Amidst a challenging economy and slow growth in the property market, it is also a good time to caution sellers and buyers to take extra care when dealing with new, untested market operators.
When the economy and property market goes into decline, we often see a rise in new operators entering the real estate market looking to secure business by offering sellers an array of ‘new’ solutions to save money when selling.
These operators tend to style themselves as ‘disruptors’, ranging from low commission and fixed fee operators or a combination, all aimed at enabling a DIY (do it yourself) or For Sale By Owner solution (FSBO) of sorts.
A slower property market means that sellers are facing more competition and properties are taking longer to sell. Pricing has become an important aspect for serious sellers. If your property is not priced correctly, it will stay on the market.
There are many factors that come into play and selling a property, is not just about technology and commission. Sellers should therefore take great care when it comes to these alternative selling methodologies and do their homework before they commit. There are often added costs.
The majority of these newcomers are offering the seller a reduced cost to sell or lower commission, but often with a menu of options where you might only pay a certain amount of commission on the sale, but have to pay additional amounts for various other items.
What these models also do not tell you, is the importance of attracting a pool buyers without which your property will not sell. The buyer decides what property to buy based on how the property meets their physical and psychological needs at the right price that they are prepared to pay. They do not care about the low commission because the seller pays that in any event.
The property buying process is largely a factor of price and personal preference and the sales commission is of absolutely no interest whatsoever to the buyer. On the contrary in fact, the low commission or DIY factor is likely to create the impression that there should be a price discount. If the buyer finds no such price discount, they will simply walk away.
Bear in mind that buyers today have access to information and prices at their fingertips, so they are quite aware of prevailing prices. If they see no discount, they will not be interested. And, in a market where buyers have so much choice, your property will not catch attention.
At the end of the day, it is access to buyers that sells property. If you cannot offer access to buyers, you are wasting the seller’s time, it is that simple. When the property market weakens, demand for property and buyer interest declines notably as we are currently seeing across many markets. That makes it harder for sellers to attract buyers and good prices.
Few deals are a simple process of seeing a property and then putting in an offer which is accepted on the spot. Often, extensive negotiation between buyer and seller is required, all of which requires a skilled agent.
A successful agent is one that can deliver a track record of sales and access to a pool of buyers and who will promote this rather than some form of ‘sales gimmick’ or short term gain aimed at attracting property listings.
New research following a major study in America also provides empirical evidence that shows that agents sell more property and for higher prices. The study looked at thousands of real estate transactions over a two year period and found that FSBO (for sale by owner) and low-commission models aimed at ‘saving’ the seller money, actually costs the seller at the end of the day.
The study was undertaken by Collateral Analytics (a developer of real estate analytic products for financial institutions, investors and capital markets) in conjunction with San Diego University Real Estate Professor, Norman Miller. It looked at 200,000-plus FSBO (for sale by owner) sales and one million MLS sales across hundreds of markets in 2016 and 2017 and found that on average, FSBO listings sold for about 5.5% less than comparable MLS listings. FSBOs also tended to sell for below their automated valuations while MLS listing sold for more, enough to offset the commission.
Importantly, the study highlights that FSBOs have a low probability of selling, and if they do, are likely to net the same or less after closing issues. They are also likely to face issues of disclosures and potential lawsuits after the fact.
Selling a property requires a certain level of skill, but also access to tried and tested marketing tools and methodologies and exposure to a broad range of buyers. It is not just a simple case of listing a property on a website, there are many intricacies and laws that need to be taken into account.
A skilled agent negotiates a win-win deal for both parties, but it does not end there. There is the follow up and entire process that follows once the offer is accepted including clearances, sourcing of finance (if applicable), then the whole transfer and registration process.
Before you leap at the chance of a bargain commission rate, first investigate it thoroughly.