Real Estate Penny-Wise and Pound Foolish
Monday, April 27, 2009
Down here in the south, we take great pride in our words. My father is no exception. He has a knack for coming up with interesting sayings. I don't know if he comes up with them on his own, or if he has a book somewhere that he periodically refers to just to keep us entertained. He has funny sayings for just about any situation, all of which are very colorful and funny. All of my siblings love to quote the one's that are the funniest and most risque. When we bought frivolous things we were "shoving money up a wild hog's end". When something is turning out to be almost impossible, its like "pushing a string". When we have gotten into deals that are going sour on us, he says that we should "forget about trying to get cheese and just get out of the trap."
I was listening to Dave Ramsey the other day on the radio. He was speaking to a caller who was worried about her father's will, which had been prepared by a discount attorney service place in Florida. Basically her dad wanted to get his will done for the cheapest amount possible. With their cheapest Last Will and Testament package, they would write exactly what you wanted to put in there as you told it to them, but would not advise you or check it to make sure that it was done legally. Her concern was that her father's assets added up to over $500,000, and she didn't know if what he had done was OK, or if she needed to do something about it. Dave's a southern guy, and so he unleashed a whole bunch of southern sayings as to what her father was doing. The most memorable was that he was being "penny-wise, but pound foolish." In other words, while trying to get it done as cheap as possible, he was neglecting the fact that there was a half million dollars worth of accumulated assets at stake. Upon his death, the family would have to spend thousands of dollars in legal fees just to get the problem solved. His advice was that when you're dealing with that much money, it is never good to go cheap. Discount services such as attorneys or real estate brokers may seem enticing, but when there are hundreds of thousands of dollars at stake, penny-wise but pound foolish definitely isn't the way to go.
There are many different types of discount real estate companies out there, with many different services that are offered. Most use an "a la carte" method of pricing where you choose from a menu the services you want, and then you pay the listed price for each individual service. What a lot of people don't realize is that you pay for this up front. That means they've already been paid whether your house sells or not. The advantage of selecting an agent that charges a commission based upon the final sales price of the house is that there is an immediate incentive to not only sell it, but to sell it for the highest price possible. So, if I don't sell your house, I don't eat. There's a lot more incentive there for me to sell it than someone who has already gotten their paycheck.
Also, there are some out there that will charge you a very low commission fee, but then you will be the one to handle all the showings and hold open houses. Most normal people don't have time to follow up with folks, arrange appointments, and even if they did, there are many laws about what one should and should not say to a buyer that could possibly get you into trouble. Some mistakes could cost you a potential buyer, and some mistakes could get you into hot water with the Federal Government.
Here are a few common myths for you to consider if you're thinking about going cheap:
Myth #1 - I can save a bunch of money if I try to sell my home For Sale By Owner.
The average For Sale By Owner selling price is 15.4% less than the average real estate agent assisted transaction sales price. Here in North Alabama, a house listed through a real estate agent sells on average for 94%-98% of the listing price. The average sales price for a FSBO is $163,000 compared with $189,000 for agent assisted sales. You may not like the idea of paying a real estate commission, but if it can help get you $26,000 more for your house, it is definitely worth the money. It may seem like a good idea to sell your house yourself, but it can easily and quickly get you in over your head. Google doesn't give real estate licenses, and finding a couple of articles there won't teach you everything you need to know about selling a house.
Myth #2 - A Discount Real Estate Company will work just as hard to get me the highest price on the sale of my home as a Full Services Broker.
A discount real estate service is competing with PRICE, not QUALITY. The discount broker is able to charge less because they do less. In other words, they want to get your home sold as quickly as possible, regardless of the price, and then move on to the next deal. How do the do less? Many expect their clients to handle all the showings, to hold open houses, while they are able to sit back and collect a commission check. So in the end, you do all the work, your house sells for less money, and the Discount Broker collects a paycheck. Doesn't sound like a very good deal to me.
I know one family who listed their house with a discount real estate company, and it sat empty with no showings, no advertising, little representation, and they had already paid this agent to sell their house. The best offer they brought to them was an owner financing contract for thousands less than what they were asking. Because of their dire situation with the property, the seller was forced to take the offer. After over a year and a half on the market, being forced to accept much less than what was asked, and only able to receive very little money down, this seller received 3 payments out of the 12 months they lived there. Obviously, this seller got exactly what he paid for. He was left to his own with no agent or advocate on his side. The seller had wasted his money on a commission hardly earned, didn't get what was expected, and instead of saving money, it ended up costing him a lot.
Myth #3 - All I need is a broker who will put my listing on the local MLS, and my house will sell.
Real estate sales is all about marketing. Its about getting your house's information in front of the right person. Its true, the local MLS is a vital tool that real estate agents and consumers can use to sell your property. It is not, however, the only tool. The real estate business is a people business. People have emotions and react according to those, not necessarily to raw data that is uploaded to the Internet. If your agent shows your house to a buyer, but your agent was rude or was perceived to be untrustworthy, you better believe that this potential buyer will not be buying your house. If a potential buyer is looking at pictures of possible houses, and your house's listing has a terrible photo, you can bet that your potential buyer is going to quickly click over to the next listing, ignoring yours altogether. It only takes one mistake to turn off a buyer.
Also, these days you would be foolish to think that buyers only go to the local MLS searching for property. Many buyers are from out of town, and may have no clue how to get access to the property listings on the local MLS. My listings appear on the local MLS, Realtor.com, http://www.homegrownrealestate.net/, and other real estate websites, and also can be found featured on other websites like Facebook and Twitter.
Hopefully by now you can see that you really do get what you pay for. If you want to pay discount prices, you will definitely get discount service.
Joshua B. Pettus
Home Grown Real Estate
Presiden/Broker
http://www.homegrownrealestate.net
http://homegrownrealestate.blogspot.com
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