Can You Wear the Real Estate Agent Shoes?
Let me start by making a very bold statement:
I don’t think every seller needs an agent to sell a home!
Let me make another seriously bold statement while I’m at it:
I wouldn’t list my home with 90% of agents that I’ve met!
I have a very simple philosophy when hiring agents to work on my team (or when hiring any assistant for that matter): if the agent can’t add more value to the transaction than what I pay him, they are a bad investment. Nothing personal, it’s just business to me. If the agent were an employee, I would want him to add more value to the company than what I pay him a salary. A real estate transaction is the same. You are hiring someone to represent your interests in selling a large asset – often the most valuable asset you will ever own.
So should you hire an agent or sell your home yourself?
That shouldn’t be a difficult decision. It should be very easy.
The decision should be made on the basis of whether or not an agent will make you more money than you pay him. I can say that national statistics actually show that using an agent to sell your home will yield 3 to 11% more money on average. But how can you know for sure if you need an agent? And if you do, in fact how can you best determine which agent to higher in the virtual sea of agent mediocrity. After all, the majority of agents in the marketplace aren’t even looking out for their seller, they are looking out for themselves and attracting more buyers. However, selling yourself can be a hair-raising experience with shady offers from seasoned investors and con artists, inaccurate title reports and conveyance nightmares(the term to describe the accurate accounting of lienable utilities and mortgage payoffs).
There is a serious learning curve that doing for the first time there are bound to be mistakes made. Any seasoned agent will more than earn his or her commission while keeping your life relatively stress free by managing all the details for a successful closing. Think of a really good agent as an air traffic controller, who manages all the incoming traffic and sees that your plane lands safely at the settlement table.
The Correct Mindset
First, let’s get our mindset adjusted correctly. The goal here is a very simple one: it’s a matter of finding one single buyer unit . . . a single person, a couple, or a family. We need just one, but the aim is to get the one that is the best, that is the one who can give you the highest price and the best terms, to close within your timeframe.
Well, I have good news! There is really only one criteria that must be used in making a decision: “What is the average “days on market” (DOM in real estate terminology) for homes in my community?” To make an educated decision about selling your home by yourself, you must know the answer to that simple question.
The Keys to Success
If DOM is below 60, the economic climate probably exists successfully sell your home for top dollar on your own.
It is as simple as that. If DOM is over 60, you will likely be among the 91% of for sale by owners who never successfully sell their home. If the economic conditions are not right, the FSBO seller is simply at too great a disadvantage to compete in a buyer’s market when the buyers are looking to save the same commission that the seller is attempting to save by selling it alone.
There’s a problem with finding accurate DOM statistics, however. Where can you get access to that information? The best place to get that information is from an agent. He should be able to log onto his local MLS database and get it for you. But here’s the real underlying problem: normally, the number given to you will be an inaccurate DOM number that has been invariably skewed lower than what the real number is.
Don’t misunderstand me? Say you are given by the agent the DOM number that is reported in the local MLS, but that number is not the correct number because it is only the average days on market for houses that actually sold. It does not take into account those homes that did not sell or those that were listed several times before they ever sold, or the listings withdrawn from the market, or the builders models that were never listed until a contract was written.
So how can you know what the real DOM number is?
Is it possible to determine the actual DOM for your market even if you’re not a rocket scientist? Absolutely! Just use the absorption rate to calculate the true DOM for your area.
Let me show you how to do it. Here’s how you go about finding the current DOM. You need two pieces of information:
1. You need to find out how many homes sold in your local market last year.
2. You need to know how many homes are currently available on the market as active listings.
Any agent should be able to get these numbers for you.
For example if 12,000 homes sold last year, and there are currently 1000 homes on the market, what those numbers indicate is that the current inventory level turned over 12 times last year (12,000 divided by 1000 equals 12.0).
Now, 12 (the number of months in a calendar year) divided by times turned equals the market absorption rate (given in months).
Here’s the calculation:
12 divided by 12.0 equals 1.0 (the absorption rate)
This means that the average home was on the market for 1 month. So to convert the absorption rate to DOM you simply multiply absorption by 30(1.0 x 30 = 30).
By calculating DOM this way, you’ll get an accurate DOM number, and eliminating any manipulation of the DOM by agents who relist stigmatize homes as well as inaccuracies caused by those listings that never sold and were withdrawn and relisted by a different agent. In the above example, the market condition is such that it is a seller’s market, and it might make sense to try to go it alone.
This is exactly the kind of market that several of the hotter regions were experiencing right at the height of the housing bubble.
I remember having an agent friend tell me about his market, Seattle, in 2005. It was so hot that is seller could put a sign in his yard, run an ad in the local newspaper, and opened his home for viewing for only one day. Buyers (with and without agents) would all bid for the house at the same time, and many would write offers and submit them during a two-day opportunity window, many with escalation clauses. At the end of that time, the seller would select the best of the offers, many of which would be higher than his original asking price. The escalation clause would push up the sale price even higher in a bidding war to a maximum amount the buyer was willing to entertain in order to see they got this particular home.
In a market like that, you certainly don’t need an agent to find a buyer; nevertheless, in many cases having an agent might still be wise simply because a good agent should be able to more than earn his fee by his ability to negotiate real estate transaction, his knowledge of creative deal making, and more importantly, his knowledge of the traps many sellers unwillingly fall into that ugly cost them tens of thousands of dollars.
Now let’s look at another example.
Let’s say 12,000 homes sold last year and there are currently 6000 homes on the market at the same time this year – this means that the inventory turned twice last year (12,000 divided by 6000 equals 2.0). Take it a step further . . . 12 (months) divided by 2.0 equals 6.0(the absorption rate), then the time the average home is on the market is now a full 6 months.
We convert the absorption rate to days on market by multiplying absorption by 30(6.0 x30 =180). In this case, it would be almost impossible for even the most talented and motivated seller to successfully sell his own home. The market climate just makes it too difficult to swim against. The market is no longer being controlled by sellers.
In this scenario, only a foolish seller would even remotely consider FSBO. That is the final word!
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