John, I lived for 2.5 years in Israel, negotiating with the vendors at the Shuq. I do have some idea what the street vendors would teach. I don't know why you seem to think you're the only one who's ever visited a foreign country. And I didn't just "visit", I lived there for 2.5 years, so does that mean I know how to negotiate better than you?
Negotiating in the Jerusalem Market, (or India or China) is not the same as negotiating for a house. I think you'd agree that while some of the principles may be the same, there are great differences too.
It appears, John, from your responses, that you're not really interested in a true answer to your question, you merely wanted to begin a debate. It seems you'd already made up your mind before posting your question. So option 1, 2 or 3... you'll end up with $376,000 in your pocket.
Good for you. Please come back and let us know how it turns out.
Of course, that's a huge presumption. It's not a very reasonable presumption, that an agent, or agency, with only 1% to work with for marketing, expenses and profit, will be able to spread the word as effectively as an agent, or agency, with 2-3% to spend on the same things.
Are both agents members of Realtor.com? That's the largest, most visited site for home-hunters. Membership in Realtor.com costs thousands per year. Membership is important, because without it, while your listing will appear on Realtor.com your agent won't be able to modify the listing, or add photos with a membership.
Yes, both agents will likely take photos. Will they take good ones, or will they just use that crappy little 4-year old digital that they got for their birthday? It costs money to hire a professional photographer. Will they lighten, crop and sharpen the photos.. Photoshop costs money too.
Will both agents do virtual tours? Those cost money. Will both agents create color brochures as leave-behinds for agents and viewers at your home? Will they produce those same color brochures, and send them out the 100 top agents in your region who have sold homes like yours in the last 6 months?
Will they run any print ads? Will then send out direct mail-post cards... (Just Listed, Now Open) to the 100, 300, 500 nearest properties in the area? Will they conduct broker's tours... when they do will they entice other agents by offering food, or starbucks cards, or gas cards to get them in the door? Will they conduct Open Houses?
Will they advertise on other internet sites... (coldwellbanker.com, coldwellbankeronline.com, CNN.com, Truila, Zillow, Openhouses.com) while some of those are free, or relatively free they take time and effort, and that can mean money. IDX doesn't cover all of them... and sometimes when it does, it takes the bare minimum, and can't be modified (ie: 3br/1.1bath ranch $235,000).
There are plenty of other avenues to advertise, both on the internet and elsewhere that hopefully will bring more eyeballs to your listing. Interview agents, and see what they bring to the table. If you don't agree that they offer an advantage over a lower commission agent, then by all means use the lower commission agent. You'd be a fool not to.
But don't be myopic and look solely at the commission. Consider the entire package, and then make an educated decision.
This is a common concer, one that we hear often.
By increasing the commission you are paying the agent more.
By dropping the price you are hopefully attracting more buyers.
When our customers ask us this question, our advice is to decreasr the price or sweeten the pot by adding something that will appeal to buyers.....years golf membership, a years HOA fees, tennis membership, closing costs, home warranty etc. etc.
Attracting buyers is what will sell the home no paying agents more.
Which agent is using featured listings on trulia and Realtor.com. Is neither one offering a VT? Does either agent offer to use craigslist with a link to a zillow listing, and delete and re-post every week? Are they going to use the plus version of postlets as well? Have either promised open houses or a broker tour. I assume they both are providing brochures with a box with a promise to keep it supplied. They both I am sure, will follow up religiously with clients and buyer agents who have previously viewed your house, should there be reductions in price. Just a few things to consider.
Good luck with your FSBO John! There's no doubt it will be an interesting experience for the buyer who tries to come to an agreement face to face with you. You remind me of the FSBO I once bought a house from. I swore I would never buy from a FSBO again and always use an agent after that! You're going to need all the luck we can offer you.
In your case probably by telling you to take few deep breaths and actually consider the offer that comes in rather than blowing it right out of the water.
Promoting the listing with the agent community is part of the marketing. If the other agents don't see/don't like the house, they won't bring buyers. Although the internet gives us customers, they rarely like the house they originally call about. As with print, most times a person is attracted to something about the photo or the wording of the ad. When they actually see the house or see the neighborhood, most times it doesn't live up to what they thought it would be. After we get them as a customer we show them other homes. Our major "sale" of our listings is to the other agents.
John, you base the price of your house on what it will sell for, not on what you'll get in your pocket.
There is a difference between advertising, and marketing. Would you find value in...
1. Having a rider on your sign and various postings directing a potentially interested buyer to text message a certain code to a certain number to receive data, photos, a URL, and more right to their cell phone? This allowing the Agent to track who is actually inquiring on the house.
2. Not only a virtual tour, but a 3D floor plan that is robust and capable of allowing users / potential Buyers to drag and drop THEIR furniture onto your floor plan to see if things fit?
3. An Agent who knows the stats of what the profile is of the likely purchaser of your home, and target them with high-quality, direct mailing pieces?
If you don't find value in things of this nature ... marketing ... then yes, opt for the Agent only charging you 4%. In-fact, try to even get them lower if you don't want any services and simply an MLS entry with some photos. You seem to have it figured out, so I wish you the best in your choice.
Don pretty much said it all as far as I am concerned. The one thing that is assumed, but not mentioned is that the agreed upon marketing plan is spelled out in the listing agreement. Along with that, consequences for the agent if he/she doesn't follow through with it.
Have both also provide a CMA to make sure what the "right" price is. If, for instance, the comps come back at $420,000, then you would want to revisit your scenario. Similarly, if the comps suggest a price around $395,000, then perhaps the scenario with Agent 2 just won't work.
Hope that helps.
Last month 8100 people did a search for birminham michigan homes for sale, so make sure the agent you hire gives you FULL internet exposure. That way you can capture some of those buyers.
Just as a note - I just came back from showing homes to a buyer and they looked from $350 - $400. If the home is nice and compares well it will sell. The list price only gets them in the door, the offer comes once they decide it meets their needs.
If agent 1 is paying the selling side (buyer's agent) 3% commission, that leaves them only 1%. With the cost of doing business, that sounds like a discount broker to me. Discount brokers do not provide the service that full service brokerages provide. That includes advertising as well as attending to the actual contract process.
Agent #2 sounds like a full service broker. A full service broker provides the best advertising and complete servicing of the contract process through closing. Full service agents work. Hard. For you.
If selling your house for the best possible price in the least amount of time is important to you, choose the full service agent. If you are just experimenting to see if you can get an offer on your house and don't really care if it sells, you could go with the discount guy.
Either way, the buyer is being represented by a full service agent who will be promoting and protecting their client's best interests.
As for differentiating investment property from personal or second residence, the paragraph you quoted actually refers to personal residence and not investment. With investment income property, repairs are deductible but generally not improvements. With personal residence, it is reversed. Improvements are deductible but not repairs - UNLESS as stated in the paragraph you qouted - they are performed within 90 days of the sale of the home and for the purpose of making the home more marketable and therefore valuable.
I see your point. I just wanted to clarify investment vs personal residence, and repair vs improvement and how they differ. In the end, whatever the property value is, these factors will come into play to affect the bottom line BEFORE applying the Cap Gain exemption. In either case, commissions as stated, affect that bottom line regarding the sale value itself - irrespective of any other income and loss from any other source.
Assuming in all three scenarios the house sold for full price and John ended up with 376k, I will agree that #2 would be better. This only because John has done his part in holding up property values for the neighborhood.
Instead of beating a dead horse. I will just post a paragraph from the link you provided earlier that basically confirms what I had posted earlier.
"Capital Gains Exclusion: Home buying investors' best tax shelter comes from provisions in the Taxpayer Relief Act of 1997 which allows married taxpayers who file jointly to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years. The amount is halved for those filing single or separately. You can use the benefit as often as you qualify."
If you go over the stated amounts above, or are selling something other than your principal residence then from the same link this paragraph would apply.
"Selling Costs and Capital Improvements: When you sell your home, you can reduce your taxable capital gain by the amount of your selling costs, which include real estate commissions, title insurance, legal fees, advertising and inspection fees. Cost typically stemming from decorating or repairs -- painting, wallpapering, planting flowers, maintenance, and the like -- are also selling costs if you complete them within 90 days of your sale and with the intention of making the home more saleable.
Selling costs are deducted from your gain. Gain is your home's selling price, minus deductible closing costs, minus selling costs, minus your tax basis in the property. Your basis is the original purchase price, plus the cost of capital improvements, minus any depreciation."
Can we all agree on this?
Based on the facts/criteria alone provided, I stand by my answer. And no, this is not about a FSBO vs Realtor debate. And this is not about the concept that paying more commissions means you will get more advertising. One would hope you get what you pay for but that is not always the case.
You are not a bad example of whether you would have been better off with a Realtor, you are a good example of a Realtor not selling his value and worth and thus you feel the way you do. In the example, the amount of marketing John would have recieved is inconsequential because in the scenarios proposed, the house would sell. This was a question of Realtors being able to sell their value. From what I've heard - not. Some easily said go FSBO. Some easily said go with the cheaper deal (though the house would sell in either scenario regardless). So what then is the value. Again, after-the-fact exemptions aside and based solely on information provided. The option that pays the greater commission is in MHO, the better option. This is not to say this will always be the case. When you get to analyzing your personal position and ALL other tangent factors, the better option may differ. But that was not discussed as a matter of the question posed and therefore, factors I can't base my opinion on. There are truly too many variables that will play into the final numbers and benefits. Again, checking with a CPA on all the specific factors that will affect one's sale and gain/loss is important, if not a necessity - actually before a house goes up for sale. Especially if one is approaching that exemption limit. But that is not what is proposed here. its about selling value - the vlaue of the Realtor. Not just what they will "do" for you but in what other ways, might their consultation and knowledge help you if so.
And no, I'm not a financial adviser, I recommend that people talk to an accountant, however, in so much as real estate is concerned, I try to remain aware of whatever benefits my sellers may benefit from if at all possible.
How much of his knowledge, awareness, AND value did your Realtor sell you that you selected him among many? That is a rhetorical question, it is just something you may wish to ponder for yourself. There is no one absolute way that is right when you factor in all the variables and based only on what was provided ...
I would be a very, very bad example to see if I would have been better off with a Realtor. I had one for three months before he basically delisted me while I was away on vacation. I sold in the following three months for almost 20k more than where he was trying to lead me, to an unrepresented buyer. Those three months that I was doing a FSBO included the Thanksgiving, Christmas, and New Year's holiday period. I realize that I was very lucky, and also there wouldn't have been any need to pay a Realtor to get any kind of deduction for any tax consequences or otherwise. This was because it was our primary residence and unfortunately we did not realize more than 500k profit. I don't want to turn this into a go FSBO Realtor bashing thread, because in no way do I feel that everyone should do a FSBO and my Realtor was an exception to the rule, I am sure.
I just found your original post, in my estimation, to be misleading. I am not insinuating you did it purposely, but I can assure you what seems obvious to you in clarity is not necessrily all that clear to me, and probably many others as well.
Thank you JR. I was fairly confident I was not the only one.
Actually, since you were a lucky FSBO who sold and closed, you may wish to review the entire list and then maybe call your accountant to see if he caught every other deduction you may have missed. Calculate the amount you missed, and then let me know if option 1, 2, or 3 (the FSBO option) would have been the best option for you.
You knew what you meant ,and probably most realtors knew what you meant. I may be in the minority of non-professionals, but I took it to mean you were stating commissions are a deductible expense for John, when in fact in John's case there really weren't any parameters set that would indicate this to be the case. This could possibly lead other sellers to think that "commissions are a deductible expense" in all situations, when that certainly is not the case.
As the question was posed, there was no inference to profit. It was about how much can John get for his house. Did he do improvements that will add to his basis and reduce his "gain"? That information was not provided as a factor to which option was the better option.
Taxable debt (regular income or capital gains) cannot be determined until you have calculated the net gain from the sale of the house - the commission is above the line in this matter as it is a part of the basis calculation and therefore - a reduction in net gain and potential taxable liability. After which, one can determine if it falls within allowable exemptions or not. And to see if it is taxable or not.
In the scenario provided, the commission amount which reduces the potential taxable debt is $24,000. That equates to a $24,000 of additional gain if going the FSBO route, and $8320 more gain if going with option #1.
Once you have determined any gain/loss, you can determine if there is a tax consequence or not - I'd much rather have the money reduce my net gain and therefore reduce my potential tax consequences upfront and not wait until tax time to find out I might owe. Again, a good CPA will be able to help calculate gain or loss - but key here is - it can only be done post sale. When it comes to ones bottom line - there are many other factors aside from just the commission that would affect a personal gain or loss and that is not a part of the question posed. Not inconsequential, just not a parameter provided provided for the question posed. The sale, only within the given parameters - option #2 is still the better option in my opinion.
If I interpreted your post correctly, you are basically referring to someone who is selling at a loss or someone who has a capital gains issue. It would not apply to John unless he was selling at a loss, or selling something other than his principle residence at a profit, or if he is married, realizing more than a $500,000 profit on his primary residence. If he is not married it would have to be in excess of $250,000. Am I right in my interpretation?
When you sell a property, your basis is calculated to determine the amount of gain or loss as deducted from the total sale value. If you sell for a loss - its a loss and a reduction on your income. If you sell for a gain, remember, that gain is only the amount less the calculated basis. Basis is original purchase price, plus commissions, and other certain cost and fees, and reduces the income liability generated by the sale of property.
With this, it becomes a far more specific accounting issue and a CPA should be consulted. While one may easily be exempt from capital gains tax, income is separate. For the purposes of the question posed, without the minutia of this cost vs that cost and how it fits into a bigger picture, #2 is the best way to go in the clients best interest in my opinion.
As for the strategy that is addressed in that link. It is commission based. The commission would have to be, or agreed to be paid, before it can be reduced in lieu of a charitable donation. As a percentage, the lower the actual commission paid, the lower the basis deduction - and the lower the percentage to charity. At this point, you definitely want to talk to an accountant to determine which is best for you as the seller.
A word of caution regarding charitable donations. As there were some down payment assistance programs which hinged on charitable donations and the mortgage mess in the state it is in, these programs are coming under great scrutiny by the Feds. As an agent, I would exercise caution to be certain that any "rebate" buyer incentive, does not also run afoul of any conflicting regulations - RESPA or other. In a word, I love charitable donations but some of these programs may not be all they are cracked up to be. Use caution.
Please elaborate on the tax deduction angle. It would seem only natural to me that this would only apply if the proceeds from the sale of the house were listed as chargeable income. For instance, in the case of those who "flip" on a regular basis. If a normal non-income generating home sale involving a commission still makes the commission deductible, why would the Realtor's strategy in the link below make any sense. The seller should just take the full deduction for the commission.
Agent #1 will list for $392K @ 4% (1% to list agent, 3% to buyer agent) for a net of $376,320.
Agent #2 will list for $400K @ 6% (3% to list agent, 3% to buyer agent) for a net of $376,000.
From a seller perspective, looking at the bottom line, for an extra whopping $320, why not go with agent #1. However, from an educated seller persepective, choice #2 is the best way to go. The reasons are as folloows.
1-Why would I hire a Realtor who prides his value as low as 1% as compared to the Realtor he hopes to work with as buyer agent (clue: not everyone gets to sell thier own listings or want to as a matter of avoiding potential dual agency issues).
2-To pay 2% more to the agent representing me at the net cost of $320? Deal - providing the services represent the value paid. At $320, its a steal of a deal.
3-Commissions are a deductible expense. Option #2 increases my deductions by $8,320.
Note: This assumes as you did that the home sells for full price. Now to also examine the market - what is the likelyhood that this home will sell at full price? Is it priced THAT WELL? A good qualified Realtor would be able to provide you with appropriate comparables to help you decide on the right price too.
Bottom line - an extra $320 up front in your pocket, or an extra $8,320 in income deductions?
Have fun with your FSBO! (at $376K on a FSBO site, kiss the added deductions goodbye!)
1. Hire agent 1 at 4% commission and list the house at $392k
2. Hire agent 2 at 6% commission and list the house at $400k
3. Sell as FSBO and list the house at $376k on FSBO sites
In all 3 options, i will end up having $376k in my pocket.
Given the choices which would you take for 10 months of work - $3920 or $12,000? If you choose the lower amount how many hours would you put in?
In your case probably by telling you to take few deep breaths and actually consider the offer that comes in rather than blowing it right out of the water.
You call it "negotiating". You guys have no idea what the term "negotiate" means. Visit a foreign country (india or china) and the street vendors will teach you what it means.
Your question, rephrased, is this: What has more impact on my sale - a listing price that's 2% lower or an $8,000 incentive for my listing agent to make sure my house sells?
I can't answer for all agents, I can only answer for myself. I charge the 3% because I earn it. I use the same floor plan tour that Derek mentioned below. I highly value showing feedback and pay an assistant to help me compile feedback from more than 80% of our showings. I have invested heavily in photography equipment so that I post a large number of superb photos online. And by online I mean over 60 web sites - not just the same old sites that the IDX and Realtor.com provide. I place color, laminated flyers in front of the home and feature books inside. I do much more but you get the ideaâ€¦
The bottom line is that, since the marketing I just described drastically helps get your home sold, you should be paying your listing agent the full commission. However, if the listing agent is just doing the 3 "P"s - Put in the MLS, Put up a sign and Pray then go with the price reduction.
If you're considering other agents I'd like to interview for the job of selling your home. I think you'll be impressed.
Your situation is assuming the home will sell according to each scenario presented. My question is, how effective will an agent be who is willing to work for 1/3 the normal commission? I'd consider a $400,000 house right now in Michigan to be towards the high end of homes. Most agents specializing in thet price range are knowledgeable realtors who (hopefully) place value on their experience and know how to help sell your home. I've got to be skeptical about a salesperson who doesnt value their time and expertise enough to charge a price that is in line with the industry.
The old saying goes,"you get what you pay for" and if it was that easy to sell a house "in this internet time" as you put it, then there wouldnt be as many homes sitting on the market and there wouldnt be real estate agents leaving the industry in droves like there are right now. As a home seller, you want to select the agent with the most know-how that gives you the best chance of selling your home. Bottom line. The rest is just semantics IMHO
Although i think buyer agent can affect the sale if their commission is at stake, but buyer agent is still making 3% in this case. $8000 price reduction is a better way to make sure that house gets sold than putting $8000 extra in listing agent's pocket.
If I want a builder to build for me a house ... I wouldn't automatically select the least expensive
If I want to have a mechanic work on my car ... I wouldn't automatically select the least expensive.
If I want to have an eye surgeon perform lasik surgery ... I wouldn't automatically select the least expensive.
You get my point. Whatever direction you elect to go, I would STRONGLY encourage that you hold the Agent accountable.
What are they going to do for you? How are they going to get the job done? What is not only their marketing strategy, but their understanding and use of the Internet? How will they work, communicate, and interact with the likely savvy and informed consumer in that price range that will purchase your home?
Derek Bauer, Associate Broker / Realtor
Real Estate One - Farmington Hills / West Bloomfield