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Real Estate Misconceptions
Sales Commissions Are Set By Realtors
No. It is illegal for any licensed agent or broker, to set or claim commission rates or fees are set by any trade group or governmental agency. The Federal Trade Commission saw to it that all Realtors listing agreements have printed: that no... FEE, COMMISSION OR OTHER VALUABLE CONSIDERATION ...HAS BEEN FIXED BY ANY GOVERNMENTAL AUTHORITY OR BY ANY TRADE ASSOCIATION OR MULTIPLE LISTING SERVICE. This means the broker can set the fee, but it must be set "independently". In practice, you can negotiate all YOU want, but the broker or agent won't budge. The real estate firm can have their "fixed" commission as long as there exists no conspiracy to fix the price among firms.
The Local Board of Realtors' Oversees Licensed Realtors
No. The local Board of Realtors, and the State Association of Realtors are connected to a private corporation trading as the National Association of Realtors Inc. The NAR acts like a trade group that collect yearly fees from those who enjoy the benefits of membership. Benefits include; a monthly magazine and newsletters, local meetings, state & national conventions, and a political action committee named RPAC. Members are real estate agents and brokers, mortgage companies and their sales agents, newspaper sales reps, termite and home inspection companies, appraisal companies, motivational speakers, etc... You do not have to have a real estate license to be a Realtor, just a dues paying member. Should you have a problem with a Realtor, filing a complaint with the local Realtor Board must be addressed to the Chairman of the Grievances Committee. Calling on the phone and complaining to a Board office secretary is not effective. We strongly suggest you contact an attorney or write the Department of Investigations of your state Real Estate Commission located in your state capital. Be brief and to the point. If you do not know if a specific law was broken, decide if the action against you demonstrated "unworthiness" or "dishonesty" or "incompetence". Most complaints filed by the public are the result of the buyer or seller not knowing who the Realtor represents or a breach of fiduciary duty. If you believe a House Express Affiliate has not treated you fairly contact us and the State Real Estate Commission.
Real Estate Agents Are Qualified To Appraise My Property
Absolutely not. An appraisers license is required to appraise real estate. A real estate agent or broker must attend classes, serve an apprenticeship and pass a state administered exam to obtain an appraisers license to "appraise" your property. Be certain to ask for a copy of the license. If he/she has no license the best they can offer is a competitive market analysis or market survey comparing homes that have recently sold or that are now on the market. To the best of our knowledge, most states have laws preventing real estate agents from advertising or claiming they will "appraise" property. An appraisal is an in-depth study of the property and it's value.
If you do not have a clue about your property's value, we believe it is cost effective to have an appraiser arrive at the market value of your home before placing it on the market. First of all, it will dispel any misconception you probably have about the value of your property. Secondly, it provides a useful tool to employ during negotiations when Realtors presenting an offer without an appraisers license attempt to tell you what they "know your property is worth". Finally, an appraiser is less likely to tell you what you want to hear and give you the "true" value because you are paying the same fee whether you agree with it or not. Residential appraisals costs run about $150 - $300 for one prepared using a Federal National Mortgage Association form # 1004 and $1000.00 to $3000.0 for a "narrative" appraisal. Narrative appraisals are usually prepared for problem properties or commercial and/or complex properties.
Set The Price Of Your Home By The Tax Assessment
In most areas, the law specifies the taxable value must be the true value. Unfortunately assessment values are related to the when the assessment was calculated, tax rates and municipal budgets. At best, you may be able to use assessments as a rule of thumb when comparing the sale of homes in the same town. For example, if a few similar homes in your town have nearly the same assessment as yours, and those homes all sold for $145,000., it would be a safe bet to assume your home will sell for $145,000 regardless of what the assessed value is.
I Cannot Show My Home Unless It Is Perfectly Clean
Not true. Better to let the buyer see it dirty than not at all. You usually get only one chance with a buyer, take it. Do not waste valuable selling time waiting to repair broken tiles or painting. The point is, not having on the market while you paint etc... is losing those buyers anyway. See Tips on Selling.
Why Real Estate Commissions Are Dropping
This essay concerns discount realtors, multiple listing service (MLS) Century 21, ERA, Coldwell Banker, Re/Max, realtor.com, and Cendent Inc..
Big Money In Listing Homes – A Brief History
In the 1960's the 6% commission paid to Realtors by the home owner was split 90/10 – the "selling" agent received 90% of the commission and the "listing" agent only 10%. The split was designed to reward the "selling" agent for producing the buyer.
The 1970's saw an explosion of franchising like McDonalds. Real estate franchising produced Century 21, ERA, Coldwell Banker, Red Carpet, and Realty World. Do you remember Merrill Lynch and Sears? They too were real estate franchisers, but lost millions and closed shop!
The franchisers recognized the enormous profit in just obtaining listings. It cost less to produce a sold listing than to produce a sale. Statistics show 67% of listings are sold through the local multiple listing service (MLS) by "outside" brokers. Little money is spent by the broker on actually "selling" that listing. Getting a signed 6 month listing contract with you the seller has a higher probability of return than generating and working with buyers where there is no contract and no guaranteed sale. Unlike listings, buyers can come and go to any broker they want.
In real estate circles they say, "buyers are liars" and "if you don't list you don't last".
50/50 Splits
The franchisers pushed to increase the commission paid to the listing agency. The split moved to 50/50 during the boom of the 1980's as there were countless buyers but a shortage of listings. Today the 50/50 split remains, giving the listing agent as much commission as the agent producing the buyer!
Why Brokers Advertise
The franchisers advertise heavily to promote brand name recognition. Franchisers know as a seller you know nothing about selling houses, but the big name and the advertising makes you feel secure so you gladly list your home with them. This is the single most important reason for the growth of franchisers. ("Real Estate Insider" 3/28/77, VOL. III, NO 25). Homeowners do not realize that only 11% of all home buyers come from advertising. (You FSBOs learn this the hard way). The primary objective for large brokers to advertise homes is to attract salespeople because 61% of the buyers come from their agents own contacts. (NAR Real Estate Marketing Institute)
This Is How It Works:
You call any big name Realtor to list your house for $335,000. and ask, " How are you going to sell my house?" The agents usually responds:
We are the biggest Realtor in town.
We advertise more than any other broker.
Our relocation department gets all the transferees.
Our mortgage company gives cheap loans.
We only sell our own listings.
We place your house in the local multiple listing book.
A good feeling of confidence over comes you and you sign a 6 month listing contract. You never see the listing broker again until an unknown, out of town broker sells your home for $305,000. 90 days later you close title and give your listing Realtor a check for $9,150.00! Many say it is this big "payoff' at closing maintaining the rank of Realtors with the likes of used car salesman.
Today homeowners are asking:
"What did the listing agent do for all that money?
The other Realtor brought the buyer!"
Franchisers Cannot Afford Lower Commissions.
Agents using the Century 21, ERA, Coldwell-Banker or Re/Max name are bound by contract to pay 8% of every penny they earn to the franchiser – no matter where it comes from. The franchiser needs that money to sign up more franchisees. Both franchiser and franchisee cannot lower commissions because of inherent overhead. In the end you, the homeowner, pays.
Real Estate agent Dan Scher says people should not have to pay high commissions when selling their homes... Now his boss wants to stop him from advertising his low commission rates. One couple said it saved about $10,000 by listing their home with Scher. In the real estate, multiple listings are very important because they help a house sell faster when thousands of agents know the home is on the market, experts said... The traditional brokers want you to think there's value added by going with the full 6 percent, but there's no difference..."
The Federal Trade Commission & Commissions
In the late 1970's the Federal Trade Commission investigated the real estate industry for fixing commission rates. The government directed all Realtors to make changes to their listing contracts declaring commission rates negotiable. (See Real Estate Misconceptions)
With all the competition and the FTC ruling you would expect the commission rates to drop. It did not happen because the monopoly is in the access to Realtor MLS. Only Realtors can access it and employ it when listing homes for sale. With MLS all Realtors are equals, all offering the same effective tool. If homeowners had access to MLS it would be different but if you want your home in MLS – you have to use a Realtor. This is changing.
The Role of Franchisers in a No Commission World
Today low inflation has produced little increase in property value. Homeowners raise the price of their property to pay the Realtor's 6% commission. Knowledgeable homeowners also recognize the menu of services offered by traditional brokers over and above MLS as ineffective, superfluous and hype. At times the "listing" agent is viewed only as a costly "middleman".
The "sameness" of Realtor firms encourages homeowners to question the value of Realtors. For example, the 3 largest franchises, Coldwell Banker, Century 21 and ERA are all owned by one man, investor Henry Silverman of Cendent Inc. in Parsippany New Jersey. In addition to Mr. Silverman not being a real estate broker, the other difference between the big name and the smaller independent broker is the commission charged. Silverman had attempted to unearth other avenues of revenue such as having Century 21 agents sell aluminum siding and satellite dishes, but failed because of resistance from the franchisees.
"If Tommy... does not show up...at the company store,
it's not our problem. We're getting 8% of the revenue."
Henry Silverman, Cendent Inc.
Wall Street Journal 10/96
Lawsuits, Realtor.com and The Internet
Beyond low inflation and the sameness of real estate firms, there are other important reasons for the current decrease in commissions and the success of House Express. The lawsuit of Thompson vs. Metropolitan Multi-List (Realtors) and the Internet.
The lawsuit began in Georgia and was appealed by the National Association of Realtors (NAR) to the Supreme Court. The Realtors lost. The suit paves the way for public access to Realtor MLS. Soon you will no longer need a Realtor to list your home in Realtor MLS, depriving Realtors of their monopoly on the information.
The NAR, is attempting to protect it's own future with the creation of http://www.realtor.com website. This site is personally owned by a group of NAR executives. Secondly, the purchase of the Buyers Brokers Council by the NAR in 1996 lends credence to the prediction that soon all Realtors will be "buyer brokers" representing only buyers and receiving only 3% of the sales price. The listing agent will be replaced by realtor.com and sellers will pay a "fee" to place their property on this "national" site.
Right now the Internet delivers many Realtor MLS listings to your home or office PC. Since the information is readily available and no longer exclusive only to Realtors, it's value has decreased. In addition the big franchise firms no longer have an "edge" in mass media perceptions, i.e., their "bigness" is obsolete as the Internet has made the world smaller. Perhaps the most overlooked beneficiaries of low cost home selling are the buyers. The primary reason buyers like to shop for FSBOs is the belief that they are not paying more for the home because of the Realtor's fee.
The winners in the new world of real estate will be independent House Express Affiliates delivering the benefits of a Realtor MLS under the supervision of local, experienced licensed broker/owners at a very, very low price.
"I'm an MBA and a CPA...I don't need a Realtor –
I just need my property in the MLS book."
Len Van Orden
Homeowner, Bergen County, NJ
Prohibited Advertising Words
1996 Federal Fair Housing Laws do not permit the use of the following words when advertising real estate for sale or lease.
able-bodied
adult building
adult living
African American
American, Asian
active
AFDC approved
black
blind
bachelor apartment/pad
board/membership required
Catholic
Caucasian
Chicano
child
children
children OK
Chinese
Christian
churches
colored
couples
cripples
contemporary lifestyles
country club
deaf
desirable neighborhood/area
elderly
employed, must be
empty-nesters
English speaking
ethnic neighborhood
exclusive
executive
professional home
professional neighborhood
foreigners
family neighborhood
first-time home buyers
golden agers
gays
gentleman’s farm
handicapped Hispanic
handyman's special
heterosexual
his and hers
homosexual
immigrants
Indian
integrated
interracial
Irish
Ideal for...
Jewish
Job references required
Latino
living alone
lesbian
luxurious neighborhood
mentally handicapped
Mexican-American
middle aged
mixed community
Mormon
mosque
mature
married
membership required
mother-in-law apartment
mother-daughter suite
newly weds
neighborhood, description
number of people preferred
older person
one child
one person
oriental
parish, close to
parish, name of
physically fit
play area, no
Protestant
Puerto Rican
perfect for...
prefer
private community
professional
prestigious
privileged
public assistance
quality area
quiet streets
quiet neighborhood
rent calculated per person
retarded
retired persons
retirees
restrictions
retirement community
seasonal workers
section 8, etc...
segregated
senior discount
senior housing
seniors welcome
SSI
synagogues, close to
singles
secure
sleeps
special rate
secluded neighborhood
starter home
straights
traditional neighborhood
US citizen
unemployed
vacation rental sleeps #
white working, must be
welfare
young
youthful
