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Selling Real Estate:

A conflict of interest exists between sellers and the agents that represents them.  The seller's objective is to get the best return on their investment by receiving the highest possible price while minimizing their costs.  On the other hand, agents want to be paid more for the least amount of effort.  The agent's objective is to have the sellers sell their property at a price that is low enough to move the property as quickly as possible while receiving the highest commission possible.

It's All About Supply and Demand:

The market price of real estate is determined by supply and demand.  To sell a property for a higher price there needs to be a greater demand relative to supply.  If supply is held constant while demand increases, the price will increase.  With respect to supply, if demand is constant but supply drops, price will also increase.  A drop in price will occur if the opposite happens with supply and demand.

Common Practice:

When an agent represents a seller, only the agent negotiates with a prospective buyer.  The seller has no choice but to rely on the integrity of the agent hoping the agent acts in the best interest of the seller.

Comparables:

Comparables or the "Comps," are used in nearly every real estate transaction to estimate the value of a property to other similar properties that have recently sold close by.  To the seller, this provides an assessment of the price they should charge.  For the agent, it's the "reasonable" price that will sell quickly minimizing their efforts. When a seller sells their property at the "comp" rate, they are essentially taking money out of their pocket and putting it in the pocket of their agent.  For an agent, there is only so much time in a day.  If they want to increase their income, they must be efficient.  Efficiency for an agent means getting the seller to list their property at a price that will keep it on the market for the shortest period of time.

Two Types of Sellers:

Sellers fall into to categories - those that are not in a hurry to sell and those that are.  Depending on which category a seller falls in, should determine what selling strategy should be used.

First Rule:

Always list property will above the "comp' price suggested by the agent unless a quick sale is desired.  A seller can always come down to the highest offer or hold out for a better one.  If a seller lists a property that immediately has multiple offers, they are bound by contract to take the highest offer.  If a seller decides to holdout for a better price than the offered price, they can be sued by both the agent and buyer for breach of contract.  If the agent says it won't sell, the seller should tell them they could always list with another agent who is willing to take the time to get them a higher price.

Second Rule:

Dealing with the top-producing agents may not be in the sellers best interest.  A seller should look for an agent who is hungry and willing to work harder for you.  Avoid top producing agents who have "locked" into a neighborhood.  They may not be getting you top dollar for your property.

Third Rule:

Ask for two comps.  Have the agent provide comps of the neighborhood where the property is located and of property selling in comparable neighborhoods outside of your immediate area.  Real Estate agents who have been around for a while have locked into a neighborhood.  Top producing agent that have locked into a neighborhood, use "comps" to their advantage.  

This is how it works.  An agent will "mine" a certain neighborhood over and over to the point where all the homeowners are familiar with that agent.  When neighbors talk about selling, that agent's name will likely come up as the neighborhood specialist.  Eventually the agent has a lock on that neighborhood selling most of the homes.  The agent is then able to manipulate the comps by listing property slightly below property in similar neighborhoods but comparable to other properties in the same neighborhood that he or she has previously sold.  The homeowner is duped into selling their property slightly below its true value.  The agent gets paid less, but also spends less time on the sale. This translates to a higher dollar-per-hour rate for the agent.  Instead of comparing sales price, compare sales price per foot to compare comps.

Fourth Rule:

Never pay an agent 6% to sell a property unless the property needs to be sold quickly.  If every seller agreed to pay 4%, 4% would be the going rate.  An agent shouldn't dictate what the seller should pay.  Sellers should shop around for an agent who is willing to work for the lowest commission and work the hardest.  If, on the other hand, a seller desires to sell a property quickly, paying a higher commission may be a better strategy than lowering the price.  

Fifth Rule:

Demand that any offer made by a prospective buyer be made in writing and signed by the prospective buyer.  The written offer should be accepted or rejected, signed by the seller, and returned to the prospective buyer confirming that their offer was received.  This will keep the selling agent honest ensuring against any self-interest dealings.  

Sixth Rule:

Before a seller enters into a contract with an agent, the agent and seller should create a list detailing exactly what services the agent will provide to the seller.  This list should be signed and dated as a separate agreement in addition to the primary contract.  Click on "Services" for a printable list our members can give to an agent.  Use this list to compare services offered among agents.

Buying Real Estate:

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