Paying 6% AND getting less, sometimes much less.

We analyzed the listing history of a number of former clients. Over the course of the past three years, 34 former clients have signed with a high-commission company after their listing expired with us. These 34 clients are a case study in how a high-commission company does nothing to improve the chances of selling and is in fact, a huge rip-off.

On average, the high-commission company gets the seller to reduce their asking price -7.8% from our last list price. Once they finally sell (which less than 70% actually sold) they took another 188 days of marketing and they sold for -12.2% less than our last list price. So not only are these high-commission companies simply aggressively reducing the asking price, they are charging on average, almost $12,000 plus hundreds of dollars in administrative fees at closing.

Never in the over 25 years that we have been in business has a client stopped their listing with us, listed with a high-commission company and had the house sell for the same price we had it listed. Never. The first thing the new high commission broker does is reduce the asking price. And reduce it some more. And some more. You would think that if a broker was charging so much money they would have some fool-proof, miracle method of selling homes. They don't. They don't have any more effective means of selling a home than we do. In fact many don't have near the kind of innovative marketing that we provide and to add insult to injury, on average, the seller has to deal with a much less experienced agent that ours.

Some sellers are under this gross misperception that paying much more commission you somehow get more when the data shows that the opposite is true.

Beware of unethical 6% agents.

Since our start in 1984, we have often gotten grief from agents charging much higher commissions. These agents are upset at the fact that we can offer more marketing and more expertise at less cost to the seller. Even though traditional agents could do the same and offer more for less, lowering their commission would necessitate a fundamental change in the way they do business. In other words they will have to get more productive and stop spending so much time and money advertising themselves and market the homes.

You see, there are billions of dollars in commissions at stake, in US alone over $40 billion annually are spent on commissions. Some 6% agents will lie and use name calling and sometimes profanities to try to get a listing and get sellers to part with an exorbitant commission. We find that agents that usually resort to this unethical behavior are the ones that are rookies or do just a few transactions a year, unfortunately the majority of agents fall in that category. Smart sellers though can see right through their lies.

After 25 years in business and having sold over $3.4 BILLION IN REAL ESTATE one can easily say that our program has been and continues to be very successful.

Too many Realtors for the market.

It is no surprise, that the number of Realtors has declined dramatically during the economic and housing downturn, but the exodus from our industry is a long way from over to return us to a realistic number. The chart portrays how many US residents there are for each Realtor (from the US Census and National Association of Realtors)

One can see the dramatic increase in Realtors during the housing bubble. In 2000, there was 1 Realtor for every 368 residents in the US. By the peak of the bubble, there was 1 Realtor for every 220 residents. Between 2000 and 2006, the US population grew by 6% while the ranks of Realtors grew by a whopping 77%!

The lure of easy money for little work was powerful during the housing bubble, driving hordes of folks to get their real estate license. Compared to historical data, we still have way too many Realtors chasing way too few deals. You may conclude that too many agents flooding the market would lead to more competition and lower fees for their services, but the inverse is true. With too many agents comes a powerful incentive for the industry to keep fees artificially high because the low-producing agents need to make a basic living (see the blog post of 8/26/09). An overabundance of agents also leads to the sub-par service levels that seem to plague our industry. As a result more sellers and buyers find themselves obligated to work with a friend, relative or acquaintance who does just a few deals/year or works part time.

What is also striking is that the efficiencies brought about by the internet seem to have had little effect on the total number of agents practicing. The ability to search for homes online has dramatically changed the role of the real estate agent and reduced the number of hours that they need to spend per transaction, meaning we actually need fewer agents to service the population. We know this for a fact because our company has been at the forefront, operating with dedicated agents that do almost 4 times the volume of the average agent and have many more years in business (17 vs 4).

I think we have a few more years of declines ahead of us in the number of Realtors in the US, perhaps more if the internet drives more efficiencies into the process of buying a home. I think it will benefit our industry tremendously to have fewer, better-qualified agents able to close more deals just like Homeowners Concept already operates. Raising the barriers of entry to our profession and increasing the efficiency of each individual agent will lead to better service levels and lower fees.

Understanding/improving your credit score

Lenders use credit scores such as the FICO to calculate interest rates and credit limits. FICO is a score based on mathematical formula developed by the Fair Isaac Corporation. It is the most widely used score in the U.S. According to Wikipedia.com there are several important determinants of your FICO:

* 35% punctuality of payment in the past
* 30% capacity used, i.e., ratio of current revolving debt (e.g. credit card balances) to total available revolving credit (e.g. credit limits)
* 15% length of credit history
* 10% types of credit used (installment, revolving)
* 10% amount of credit obtained in the recent past

The above percentages are approximate. Current income and employment history do not influence the FICO score. Generally, FICO scores range from 300 - 850. Scores at the higher end of the scale reflect a better credit rating.

To improve your credit score so that you can buy a home or get a better mortgage rate:

* Pay your bills on time. Delinquent payments and all collections can have a major negative impact on your score.
* If you are having trouble making ends meet contact your creditors or see a credit counselor. This won't improve your score immediately, but as you begin to manage your credit and pay your bills on time, your score will improve over time.
* If you have missed payments get current and remain current. The longer you continue to pay your bills on time, the better your score will be.
* Pay off your debt rather than moving it around. The most effective way to improve your score in this area is by paying down all of your revolving credit.
* Keep balances low on credit cards and other "revolving credit". Having large amounts of outstanding debt can affect your score negatively.
* Don't close unused credit cards as a short-term strategy to raise your score.
* Don't open credit cards that you don't need just to increase your available credit.

For more tips on improving your credit, visit MyFICO.com

HAPPY, HEALTHY AND PROSPEROUS NEW YEAR!

WE'RE NOT A FLAT FEE COMPANY AND DO NOT CHARGE AN UPFRONT FEE!

In 2009, Homeowners Concept switched from being a flat fee company to charging just 1.5% of sales price. Our flat fee before was around 1.5% anyhow as it was a tiered fee, so there is very little impact on any of our clients. The primary reason behind the switch though, was the fact that we HAD to disassociate ourselves from the other Flat Fee/Limited Service companies which have popped up in the last few years and are now showing histories of very low success rates (60-70% do NOT sell) while charging the sellers a hefty upfront fee of around $500. Most of these outfits are doing just MLS data entry, and they could care less whether the home sells (they got paid upfront!). They do not provide marketing or any professional and ongoing expertise. The sellers that list with flat fee companies are pretty much on their own. Thousands of sellers have lost hundreds of dollars upfront, wasting months or years on the market and having to turn to another broker (or to Homeowners Concept) to eventually sell.

Homeowners Concept on the other hand is a FULL service company which offers more marketing and more experience for less commission due to innovative and efficient systems and has been around since 1984. We have a vested interest in making sure the home gets maximum exposure (percentage wise we spend the most amount of money advertising properties of any company) and bringing expertise to get the home sold. That entails advice on staging, getting feedback from buyers, properly negotiating the contract and subsequent issues with inspection, financing, closing, occupancy, etc. We have also earned an A+ BBB rating - one of only two large companies to have this! We actually work very hard for the money and we DO want the homes to sell.

The flat fee outfits are usually one or two person shops because it is such easy money for little work with NO pressure to sell the homes. The proliferation of these is reminiscent of the online FSBO websites that were started as internet became mainstream. Hundreds of them have shut down in recent years as consumers wised up that spending hundreds of dollars upfront to be on "somebody's" website that received virtually no hits, was indeed useless. We feel the same fate awaits the MLS only/limited service companies.

Putting off buying could be a mistake.

Many buyers have put off buying due to the holidays and the cold weather. First time homebuyers eligible for the tax credit have also put off the decision to buy now that the program was extended until April 30th, 2010. Delaying buying a home though until Spring could be a mistake for the following two reasons.

As some of you know, the Federal Reserve has been buying mortgage obligations for the past few months which has artificially kept rates low. The Fed has recently indicated that this program will be coming to an end. Consequently, expect the rates to slowly creep up to a level of around 6%.

Another reason not to delay buying is the anticipated demand for houses always goes up after the holidays. As demand increases early in 2010 and this time accelerates as we get closer to the April 30th deadline, buyers can lose the home of their dreams or pay more for it than today.

Paying 6%? You're also paying up to $595 extra at closing.

Most high commission companies charge an administrative fee as high as $595 at closing. THIS is ABOVE and beyond the 5%, 6% or 7% commission one pays with these companies. Of all the large real estate companies, Homeowners Concept is the only one that invoices a low $95 administrative fee (actually the fee is charged by the Title company - anything charged over that goes to the broker).  

It is a travesty that so many sellers blindly pay these fees on top of an excessive commission. These sellers either do not know any better or they are in a frame of mind of paying over $12,500 for the average priced home that they figure what's a few hundred more. Bottom line: a few hundred dollars on top of the thousands ONE SAVES by using Homeowners Concept adds up to a substantial amount of money. And even if one wants to be a big spender why not take the savings and make a big donation to your favorite charity. YOU WILL feel good rather than spending it on unnecessary commissions and excessive administrative fees. 

PAYING A HIGHER COMMISSION WAS A COMPLETE WASTE OF MONEY.

This property at 1813 N. 56th in Washington Heights was listed with Homeowners Concept until 9/30/08 when it expired at $249,900. Our very successful agent tried repeatedly to get seller to pay attention to the declining market, to no avail (yes, despite our 25 yr expertise in the market, some sellers have a tough time coming to grips with the current market). After a couple of months off market she listed with a First Weber agent who had sold only one other property in the last 12 months, MLS #1057682 (there are some sellers that for some reason believe that another less successful, less seasoned broker will do a better job...?). Seller proceeded to do a number of price reductions all the way down to $214,900 by late September, 2009.

At that price, a Homeowners Concept Realtor who was working with a buyer showed the property and got an Accepted Offer for $208,000. Eventually Homeowners Concept sold the property and seller paid a much higher commission to us via the "co-broke" of 2.4% (this actually came out of the listing broker's 6% commission). That is about $1,872 more the seller had to pay to us plus an additional $7,488 to the listing broker for a total of $9,360 more than our 1.5% commission.

The irony of this very real transaction is that by backing away from Homeowners Concept's overwhelming and successful record of 25 years, this seller found out that the market controls the price the home sells for. The seller only has control of how much commission one pays. Had the seller stayed with Homeowners Concept this seller would have walked away with $9,360 more at closing. Buyer would have paid the same amount for the home regardless!