One of the main reasons that I wanted to write a weekly blog was to provide education to the public regarding market conditions, but more importantly to provide the obligations and responsibilities of a profession that is supposed to be ethical and not mislead the public.  Lately, I have seen multiple TV advertisements touting a 2% commission to sellers.  However, if you listen carefully to the ad, it says, “Sell your home for as little as 2% commission. This leads the seller to believe that it will only cost them 2%.  However, if you go to the website being advertised, there is a disclaimer that states this:

*Our agents will list for 2% and offer the typical Buyer’s Agent commission in your market ranging from 2% to 3%. The average Buyer’s Agent commission nationwide is 2.5%. If a buyer calls on your house directly without an agent, our agents have agreed to do the entire transaction for only 2% total. Homes under $150,000 will have a minimum list side commission of $3,000.

What does this ultimately mean?  The ACTUAL commission that will be paid is a minimum of 4.5% or 5%.  Is promoting a 2% cost to sell your home misleading?  When they say that the seller can list for 2%, that is factual. The listing agent will earn 2% commission, but the obvious omission of how much the buyer’s agent will be offered is dubious and misleading.  This is a marketing tool to get the phone to ring only.  When the potential seller acts on this promotion, they learn that the cost to sell their home is much higher than they originally thought.  The only way that it will cost them 2%, is if the seller obtains their own buyer.  The chance that the seller will be able to find their own buyer after enlisting the aid of realtors, is highly unlikely if not impossible.  This is not exclusive to this company.  I am seeing this type of advertisement becoming more widespread which is why this leads me to advise you, the public, that if it sounds too good to be true…it usually is.

People log into websites to check on the “value” of their home for many reasons. It could be curiosity, contemplation for possibly listing their home, or to check on equity that might be present. How do these valuation tools work and, is it close in accuracy? How does a Comparative Market Analysis (CMA) compare?

One of the major websites for this is Zillow. The “Zestimate” home valuation tool is Zillow’s estimated market value for a home, computed using a proprietary formula. It is a starting point in determining a home’s value and is not an official appraisal. The “Zestimate” is calculated from public and user-submitted data. A proprietary formula means a formula to which the owner or developer has all rights and privileges. In other words, Zillow’s formula uses general tax records data and sales information of properties within a determined mile radius from the location of interest regardless of community differences, condition and location. For example, the home within a high end planned community is compared to, and averaged in with, the sale of a home that is not in that community but falls within the mile radius of the property of interest.

The next highest used website is Trulia.com. The placement of the address in the search bar offers an average “listing price” for similar homes in the area. This is a preliminary idea of what others are trying to sell their properties for and not what they have sold for. There are several others that can be used such as; Redfin.com, Realtor.com, plus many more.

The use of general use data from tax records or information of listed properties doesn’t take into account the specifics of location, whether the home is in a planned community or just outside of the planned community, condition, size or quality of the home. It uses an average of surrounding homes and this can lend itself to vast differences in comparison.

On the other hand, when a realtor performs a CMA on a home, they use more specific criteria to location and uses adjustments to the most comparable homes either adding or subtracting features to get to a more accurate valuation. This is more accurate than using a website valuation tool but not as complete as an appraisal.

The real estate industry has seen many changes over the recent years. The ability to sell properties using the internet and the many ways in which the consumer can bypass the traditional use of a real estate company has caused fierce competition between companies to cultivate clients. It has generated advertising campaigns for some real estate companies to list for 2%, or for less. Now on its face, the consumer thinks that if they hire that company, they will only have to pay 2%. However, this is where we need to dig a bit deeper.

For more clarity, if the agreed upon commission is 6%, each company would earn 3% or half of the total. How do real estate agents/companies get paid for the services they provide? The listing company earns their share by advertising the property, taking professional photos, negotiating the contract, and following up throughout the contractual period to ensure meeting all deadlines and mitigating any problems with closing being the goal. The buyer’s agent/company earns their share of the commission when they “bring” the buyer, negotiates the contract, and follows through with contractual deadlines, negotiates or mitigates problems or issues arising within the contractual timeline with closing the result.

When an agent gives a listing presentation, the commission charge is part of that presentation. The agent can take the listing at 2% and the client is informed that the buyer’s agent will also need to be paid and it would be up to the client to decide how much to pay them; 2.5% or 3%. The total commission paid would be anywhere from 4.5% to 5%. When a property is listed on the MLS, the commission is noted. Agents are aware how much they will earn if they show and sell that property. It is financially beneficial to the agent to show the highest commission properties first and incentivizes the agent. Therefore, the offer of 2% is only half of the equation, the per centage to the “other side” still needs to be added.

Is this advertising deceptive or just a way to get the phone to ring??? You decide……