RISMEDIA, May 2, 2009-If you are a recent seller of real estate, you may have had some difficulty dealing with the gap between your selling price and your actual net proceeds, as reflected in your final check. Hopefully, you knew what to expect and factored that into your decision to sell. But, all too often, in the blizzard of activities involved in transferring real property, the costs of selling are often overlooked or underestimated.
Once all loans and liens are satisfied, the next largest cost is often real estate brokerage fees. Despite recent declines, property values having did rise rapidly in many markets and that fractional six or seven percent can equate to some serious coinage. It does cause one to ponder, where does all the money go?
As is often the case, the best value isn’t always the lowest price. Those looking for real value are more than willing to pay top dollar for top quality. But, the question arises, how does one determine the elements of full value in real estate services? What should one expect from a professional real estate practitioner?
A competent, knowledgeable real estate practitioner gets paid for their time and their knowledge.
Everyone’s time is limited. At some point, in the development of a personal service business, a practitioner can work no more hours. And, as they build their business, enhance their skills, and improve their knowledge, they can only increase their compensation by increasing their fees or adding additional revenue streams. Remember, the very best in every profession are always the highest paid.
Given the flood of inexperienced newbies who enter the field each year, a strong argument can be made that they should be paid what they’re worth.
Understanding the value of a real estate practitioner is made more difficult by what the consumer sees and doesn’t see.
From what I gather, a common perception of a real estate practitioner is someone who drives around in an expensive car, holds open houses, has a list of “for sale” properties and a special key, puts up sold signs, talks incessantly, demonstrates few social graces, scans the room over your shoulder looking for someone better to go get pushy with, and gets paid millions for doing the above.
Essentially, the work of a real estate practitioner can be broken down into three main categories: functionary duties, compliance duties, fiduciary duties.
Most of what the public sees the practitioner doing could be described as functionary activity. Measuring a house, hanging a lock-box, canvassing a neighborhood, and designing flyers are examples of things that could be done by an agent of any level and, arguably, do not rise to the value of several thousand dollars.
Behind the scenes, the trends toward consumerism and government regulation have placed burdensome responsibilities on sellers of real property to such an extent that most sellers have no idea what disclosures are required of them or what the consequences are for failing to provide them.
Many sellers incorrectly believe that their agent is responsible for providing these disclosures, but the legal onus is upon the seller. Among the practitioner’s compliance duties, would be a risk reduction strategy that directs the seller to be in compliance with all legally mandated requirements.
Over the course of my nearly 30 years in real estate, I have watched a standard real estate contract swell from a couple of pages to a three-pound bundle of disclosures, addenda, inspections, affidavits, disclaimers, waivers, reports, indemnifications, acknowledgements and amendments, all woven together in a labyrinth of time frames, receipts, authorizations, approvals, all with their unique ramifications and consequences for buyers and sellers of real estate.
The fact that consumers do not see all this doesn’t make it any less binding upon them.
For a real estate broker, these increasing compliance issues increase the cost of training, processing, filing, paper, toner, equipment, and long term storage. It either gets paid for by the consumer or it doesn’t get done. The consumer not in compliance is the one at risk, not the agent who cut corners.
This brings us to what the public often doesn’t see; the top professionals in any field exhibit qualities that come at a price. Often, they are very selective regarding the clients they accept. Experience and longevity create an existing clientele.
The fiduciary relationship is based on trust. There is an absolute duty of fairness and honesty. And, in my view, there is a duty of competence as well.
That means education, training, and a commitment to mastering all of the technical and legal nuances of the business.
Here is what to expect from a top professional:
With privileged athletes and rock stars as our role models, boorish behavior has become mainstream. I’m old school. I still believe in something called “professional conduct.” I don’t need a code of ethics or Dr. Phil to tell me how to conduct myself in my myriad of daily encounters with people.
You should expect, at minimum, that a true professional will always be well-mannered, polite, relaxed, patient, and empathetic. These are more than niceties; they are valuable assets that benefit the client. These attributes foster effective communication, which is the heart of better negotiation.
Don’t think twice, just be nice. Years ago, I heard a very popular real estate sales trainer say that the worst thing that people could think of you was that you were nice. I don’t agree, but then I’m a country boy and I was reared to be polite and considerate.
Courtesy extends to being on time, returning phone calls promptly, and fulfilling commitments.
2. Thorough needs analysis
Any professional will want to meet you in their offices for the purpose of an initial consultation. Among the reasons are to determine if your situation fits their expertise, to conduct a thorough analysis of your circumstances and options, and to make sure you fully understand the process.
Once you understand what your options are, you can begin to form a plan for achieving the one best option for you and your circumstances. Your best option could be doing something entirely different than your original plan, or even nothing at all. The strategy is the step-by-step process of achieving your best option.
4. Advice and Counsel
It can be hard to appreciate the value here but, in my view, it’s probably of greatest value to the client. I once asked the agent representing the buyer of my listing, “What did you advise your client to do?”
His response was, “I don’t give my clients advice.”
In my view, he is worth less than full value.
5. Prior inspections
Most real estate professionals hate surprises. They understand that it is far better for the seller if all property defects are determined prior to bringing the property to market. Those defects will be discovered by the buyer’s inspection which is likely to trigger protracted and needlessly acrimonious renegotiation and often cancellation.
6. Comparable Market Analysis
The key to selling quickly for the highest possible price is to place the property in the marketplace at exactly the right price. If the price is too high, the best qualified buyers won’t get to see it because they’ll be looking at homes priced in their spending range. This is where your home should have been listed, in the first place.
Two sets of data help to determine what is known as current market value: what others have recently paid for nearby properties which posses similar attributes such as square footage and amenities, and what is currently available to compete for buyers.
7. Mortgage Review
Is there a prepayment penalty or are there other fees associated with paying off the mortgage at this time? A prepayment penalty is deductible but should also be reflected in the plan.
8. Title Review
You could have a lien on your property and never know about it until you go to sell. Considering that even a mistake will take time to unravel, this should be learned early in the listing period.
9. Estimate of Net Proceeds
When you list your home for sale, the only thing that matters to you is your net proceeds, not the selling price or the agent’s commission. You should expect that any professional real estate practitioner would provide you with a breakdown of all the known and anticipated costs associated with selling real estate.
10. Review Escrow Instructions
You should expect that your escrow instructions have been fully reviewed to make sure there are no surprises, and the instructions to the escrow company reflect the meeting of the minds of the parties. Usually, more than one party is contributing information to escrow and they don’t always get it right.
If those 10 elements are missing then, in my view, you didn’t get full value. On the other hand, if your real estate professional behaved as I have described; upbeat, on the ball, honest, caring and laser-efficient, you can be confident that, in my judgment, you received high quality, professional service. If you feel that you got a trusted advisor instead of a salesperson, you got your money’s worth.
I’ve never advocated against those business models whose value proposition is discounted fees. Discounting brokers are hardly new to the marketplace, as much as they’d like you to believe otherwise. They often serve as valuable training grounds for new licensees who are willing to work for less to offset their inexperience. In a few years, if properly tutored, they will have built enough value in themselves to justify top tier compensation. My bet is that they won’t continue discounting once they’ve achieved mastery.
The real estate business has become so complex and legal that a meaningful apprenticeship ought to be required. But, the failure rate is so high and the turnover so rapid that it can be difficult to build much of a foundation of knowledge of real estate fundamentals while driving the salesperson to be a good closer. At least the argument can be made that, “I don’t know much about real estate, but I can save you thousands in fees.”
I know it can sound trite to say “you get what you pay for.” And, we all know from our own first hand experiences, with all manner of things, including real estate professionals, it isn’t always true. But, one thing is obvious, the best and the brightest will go where they are rewarded commensurate with their talent.
The skills required to master the real estate profession are easily transferable to other arenas. If the dumb-down factor becomes so great that masters cannot earn a living in real estate, they’ll just switch to another business.
The consumer may save money but the service level will fall as well. And, a handful of the very best will increase their fees in recognition of their higher level of service.
George W. Mantor is known as “The Real Estate Professor” for his wealth building formula, Lx2+(U²)xTFP=$? and consumer education efforts. During a career that has spanned more than three decades, he has amassed experience in new home and resale residential real estate, resort marketing, and commercial and investment property. He is currently the founder and president of The Associates Financial Group, a real estate consulting firm.
Prior to launching his own firm in 1992, he had been Director of Training and Customer Service for Great Western Real Estate. In addition, he has served on virtually every real estate committee, including a term as a Director of the California Association of REALTORS. He is the creator of the Personal Best System, a business and life planning process, and the Red Zone Time Planning System for Business Professionals.
Mantor can be reached at GWMantor@aol.com.