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REALTY NOTEBOOK
The big drawback of reducing the commission rate is that many multiple listing service members will show a home with a low commission rate last to prospective buyers.
A few days ago I received an e-mail from a very smart reader. I know he is smart because his e-mail address says ''post.harvard.edu,'' which presumably means he was graduated from Harvard.
He asked if real estate listing agents would reduce their customary sales commission rate for expensive homes. Then he gave an example of a $1 million sale, which, he says, doesn't include much more work for the listing agent than selling a less expensive home.
My reply noted that some successful realty agents would reduce their commissions on expensive homes. But the big drawback of reducing the commission rate, I hastened to add, is that many members of local multiple listing services will show a home with a low commission rate last to their prospective buyers.
AVERAGE COMMISSION
According to the respected www.realtrends.com, the national average commission on a home sale is about 5.1 percent. However, this survey was taken during the recent boom during which virtually any realistically priced home sold easily.
Today, with a glut of new home listings in most communities, the situation is rapidly changing.
During a recent Midwest trip, I encountered a longtime very successful real estate sales agent friend. As I usually do, I asked her, ``How's the home sales market?''
She then informed me she currently has too many listings and not enough buyers.
''So I had to increase my sales commission rate,'' she said, shocking me.
By that, she meant she now encourages her home sellers to offer 7 percent commissions rather than the 6 percent that is customary in her community. The result, she reports, is that buyer's agents show her listings first because of the higher commission.
''When I really get desperate to sell a listing before it expires,'' she revealed, she includes an incentive trip to Hawaii for two to the buyer's agent who sells the home.
''A trip to the Caribbean or Mexico just doesn't work any more,'' she added.
Except in a very ''hot market'' where there is a shortage of home listings, most home sellers don't understand the big drawbacks of getting their listing agent to reduce the sales commission.
Yes, there are a few successful ''discount brokers'' who offer reduced sales commissions from the customary local rate. But the big problem for home sellers listing with discount brokers is that these lower sales commissions don't encourage cooperation from buyer's agents who are often reluctant to show low-commission listings unless there is nothing else to show to their buyers.
TYPICAL SPLIT
Most home sellers don't fully understand how home-sale listing commissions are split. They think real estate agents are grossly overpaid for very little work, especially if the home sells within a few days because it was realistically listed at its market value.
In a typical home sale, four parties split the sales commission. They are the listing broker, the listing sales agent who works for that broker, the selling broker and the ''buyer's agent,'' who works for that selling broker.
Although each situation is different, depending on the listing terms, each of the four parties will usually receive 25 percent of the gross commission. For example, suppose a condo sells for $100,000 with a 6 percent sales commission of $6,000. That commission is usually split 50-50 between the listing brokerage and the selling brokerage. However, this split might be 4 percent to the listing agent and 2 percent to the selling agent, or vice versa, depending on local conditions.
Presuming a 50-50 split, the listing brokerage receives $3,000 and the selling brokerage earns $3,000. The brokerage then splits its share with the listing or selling agent. The lowest split is half to the listing or selling agent, but often higher. That means the listing or selling agent earns at least $1,500 in this example.
Most home sellers (and buyers) don't understand that their agent might take home as little as 1.5 percent of a typical 6 percent gross sales commission.
RARE OCCASIONS
Based on my 39 years as a real estate broker, there are only two times a home seller should consider negotiating a reduced sales commission from the customary local ``going rate.''
The first circumstance occurs when the home's market value is far above typical prices in the community. If you were selling a $1 million house in a town where the average home sells for $300,000, the successful realty agents you interview about listing your home for sale should offer a reduced commission without you even asking.
In other words, the higher the home sale market value, the more negotiable the sales commission becomes.
The second circumstance occurs after you interview several successful local realty sales agents, and list with the best agent at the asking price suggested by that agent. However, after exposure to the local market at least 30 days, if that agent produces a purchase offer substantially below the recommended asking price, that is the time to discuss a ''commission reduction'' if you accept the buyer's offer. |
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| Posted by David Eiglarsh at | | | |
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Home hunters now expect to go online and control much of their search -- and real estate industry leaders have gathered in San Francisco this week, hoping to use that technological trend to their advantage.
Real Estate Connect, the real estate industry's largest technology conference, drew more than 1,700 people to a three-day conference that ends today at the Palace Hotel in San Francisco, about 500 more than attended the event last year, organizers said.
It's a reflection of what's happening in the real estate market. The past 12 months has seen the launch of innovative new services such as Redfin and Zillow, which offer ordinary people access to home-related data once reserved for real estate professionals. Traditional brokerages have increasingly struck technology deals that they hope will help them deliver better service online and in person.
The show floor at Real Estate Connect is where some of those deals get started.
``The role of technology in real estate is becoming much more widely recognized,'' said Mike Edelhart, chief executive of Inman News, an Emeryville company that has held the conference for 10 years. In 2005, a company's marketing director might have attended the event, he said, but this year chief executives and whole development teams came.
``They feel they have to implement the technology. It's not theoretical anymore,'' Edelhart said.
Real estate is big business, and technology companies are eager to get further into it.
Last year, real estate agents, property managers and leasing agents did nearly $1.6 trillion in business nationwide, up from about $1.5 trillion in 2004, said Steve Cochrane of Economy.com. The value of the services they provide equals about 12.5 percent of the nation's gross domestic product.
Companies exhibiting their wares ranged from small start-ups to known names that have raised millions in venture capital -- think Zillow, which recently raised another $25 million, or Reply of Walnut Creek with $17 million.
Topics of discussion at the conference included how real estate agents can use blogs in their businesses, the virtues of including aerial maps on broker Web sites, and how sites that combine e-commerce and classified advertising -- such as local company LiveDeal, based in Santa Clara -- might affect the industry.
Numerous companies either have or will soon offer detailed information about a home's sales history, square footage and number of rooms -- evidence that the kind of property information rare online just a year ago is becoming a commodity consumers will expect from brokerages.
``There's a feeding frenzy,'' said Glenn Kelman, chief executive of Redfin, a Seattle-based online brokerage now operating in the Bay Area, as businesses attempt to add more features to their sites.
The show proved to him that competition will be fierce in the future, not just from other technology-oriented start-ups, but from big traditional brokerages, too.
``They're not just going to sit there and let us build a better Web site,'' he said.
Mark Brandemuehl, vice president of marketing for Movoto.com, a Palo Alto-based brokerage that launched late last year, agreed that tremendous innovation is happening in the online real estate world now, but cautioned that ``how much of it is good for the consumer and how much of it is just smart technology people doing what they did in the late '90s, is a question.''
In past years at the conference, the traditional real estate industry felt threatened by the plethora of new business models encroaching on its territory. No longer, said Jim Liptak, a Realtor from Paso Robles and treasurer of the California Association of Realtors.
``It showcases opportunity. Change is not to be feared,'' he said. |
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| Posted by David Eiglarsh at | | | |
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Q: The downturn in the real estate market has affected the sale of my mom's condo and our plans to take her with us to live up North. She is not well and wants to move in with us, but we need the money from the sale. I have listed it with a broker, but it has not sold. She suggests that we rent it for at least a year in order to get mom settled in and then maybe the market will be better and it will sell. Any ideas?
A: Has your agent said that the pricing is right for a quick sale? Often, people expect to get a ''desired'' price and not a ''realistic'' price. That may quicken the sale. Everything has a sale price. Don't think in terms of what those condos were selling for six months ago. Times have changed.
I agree that leasing the condo is another option. In fact, that person might even buy it if you lease with an option to buy. However, if you need the money, you have to watch out for the increase in taxes as you will now not have homestead exemption. By the time you pay the expenses, the money may not be enough for your caregiving needs. |
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| Posted by David Eiglarsh at | | | |
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By Paul Owers
South Florida Sun-Sentinel
July 26 2006
Broward County's existing single-family home sales plummeted again in June, and the huge price increases of the past few years have shrunk to near nothing.
"The market's done a complete 180-degree reversal," said Jack McCabe, a Deerfield Beach housing consultant. "It's a stare-down between buyers and sellers, and as time passes, the pressure's on the seller, not the buyer."
Sales fell by 34 percent last month compared with June 2005, the Florida Association of Realtors said Tuesday. It was the 24th consecutive month of declining sales in Broward.
The median price of $377,400 was virtually unchanged from $378,000 in June 2005. During the housing boom of 2000 to 2005, monthly prices increased year over year by 30 percent or more.
Evidence of the continued housing slowdown also appears in the county's condominium market.
Sales dropped 31 percent in June compared with the year-earlier period, while the median price rose a modest 5 percent to $212,300.
Investor speculators looking to "flip" properties have propped up South Florida's condo market during the past several years. Many investors are now leaving real estate.
"We knew condos had to collapse because there was nothing there supporting it, except predominantly speculation," said Lewis Goodkin, a Miami-based consultant.
Brad Hunter, a West Palm Beach housing analyst, said he expects Broward's condo market to recover more quickly than markets in Miami-Dade and Palm Beach counties because of a shortage of land for single-family homes.
"That's going to force people to look at housing alternatives, like condos," Hunter said.
In neighboring Palm Beach County, the median home price spiked and the condo market slumped.
Existing home sales fell by 39 percent in June in Palm Beach County. The median price was $405,500, compared with $406,800 in June 2005. It was the first time since November that the median crossed over $400,000.
Palm Beach County condo sales dropped 41 percent, while the median price of $208,100 was flat compared with the same year-ago period.
Existing home sales in Miami-Dade County declined 33 percent, and the median price rose 4 percent to $378,000. Condo sales decreased 31 percent, while the median price rose 3 percent to $257,600.
The median is the level at which half the homes sold for more, half for less.
Statewide, existing-home sales sagged by 29 percent, and the median price of $257,800 was up 3 percent over June 2005. The Florida Association of Realtors cites rising inventory of homes, mortgage rates and insurance premiums, as well as higher energy costs, for the slowdown. Rising property taxes also are hurting the South Florida housing market. Nationwide, existing-home sales fell 9 percent from June 2005, the National Association of Realtors said.
In South Florida, real estate agents say they're persuading sellers to become more realistic with asking prices. That's a necessity because there are almost 31,000 houses and condos for sale in Broward County, according to the Realtor Association of Greater Fort Lauderdale. That's about triple the amount from last June.
The number of days on market also has increased, with many homes going four to six months before receiving offers, agents say.
"People are waiting [to buy] because they want value," said Marilynn Obrig, a Fort Lauderdale agent and spokeswoman for the Broward Master Brokers Forum.
Sean Donahue, vice president of sales for HomeBanc Mortgage Corp. in Deerfield Beach, said the slowdown has created opportunities for buyers, particularly those interested in 100 percent financing.
Because of the glut of properties, buyers usually can negotiate favorable terms, not the least of which is having the seller pay all of the closing costs.
"I've seen that a lot lately," said Ellie Maio, an agent for Campbell & Rosemurgy in Deerfield Beach. "Two years ago, sellers would never have considered that. Nowadays, they'll look at any offer."
Maio has spent about three months marketing a one-bedroom villa in a 55-and-older community in Deerfield Beach. The owner, Joe Haimowitz, says it's priced to sell at $135,000 and is only about two miles from the beach, but interest has been cool.
Last weekend, agent Ron Rosen parked a truck outside one of his listings, a three-bedroom waterfront home in Pompano Beach on the market for $719,000. He was prepared to give the buyer a $20,000 voucher to a local car dealership.
A few prospective buyers stopped by during an open house, but not one came because of the promotion, Rosen said. Undeterred, he plans another open house this weekend, and this time he'll offer the buyer hurricane shutters.
Rosen and his client, Timothy Penatello, 44, said they don't expect perks to sell the house, but the freebies do help it stand out.
"We're just trying to create a buzz," Penatello said |
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| Posted by David Eiglarsh at | | | |
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South Florida homes sales were lackluster in June, continuing the region's housing slowdown. BY MATTHEW HAGGMAN SOURCE: Florida Association of Realtors
In the past six years, Roxanne Arnold quit her job and started flipping houses instead, buying and selling about 20 homes. But now a three-bedroom Fort Lauderdale town house she owns has sat on the market for more than year, and things are so slow that she just got a part-time job. ''Everyone that needs a home to live in has bought one, and the people that still need a home can't afford these prices,'' she said. 'I would not call it a buyers' or sellers' market, because there is no market.'' Indeed, home sales numbers released Tuesday by the Florida Association of Realtors showed that South Florida's housing market has stalled as it trudges through the summer months. Many builders and brokers have already labeled 2006 a year to forget, and the residential real estate markets' performance in June did little to change that. Home prices for June were flat, and sales were almost unchanged from May. Compared to a year ago, prices were flat or up slightly, while sales were down sharply. A median-priced single-family home in June cost $378,000 in Miami-Dade and $377,400 in Broward, compared to $379,700 and $379,800 in May. The median is the point at which half of homes cost more and half cost less. A median-priced condo in June went for $257,600 in Miami-Dade and $212,300 in Broward, compared to $250,900 and $212,300 in May. The Florida Association of Realtors does not track the Florida Keys. The market slowdown -- which some argue started last fall -- is due to prices soaring beyond the reach of too many buyers, investors fleeing the market and mortgage rates creeping up. Last week the 30-year, fixed rate mortgage increased from 6.74 percent to 6.80 percent, according to Freddie Mac, which buys mortgages from banks. Skyrocketing windstorm insurance rates and the specter of higher property taxes have chilled the market further. But many sellers refuse to lower prices, clinging to the notion that the roaring market will return. Buyers, in turn, are willing to wait it out for a better deal. The result is a standoff between buyers and sellers that has resulted in the inventory of homes for sale more than tripling in the last year. Some 54,691 homes were listed for sale in June, compared to 15,830 a year ago. That is also up from May, when 53,933 were listed for sale. Sales of single-family homes and condominiums sold in June were down more than 30 percent from a year ago. Compared to May, sales for houses were up 1 percent in Miami-Dade and unchanged in Broward; condos were down four percent in Miami-Dade and down two percent in Broward. Some market watchers, such as National Association of Realtors economist David Lereah, say activity will pick up once sellers lower their prices. The mild South Florida price increases in June lead some to think sellers are starting to do just that. ''We are starting to see a little more price drops,'' said Gus Rubio, senior vice president at Coldwell Banker, the biggest residential brokerage in South Florida. ``Sellers are starting to understand they have to be realistic.'' Rubio noted that many more condos are slated to come onto the market, adding more housing inventory and perhaps extending the slowdown. Lennar Homes, based in Miami, recently warned it may take a while for the overhang of investor-owned properties to be absorbed. But others contend the market may recover sooner rather than later. ''I am advising all sellers not to blink,'' said Craig Studnicky, president of International Sales Group in Aventura, which primarily sells new condos but also existing property. ``If 1,500 people a day are moving to Florida and we have a mild hurricane season, then I think the demand curve could catch up by fall.'' Condo owner Arnold is willing to wait -- although not much longer. Already, she has come down from her initial asking price of $340,000 to $319,000. And she notes owners of similar units nearby are dropping prices to $298,000. ''You can't be greedy these days,'' she said. ``The old market was just a freak thing. Everyone who hopped on the bandwagon thinking they would make a fortune probably did, but they are out of their minds if they think it will happen again.'' |
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| Posted by David Eiglarsh at | | | |
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By Martin E. Segal
Q: We bought our Miami house years ago when prices were low. We raised our family there. When the children went away to collage three years ago, we rented it out to tenants for two years and moved to our vacation home in North Carolina, moved back into the house for one year, and have since rented it again. Now that real estate prices are so high, we're thinking about selling the house if we don't have to pay taxes on our gain of almost $400,000. But we've gotten conflicting tax advice about it. Can we save all or part of that profit? ---Empty Nesters
A: You'll be pleased to know that IRS guidelines for tax treatment of capital gains for the sale of one's primary residence changed dramatically in your favor back in May 1977 when Congress passed The Taxpayer Relief Act and new IRC Section 121. Under the old IRS Section 1034 there were only two loophols: tax deferral of gains as long as the homeowner bought a more expensive replacement residence within two years, and a once-in-a-lifetime tax exclusion of $125,000 of the gain if at least one seller was 55 or older.
Under the 1977 law, its temporary 2002 regulations and new rules that were effective in August 2004, up to $250,000 of profit from the sale of a taxpayer's primary residence ($500,000 per married couple filing jointly) is excluded from taxation if the property was used as the seller(s) primary residence for any two of the last five years.
If the joint owners of the residence are not married, each one is entitled to receive up to the maximum $250,000 tax-free gain exclusion. If the residence requirement is not met, gain exclusion is not entirely lost but instead may be pro-rated if moving out of the residence was due to doctor-prescribed health needs, change in place of employment of at least 50 miles, or other specified unforeseen circumstances. The computation is made by dividing the allowable gain by the number of days of primary residence use less than the full two years. (Note: Military and foreign service personnel are allowed an extended exclusion period of any two of the last 10 years.)
The gain exclusion also applies to the sale of vacant land used as part of the residence if it occurs within two years before or after the sale of the residence. This gain exclusion is not a one-time benefit like the old law, but may be claimed repeatedly as long as a sale of the principal residence does not occur more than once every two years. In addition, if there is both personal and business use in the same residence, depreciation tax deductions taken by the taxpayer must be recaptured as taxable gain. But additional gain is tax-free up to the legal limit.
Based on the facts in your question, you appear to satisfy the requirements of the 1977 law and its guidelines and would be entitled to the full tax-free gain exclusion if you sold the house. Any profit above the allowable exclusion is fully taxable at either ordinary income or capital gain rates, depending on your time of ownership.... |
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| Posted by David Eiglarsh at | | | |
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Thanks for visiting our Blog. This is where you’ll find the latest information about our company, our employees, and real estate trends and issues that have the potential of impacting the South Florida real estate market.
If this is your first time on a Blog, here’s what this is all about. The term “Blog” is a blend of the terms “web” and “log”. This is a frequent, chronological publication of thoughts and links, presented in reverse chronological order, with the option for anyone to leave a comment.
Authoring a Blog, maintaining a Blog, or adding an article to an existing Blog is called “blogging,” and right now, our chief blogger is David Eiglarsh. The individual articles you’ll find on our blog are called “posts” or “entries”.
In the days, weeks, months, and years to come, we’ll be blogging about all sorts of interesting topics. Feel free to chime in with a comment or two, or not… it’s entirely up to you! |
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| Posted by David Eiglarsh at | | | |
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Both Johnston and Cohen boast that their Web sites -- www.homediscovery.com and www.getexpert.com -- which include features such as virtual home tours and floor plans in some cases, are as good or better than those of traditional brokers.
In fact, some discount broker customers can't imagine ever using a traditional agency again.
"I've got nothing but praise for those people," said Robert DeFrain, who sold his home in Boca Raton in July through Expert Realty. "Everything they said they would do, they did."
By using Home Discovery, Alexandra Eve figures she saved nearly $10,000 when she sold her Winter Park home this month. "They were awesome. I ended up paying less than half of what I would have with another [traditional] agent," she said.
But even Johnston concedes that not all services are the same as what clients find at full-commission agencies. "We're fighting the traditional handholding of the 6 percent model that's not needed. This is how we save you money," he said. The details of signing on with a discount broker are more complicated than the colorful billboards screaming of low commissions. As with any real estate transaction, buyers and sellers are well-advised to read the fine print of any agreement they sign. Expert Realty's commission rises from its advertised 2.5 percent to 4.5 percent if the seller wants to be on the Multiple Listing Service, though Cohen said the company sells the "vast majority" of its homes at 2.5 percent.
At Home Discovery, the 2 percent plan requires the seller to use Home Discovery's title company, Key America Title, to ensure that the property is free and clear of any defects, claims or liens
Home Discovery's own sales listing agreement discloses the obvious: "This can affect the extent to which your property is exposed to potential buyers represented by some real estate agents." Home sellers complain that the low commissions can cause problems with other brokers. Traditionally, a 6 percent commission is split between the agents for the buyer and seller, so each receives 3 percent. But when the commission is less, that means less money for the traditional broker involved in the transaction. And less money can mean less cooperation."None of the [traditional] agents would show my condo because they don't want to help the discount broker," said Susan Hoffman, who put her West Palm Beach unit on sale through Expert Realty while she worked there earlier this year answering phone calls. That wasn't Hoffman's only complaint: Expert Realty, she said, published an incorrect location for her condo in ads in South Florida media outlets. Jeff Kahn, senior vice president at Expert Realty, responded: "I'll take her word for it, but when I checked the ad, it was correct." Hoffman, who left Expert Realty to obtain a real estate license, now works for Continental Properties in Royal Palm Beach. Another prickly issue is pricing. Home Discovery says it sells homes faster than its competitors, saving customers money and time. But the company has been accused of pricing homes too low in order to sell them quickly. David Eiglarsh, a ReMax agent in Weston, said Home Discovery priced a Cooper City home that a client of his bought at least $50,000 lower than what the seller could have received. "With a low-commission model, they want to sell it quickly and move on to the next one rather than get a better price for the seller." But it doesn't always work out that way. Eiglarsh's deal ended up closing a month late, he said, because Home Discovery wouldn't move quickly enough. Referring to the difficulties he faced as a broker working opposite Home Discovery, Eiglarsh said: "They drive a nail into you and then pour iodine on it."
Eiglarsh also isn't a big fan of how Home Discovery treats customers. "They love 'em and leave 'em," he said. "They use the premise of the discount to woo customers and get them on board."
Heruska of Home Discovery said the company did not receive the closing information in time to finish Eiglarsh's deal when the buyer wanted. "We always consider the source when we hear this kind of superficial criticism," he said. "We are cognizant of the fact that Home Discovery is taking market share from the traditional real estate community."
As for Eiglarsh's criticism of Home Discovery's pricing, Heruska said the Cooper City home was sold at the average square-foot price for the neighborhood. "We base our recommended list pricing on objective comparative market analyses and the client's goals and expectations. We do not put too much stock in any one person's `finger in the air' opinion," he said.
The discounters' prominent and at-times confrontational marketing has alienated many traditional agents, who still control about 95 percent of the real estate market. Home Discovery's Web site displays a quote attributed to Mahatma Gandhi: "First they ignore you, then they laugh at you, then they fight you, then you win." The site for a Fort Lauderdale Assist-2-Sell franchise proclaims that "Friends don't let friends pay 6 percent."
In some circles, discount broker executives like Johnston and Cohen are lauded as innovative, Internet-friendly entrepreneurs lighting a fire under a complacent industry. Both were among the 100 most influential real estate people named last month by real estate news service Inman News. Johnston was a finalist for Ernst & Young's real estate Entrepreneur of the Year award in Florida this year. In 2002, Cohen won the same award in New Jersey, where he founded discount agency Your Home Direct.
Some customers, however, wouldn't agree. They wonder whether discount brokers are cutting-edge, or sometimes cutting corners.
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