What Does A 6% Commission Get Me? (Part I of II)

Long time readers of TrueGotham know that although I feel like a 6% commission is well worth it when you hire the right person to represent the sale of your home (podcast), I’m also one who believes we will see hybrids of the current 6% model arise and that the driving force behind this change is the consumer who is fed up with paying 6% and not getting all that much for it.  As I have said time and time again, that’s totally fixable–choose a different broker who brings more to the table.

In New York Times writer Hope Reeves’ piece That 6% Is Getting Harder to Earn some light is shed on the uptick in consumer demand for more service for that 6%.  

Brokers say that the current market is requiring them to be more creative, to spend not only more money but also more time and effort to make a sale.

Joan Goldberg, a broker at Brown Harris Stevens in Brooklyn Heights, sees herself as a sort of broker-contractor. She has a team of people — painters, contractors, gardeners, stagers, house cleaners, handymen, haulers — at the ready to whip her listings into shape.

“People are often overwhelmed by the prospect of selling, and it’s my job to get them to see that their home will show better and sell for more if we can just take away some of the layers and layers of personal items and grime they’ve accumulated,” Ms. Goldberg said.

For the most part, she does the hiring and scheduling, and she said that she tries to get each client as fair and economical a deal as possible. Sometimes, she winds up paying for some work herself or simply doing it herself.

“I like to plant flower boxes, and I change them weekly and water them if the owner forgets to,” she said. “I often go to the flower district early in the mornings or out to the big nurseries on Long Island to get just the right thing to put in a pot on a brownstone stoop. But, then, I’m a bit of a perfectionist.”

Ms. Goldman also routinely buys new trash cans and paints the street address on them in an effort to make the best impression when prospective buyers arrive to see a listing. “Some people carry plastic bags for dogs,” she said. “I carry them so I can pass by my listings and pick up trash.”

This is not a new phenomenon but perhaps more agents are catching on finally that if you’re going to ask a seller to pay 6%, you better make them feel like your worth it.  Most of the successful brokers I have done business with over the past 16 years have their own arsenal of people who can step in and help a seller snap their property into shape and many of these same top real estate professionals have yearly business plans that allot a certain percentage of their own personal commissions to marketing both on a personal level and for the properties that they represent. 

There is one area in which no amount of money can replace and that is experience.  And experience is never more important than in a challenging real estate market.  Here are some examples of what a savvy real estate professional brings to the table to earn their commission:

• The savvy of pricing properly according to current market psychology and conditions.
• The savvy of conducting negotiations with honesty and integrity to yield the best price for the seller and a positive experience by all.
• The savvy of being able to relate current market conditions and buyer behaviors to similar markets in the past…those who have been selling for 10 years or less in Manhattan have NEVER seen a difficult real estate market.
• The savvy understanding the most effective tools for marketing each specific property.  Some advertising mediums are better than others for different types of properties.
• The savvy of representing a property as accurately and transparently as possible to the consumer effectively managing expectations and generating prospective purchasers with "real" interest in the property.  Video is the most powerful marketing medium to achieve this result.
• The savvy of exhibiting the personality and character that enlists buyer trust.

And finally, let’s take a look at the typical commission breakdown to grant insight into where your 6% is going.  In this example, we will take the average 2BR/2BTH Manhattan Co-op apartment and assume a sales price of $1,500,000 with a 6% commission of $90,000 to be split between the seller’s representative and the buyer’s representative:

Seller’s Agent 3%-Seller’s agent firm receives 50% of 6% or $45,000.00.  That is split with agent’s firm who pays for some marketing, advertising, web site, and branding. So the average agent is left with $22,500.00 of which a conservative 30% goes to taxes after deductions…or should.  This leaves $15,750.00 for the agent before paying for many things out of their own pocket.  Let’s break it down on an hourly basis:

• Assuming an average time on the market from start of marketing to closing of 131 days or 18 1/2 weeks (per 2007 4th Quarter Prudential Douglas Elliman Manhattan Market Overview) and a very conservative estimated average of roughly 2 hours per day 6 days per week (yes, we work Sundays at least and many of us work 7 days a week) of the following:
  • Regular meetings to discuss and plan marketing strategy
  • Organizing and completing floor plans, photos, and video
  • Gathering information from management company regarding every facet of building from offering plans and financial condition and history to house rules and Board requirements.
  • Fielding email questions and phone calls regarding the property
  • Scheduling open houses and individual showings of the property
  • Reviewing offers and financial portfolios of prospective purchasers
  • Negotiating offers to procure best terms for seller
  • Preparation of Deal Summary and dissemination to buyer and seller’s attorney along with offering plan and financials to buyer’s attorney in timely fashion…immediately upon acceptance of offer.
  • Facilitating a timely execution of contract by effectively communicating with all parties involved.
  • Gathering, reviewing and preparing Board application for review by Board of Directors for Co-op.
  • Overseeing processing of Board materials to insure prompt dissemination to the Board of Directors.
  • Assisting to schedule interview of prospective purchaser by Board of Directors.
  • Upon approval, facilitating the closing by effectively communicating all parties needs to respective attorneys, managing agent (closing agent), and banks if necessary.
  • Attending closing.
  • Often times their is work to be done post closing like assisting with the forward of mail, tying up loose ends regarding repairs, helping with the facilitation of moving, and general questions that arise once a seller has moved out and the buyer has moved in.
  • Assume an agent pays for their own video (roughly $600 for a property of this size) and other miscellaneous marketing pieces (super conservatively $400)

So for all of this effort, and this is indeed the typical amount of work that goes into the average transaction, her/his agent nets $14,750.00 or roughly $66/hour ($99/hr pre-tax income-corrected thanks to commenter Julie) of that $90,000 commission that the seller pays.  We’re not talking minimum wage here but we are talking numbers that are significantly less than I would guess most people suspect.  And this doesn’t factor in the properties that agents work diligently on for 6 months or more that never close for a number of reasons.

BTW…for the average $200,000 home in the United States, this would work out to $27/hour pre-tax income and although those agents don’t have the Co-op process to deal with, in most markets they do write their own contracts

So if you decide to pay your seller’s agent that $66/hour ($99/hr pre-tax income corrected thanks to commenter Julie), make sure that your getting the biggest bang for your buck and that s/he knows exactly what to do to earn that commission.

Tomorrow I will breakdown the other 3% of the commission that goes to the buyer’s agent.

Why Most Sellers Shouldn’t Panic

Trying to get across a "Don’t Panic" message in a 4 1/2 minute segment on the Today Show yesterday was quite a challenge.  Since I’m fortunate enough to have the medium of this blog to elucidate, here are some additional tips, advice and comments that I would have made if I had an hour 😀 And of course, much of this applies to those homeowners across the country who have the misfortune of living in a declining market.

• If you don’t have to move, just chill-I wanted to be clearer about the fact that sellers who have no intention of moving for years but painstakingly compare their home value to peak value are creating unnecessary anxiety.
• NO NATIONAL HOUSING MARKET–Although I briefly mentioned the hyper-local nature of housing markets, I really want to drive home that what is happening to home values in Vegas has almost nothing to do with values in Phoenix (I say almost because you can’t ignore that credit defaults and tightening lending standards that have an effect on all markets; some more than others).  Manhattan for example is a perfect example of multiple micro-markets all rolled into one as even certain neighborhoods are outperforming others.
• NAR Stats and Statements-I hope that I was clear in stating that it’s way too soon to tell if a 3% uptick in sales volume from January to February  means anything.
• Property Values Across the Country-Only the Baltimore home example from yesterday actually lost money because the owners sold.  The other 2 owners purchased their properties some time ago, have seen very impressive gains, and would have a long way to go before those gains vanished.
• Moving or Staying Put-The bad news comes to the investors or speculators who purchased at the peak of the market for the quick flip. They either have to sell and take a loss or change their plans and hold the property until it recovers and that could be years.
• Other Options for "Peak" Purchasers–
  1. Investigate the success of auctions in your area as sometimes the auction atmosphere elicits the best price for a home.
  2. Rent the property.
  3. Sell at a loss or lesser profit depending on your current market conditions.
  4. Or stay put.

Here’s a bit more insight on the tips I provided if you decide to stay to increase a home’s value (Obviously it is a difficult decision to pour more money into a home that you feel is decreasing in value so these aren’t things I would do unless I was planning on being in the home for a 5 or more year time frame):

• Add a room– maybe convert half of your garage to living space, create a small den or solarium. More space usually means more money.
• Update or replace kitchen and baths-the thought of renovations are overwhelming to many buyers and old kitchens and baths give buyers leverage when negotiating the purchase price.
• Landscape-beautifying the exterior of a home to increase it’s curb appeal. It’s the first impression a prospective purchaser has of your home and doesn’t have to be expensive.

And if you MUST sell these are less expensive ways to help your home stand out regardless of market conditions:

• De-clutter-remove as much of the clutter from your home as possible including most or all of the family photos, clean book cases, and make sure as much of your floor shows as possible. Less clutter means more money.
• Replace or remove old carpeting-nothing screams "renovation " to a buyer like old, worn out carpeting. Have it professionally cleaned, replace it or remove it altogether if you have nice floors beneath it.
• Stage-either hire someone or visit some of the model homes in your area to see how they are being presented. Use this as your goal with the understanding that you likely don’t have the budget of a builder but if you make every effort to go for a clean, crisp look it will likely be better than what you have now.

Now how was I supposed to say all of that in 4 minutes?

Clip from NBC’s Today Show

Well here is my live National TV debut.  Be gentle.  I think I did a good (ok…decent) job and hope to have the opportunity to do this again.  It was a lot of fun!

Big thanks go to my friends and colleagues who helped me with this segment:

Jamie Goff, President and CEO of Douglas Elliman Florida

Gregory Morris, REALTOR, Long And Foster Real Estate, Inc. Baltimore, MD.

Jay Thompson, Designated Broker, Thompson’s Realty, Phoenix, AZ.

Appearance on NBC’s Today Show

I’m happy and excited to report that I will be appearing on NBC’s Today Show tomorrow morning, Thursday, March 27 to discuss housing markets across the country and what sellers can do to both add value to their homes and increase the chances of selling if they are one of the unfortunate ones caught in a down market.

The interview will air live during the 10AM hour of the show at approximately 10:30AM.  If all goes well, I will post the interview in it’s entirety here on TrueGotham ASAP.

Seller Motivation: Why Sell Now?

Throughout my 16 years in the residential Manhattan real estate market, the majority of my business has come from representing sellers in the marketing and negotiation process.  The first 2 questions I ask of all of my sellers is "why are you selling and where will you go?"  I’m often very surprised by the responses.  Many who reach out to me for advice on selling have no immediate plans for where they may go after the sale.  Some suggest that they would rent, others may move to another area of the country, some say they would downsize and of course some just need more space.  But often times, the motivating factor is fear.  Reacting to negative press or a drop in perceived equity in one’s home is the last reason that someone should sell.  Consider the following before you go to market with your home:

1. What was your plan (time-line) when you purchased the home?…If you were going to stay there for 5-7 years and it’s only been 2, then why are you selling?
2. Has your job changed or relocated forcing a move?
3. Are you busting out of your current space? 
4. Do you need the equity that you have in your home for something else?
5. Are you a "market watcher?"  The recent phenomenon of viewing real estate as a part of your financial portfolio is exactly that…recent.  Most of our parents and grandparents purchased their homes as a shelter and a place to raise their families.  Stop comparing your home’s value at the peak to what it is now.
6. If you’re a "flipper" or investor, consider changing your plans to a more long-term objective.
7. Are you a serious seller or testing the market?  Sellers who "test" the market are just adding to inventory which generally negatively effects prices.

There are a lot of people out there who are making lateral moves or trading up or down for space in today’s real estate market.   Others are seeking a change in geographical area.  In a city like Manhattan with so many transients, many of whom are native New Yorkers (people move a lot here), real estate trades continue to take place but at a less feverish pace than the same time last year.  In many parts of the country where markets feel like they have slammed on the brakes altogether, sellers must seriously consider whether they have an important reason to sell their homes or if they are being motivated by fear.

Manhattan Real Estate Market…High Anxiety!

As debates take place among the nation’s leading economists as to the health of our economy and the housing markets (plural because they are local), the anxiety here in Manhattan continues to rear its ugly head.  All parties involved in the residential real estate transaction are experiencing a greater level of anxiety than I have seen in my 16 years in the industry.  This is a huge change from the Manhattan housing market of the past decade where most anxiety was felt exclusively by buyers and their agents with the occasional seller frazzled with the decision as to which prospective purchaser they should choose.  Times they are a changin’!

Of course most of what I share here on TrueGotham is anecdotal but I also make every effort to garner feedback  from friends, family and colleagues regarding their personal experiences in the housing market.  Here is what I’m seeing in today’s ultra anxious and confusing housing market and exactly how it is frustrating and confusing each party in the real estate transaction:

• BUYERS: 
  1. Almost overnight and due to tighter lending standards, many buyers have decided that a mortgage contingency is a must in any sales contract.  A 14 day contingency as opposed to the standard 30 days seems to be becoming the norm.
  2. Media reports of low-ball offers paired with those of multiple bids are making this market as confusing as ever and feeding the anxiety that often comes along with bidding on a home.
  3. Many buyers haven’t spoken with a bank or mortgage professional before bidding on property only to find out that they aren’t as qualified to purchase a home as they once were.
• SELLERS:
  1. Unless they are fortunate enough to have multiple bidders for their property, which is still happening quite a bit in Manhattan, sellers are being asked to consider financing contingencies in contracts. 
  2. Some sellers have even been asked to accept contingencies on the sale of a purchaser’s current apartment.  ATTN BUYERS:  This isn’t happening…yet.
  3. Many buyers are getting cold feet and changing their minds in the 11th hour when it comes time to sign a contract.
• ATTORNEYS:
  1. Many attorneys for buyers are advising clients against signing contracts without financing contingencies.
  2. Many attorneys for sellers are finding themselves sending out multiple contracts as fewer deals make it to the signing table.
  3. As Manhattan buyers believe they have more leverage than in the past (not necessarily true), both buyer’s and seller’s attorneys are working more diligently in negotiating contracts to balance the give and take that is more frequent in today’s market.
• AGENTS: (I know many of you out there love to hear about real estate agent grief…so here ya go!)
  1. No deal seems easy.  A quote from one of the most successful agents in Manhattan, "It’s really hard out there right now!"
  2. Some properties sell quickly and others languish…we actually have to work to make money…go figure.
  3. Navigating inventory and making sense of pricing has been incredibly challenging as struggling and desperate agents tell sellers what they want to hear in an effort to procure the exclusive right to sell their property.
  4. The number of agents has risen to astronomical numbers while inventory remains ridiculously low…something has to give and I suspect we will see a thinning of the ranks in the near future…I can hope can’t I?

And that’s what I’m seeing.  Need to get back to the trenches, it’s brutal out there.

TrueGotham on Holiday…REALLY

I’m leaving in in the morning for a much needed family vacation to Mexico.  I’ll be back on Monday, March 24.  Yep 10 days of TG silence.  I’m not taking a BBerry, a laptop, or anything else that will tie me to civilization.  Looking forward to some REAL downtime and see you all in Spring.

San Mar House Raffle Winners

For those unfamiliar with this story, here’s a snippet from WBAL-TV in Baltimore:

"Well, the real estate market has been compromised over the last two years and so we decided to hold a raffle to sell the property and to benefit a charity," Crawford said.

The house sat for a year in a stagnant real estate market. Crawford’s dedication to the youth drove this idea.

"I’ve been a teacher all my life and my focus has been children. And naturally I thought of San Mar because it’s very nurturing and rebuilds the lives of children with difficult life experiences," she said.

San Mar’s Children’s Home For At Risk Girls is celebrating its 125th year. It provides residential care for adolescent girls who have been abused, neglected or have behavior problems.

Director Daniel Day sees this raffle as a win-win for the homeowner and the children’s

6,284 tickets were sold over 73 days in a win-win situation that sees desperate owners and a wonderful charitable organization walk away very happy.  Not to mention those who won the house and runner-up prizes.  Here are the WINNERS:

• House: Dennis J. Weaver – Hagerstown, Maryland
• Car: Randy Huff, Maritzea Falcom – Adamstown, Maryland
• Carpet: Dennis Wayne &Vicky Myers Jr. – Boonsboro, Maryland
• Furniture: Brian Kopp – Rochester, Minnesota
• Cash: Kenneth L. Clagett – Henderson, Nevada

Since the house re-appraised at $380,000 and Realtor Cynthia Moler donated her commission, San Mar Children’s home raised over $200,000 for their cause!

Although all house raffles haven’t been so successful, the outcome of this one makes me think that some sort of National Lottery System could be modeled after this in an effort to simultaneously assist desperate homeowners while raising money for charity.

For tips and advice on conducting your own house raffle, check out How To Raffle Your House.

Navigating New York City Subways

I’m heading out of the office shortly to show a property on the border of Tribeca and Battery Park City.  Rather than hastily jumping on the subway and guessing how long it would take me to get there, my brilliant assistant has directed me to HopStop.com.  Although she says this site has been around for years, I have never seen it and imagine that I can’t be the only one who hasn’t?  It’s a MapQuest-like tool for the subway system allowing you to plug in a starting and ending address to generate multiple subway routes complete with time estimates.  It’s brilliant and I thought it worthy of sharing. 

On a completely different subject, the SanMar House Raffle drawing is tonight and all of us who purchased tickets are eagerly awaiting the outcome.  Check back here tomorrow for the winners.

Raffle To Win a House…3/12/2008 UPDATE

I’m re-posting this story yet again because I think it’s brilliant and it’s a success…so far.   Check out the comments section below though as more is revealed about the history of this home.

From WBALTV.com in my home town of Baltimore comes this incredibly creative and ingenious marketing strategy for selling your home in a down market.

HAGERSTOWN, Md. — Frustrated by a nationwide housing slump, a western Maryland couple is selling raffle tickets for their $390,000 house and hoping they’ll sell enough $100 tickets to get the farmhouse off their hands. (3900 tickets and they get their price!)

Dennis Kelly and Karen Crawford put the four-bedroom house for sale for $425,000 a year and a half ago. But they say the housing slowdown means they haven’t had any takers. The house is now valued at $390,000.

The real beauty in what Mr. Kelly and Ms. Crawford are doing is that all of the proceeds above and beyond the $390,000 will go to benefit the San Mar Children’s Home.  This seems like a win, win, win (yes three wins) to me.  At $100 per raffle ticket, it’s highly likely that more than 3900 tickets will be sold.  The sellers get their price, San Mar will likely make a considerable amount of money, and one lucky winner will get a $390,000 house for $100!  With additional donations from local businesses the raffle offers a total of five prizes.

The four-bedroom house will go to the grand-prize winner. Second prize is a 2008 Toyota Camry, third prize is a Persian rug, the fourth is furniture and the fifth prize is $1,000 cash — all offered to raffle organizers by a local car dealership and furniture store.

The raffle has been approved by Maryland gaming authorities.  Assuming 5000 raffle tickets are sold, the odds are not bad and knowing that the excess $110,000 goes to a worthwhile charity makes the $100 ticket price that much more palatable.

In Manhattan, we would only have to sell about 15,000 raffle tickets at $100 a pop to sell the average priced apartment.  So will 2008 be the year of the housing raffle?  It seems that in some markets across the country, we are going to see some very creative marketing strategies.  Here on the home front, creativity hasn’t yet become a necessity.

Here’s the complete listing for the house.

There is still time to buy a ticket.  CLICK HERE to purchase online with a credit card or download a pdf and pay by check.

UPDATE:  They have sold well over the minumim of 5000 raffle tickets making this a win-win for the homeowners and SanMar.  The raffle is being held tomorrow, Thursday March 13!  I will post winners on Friday.

For tips and advice on conducting your own house raffle, check out How To Raffle Your House.