do for a living. He told me that he was getting into the real estate market. He and a friend were getting ready to buy a Help-U-Sell franchise. I found that very interesting... a used car salesmen was enticed by the concept of selling homes with a discount brokerage.

The traditional real estate market is changing dramatically. While it may not be good news to the traditional six-percenters out there, it may be the best thing that ever happened to the real estate market!

Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com

One realty company in Detroit has announced a new program to spark existing home sales. Budget Realty, LLC will be offering a flat-fee listing service of $999.00, to be pre-paid. The listing services will include:
 

• Marketing of the property
   
• Multiple listing service
   
• E-mail distribution to their buyer list
  
   
• Presentation of offers and counter offers
   
• Assistance in developing and negotiating transactions
   
• After purchase agreement acceptance, order title commitment
   
• Monitor buyer funding progress
   
• Estimate of transaction costs and proceeds
   
• Furnish advance closing documents to advise parties on closing requirements
   

The flat-fee covers listing and marketing services only. The seller will still be required to pay their own closing costs and a three percent commission to the selling broker.

One of the real estate agents with Budget Realty indicated that there is concern that this will upset traditional Realtors because it will be "major work with very small pay." However, they expect the move to "turn the market and save the equity in homes in Michigan."

In my opinion, the Realtor commissions are much too high and that is likely having a chilling effect on existing home sales. As I pointed out in 'Blame It On The Weather,' homeowners have spent all of their equity, so they can't afford to sell their homes. The Realtor commissions were not an issue when home prices were rising dramatically year after year, but that has changed as well. Existing home prices have been declining for eight straight months, last reported to be $217,000.

I am not saying that real estate agents are getting rich, though some are most certainly over compensated. The majority of Realtors I know cannot make a living selling real estate - they have "other" jobs. Despite the fact that most Realtors have to have second jobs, there are still more than 1.2 Million Realtors. This is a clear sign that the commissions are too high.