Monthly Archives: May 2009

What do Realtors Really Get Paid?

If I asked this question in a crowd of people, I’m sure I would hear several answers all with interestingly high figures. This is also a very sensitive subject for Realtors as we are asked, pressured, and sometimes even bullied into cutting our commission or accepting less money for the same amount of work. Although, I cannot yet educate the masses, I would like to educate my small following on the subject.

Everything, yes everything, is negotiable in real estate. The entire contract, the fee, the services provided, etc. are all negotiable pieces in the transaction. Most Realtors are independent contractors-which means, even though you may see a broker’s name on her card-website, she works independently for herself. She pays all of her own expenses, taxes, fees etc. This person sitting before you presenting her heart out, is a one man ( possibly one and some assistants) show. She is a bonafide entrepreneur in business for herself.

Let’s start with the normal 6% everyone sees on the local Multiple Listing Service or HAR.com. Everyone can add and multiply and usually determines that their Realtor is making a mint off the sale of their home. Not necessarily so. The seller’s agent asks for 6% with plans to split this fee with the Realtor who brings her a qualified buyer. So each Realtor in essence will be paid 3% of the sales price of the home. For example;

Sales Price of Home = 100,000 x 6% = $6,000 total / by 2 Realtors = $3000 each

Now, hold 3 fingers or better yet, 3 dollars up. First dollar, this must be given to her broker, automatically. So now we have 2 left. Dollar number 2 goes to her licensing fees- and there are plenty of them to be an active Realtor, paid every three months. So now we are down to the last dollar or $1000 of that $3000 dollars. This $1000 must be used for her expenses, gas, tires, signage, those open houses she had with the food, that ad that ran in the chronicle, networking fees, etc. This is also the same money that must be used to pay her own bills, send her children to school and pay her own health insurance. For some Realtors and even for some transactions, with the amount of hours spent, this last lone dollar gets divided so much it becomes minimum wage. Not to say that becoming a Real Estate professional cannot be a lucrative and rewarding business. For many who stay in the business, they love it and have undoubtedly found a way to squeeze in even more beneficial services into their offerings for their clients. But because I, like many of my industry friends are often asked questions about our commissions, and have to explain our worth to the assuming minds on a weekly basis, I thought it would be a great idea to educate my friends a little more. So the next time you are sitting with a Realtor and she is telling of all the services and benefits she will provide to you, before you ask her to cut her fee, think back to the last time you were able to live off minimum wage . . .

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Please Clean Before Showing!!!!!!

Realtors’ you have no control of what your client’s do to their home that you have perfectly staged, actually paid to have staged from your fee. These sellers are grown and leave the home in a hurry, never considering the mess that they leave behind will be seen by the potential buyers that visit their property during the day. Wonder why the house hasn’t sold yet? Yes, there are plenty of homes that look like a picture from a Martha Stewart magazine; however they still languish on the market. But sellers please help yourself and the Realtor out. She is just as embarrassed to get feedback like what I had to type up this weekend, letting her know that my client is still trying to scrub the scent of smoke from her hair. The shirt she had on was stained from jam all over the kitchen table and some kind of way, dog hairs made it to the walls. I’ve been in the business for years and am used to using my “imagination” to see the beauty or somewhat hidden treasures in a home. But most people, who buy 2 or 3 homes in their lifetimes, are just not that talented. This home was actually beautiful, but the layers of dirt mess and clothes strewn about got the best of my client’s attention. Sellers, sellers, sellers, help yourself and the Realtor out. I know it is time-consuming and you are rushing trying to make it to that job that you barely have, but please straighten up your home before leaving each day. This can make the difference between your home staying on the market for 4 days or 4 months. I’ll try to get my buyer to come back and relook at your listing, but I don’t know, he’s jaded now . . .

May 2009 Houston Housing Trends Newsletter

Investors!!! Do You Understand the 1031 Exchange????

Are you thinking about selling an investment property but aren’t sure what a 1031 Exchange is or how to do one. If so, check out my tips that will save you thousands of dollars in taxes.

1031 Tax Deferred Exchanges are one of the biggest benefits of real estate investing. This tax code allows you to sell a property today and defer taxes on the gains well into the future, thereby using those monies to purchase a larger property with a larger cash flow. 1031 Exchanges are one of the tools you have available to help you climb the Property Ladder and grow a portfolio that can generate enough passive income for you to retire on.

The key to a successful 1031 Exchange is to understand the rules that govern them. There are 3 key rules that you must follow and not run afoul of. If you don’t, you risk blowing your 1031 Exchange and having to pay the taxes today that you’ll owe on your gains.

The first rule is that you must replace debt with debt and equity with equity. This means that the total value of the mortgage on your new property, or replacement property as it’s called, must be equal to or greater than the mortgage on the property you sold. And, you must use all of the equity from the sale for the purchase of the replacement property.

Next, the proceeds, or funds, from your sale property must pass directly from your escrow company handling the sale straight to your accommodator. An accommodator is a 3rd Party Intermediary that will help you with the transaction and will escrow your funds for the time between when you close your sale property and when you complete the purchase of your replacement property. Remember, you can NEVER take possession of these funds, or you will void your exchange and have to pay taxes.

The final rule deals with timing. Within 45 days of the close of escrow of your sale property you must identify in writing to your accommodator what your anticipated replacement property is going to be. This is critical as it’s necessary to have on file in the event of a tax audit. And, you must complete your exchange within 180 days of the close of your sale property. This is also critical as it results in an invalid exchange if it doesn’t happen. It’s one of the easiest things for the IRS to monitor, so be careful with regards to your timing.

If you follow the above rules you’ll successfully complete your 1031 exchange and defer your tax bill sometime into the future. You can continue to do this from one property to the next over many years and even generations. Finally, make sure you speak with your accountant or tax professional before making a decision to sell. You want to be clear on the tax code and any other issues you may not be aware of

Making Home Affordable Program

On February 18, 2009, President Obama announced his Making Home Affordable Program, designed to help up to 7-9 million families avoid foreclosure by restructuring or refinancing their mortgages. In doing so, the plan not only helps responsible homeowners behind on their payments or at risk of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. For more detailed information, visit MakingHomeAffordable.gov. Making Home Affordable Program: Guidelines On March 4, 2009, the Obama Administration announced new U.S. Department of the Treasury guidelines to enable servicers to begin modifications of eligible mortgages under the Administration’s Making Home Affordable Program – announced by President Barack Obama on February 28, 2009. On April 28, 2009, the Treasury Department announced an expansion of the Making Home Affordable Program to help reduce payments on second mortgages. NAR’s Detailed Summary of the Obama Housing Plan> (PDF: 112K) Key Components of the Plan> Visit the Treasury Department links below for the latest guidelines and information: Summary of Guidelines> (PDF: 53K) Borrower Information: Making Home Affordable Refinance and Modification Options Borrower Q&As> (PDF: 82K) Housing Counselor Q&As> (PDF: 72K) Modification Program Guidelines> (PDF: 90K) Fact Sheet – Updated Detailed Program Description> (PDF: 73K) Modification of Second Mortgages under the Making Home Affordable Program> Fannie Mae and Freddie Mac Guidelines Fannie Mae and Freddie Mac released guidelines on refinancing and loan modification options that implement President Obama’s Making Home Affordable Program. GSEs Home Affordable Refinancing Programs> GSEs Home Affordable Modification Programs> Determining if a borrower’s loan is owned or securitized by Fannie Mae or Freddie Mac: For Fannie Mae, 1-800-7FANNIE (8am to 8pm EST). http://www.fanniemae.com/loanlookup Freddie Mac, 1-800-FREDDIE (8am to 8pm EST) http://www.freddiemac.com/avoidforeclosure

Think the Ralph Lauren Paint Will Sell Your Home??

When selling your home, it is very difficult to not get emotional about or during the process. You carried your bride over the threshold, had babies in this home, started your business, gave the home your sweat and tears, even some elbow grease putting those tile floors in. But when it comes time to sell, how much were those add ons really worth. It is always amazing to me with all of the Sell Your House shows on HGTV, how someone could think, just because they liked the smurf blue countertops with matching carpet, or because they wanted the star trek memorabilia room kitted out with the time machine beam and all, that someone else would see the same value as they do. Even, that someone would want to pay a premium for these unique and individualistic add on. But sellers and buyers, please keep in mind, some of the things you do to your home, should be for your pure enjoyment. That Ralph Lauren paint that you had specially mixed for the baby room, I’m sure your baby loved and made them sleep well at night, but when you decide to sell your home, you should stage the home with the potential buyer in mind minus the personal affects. Also, you must price your home according to the market, or the Comparative Market Analysis your Realtor prepares for you. There are many upgrades, additions, add-ons that do add value and to the bottom line- money in your pocket at closing. You can view these upgrades at

http://www.realtor.org/rmohome_and_design/articles/2008/0812_costvsvalue_2008. If your goal is to enjoy your home but you definitely want to make money off of any upgrade you make to it, take a look at this list before making any changes.

FSBO’s Are you Sure That’s What You Want to Do?

Due to the enormous amount of information on the web and technology available, most sellers believe they can approach the exhausting task of selling their home themselves. However, even with those tools, I feel that most sellers would be wise to hire an experienced and aggressive Realtor. In only a few circumstances would I ever recommend a home owner try to sell their home themselves, such as not having any equity in the property or having such a unique home that no marketing is necessary. In every other situation, when sellers hire a Realtor, studies show time and again, that they stand to sell their home for more money. In fact, some studies show that homes sold by Realtors sell for an average of 32% more than homes sold privately (NAR). Even the most conservative estimates supplied by a reputable source suggest that Realtors can generally bring a seller between 8-10% more, well above the commission charged by most agents. There are many reasons why good Realtors bring so much value and why it pays to hire just such an agent. On the flip side, hiring a bad Realtor actually decreases value and should be avoided even more than selling on your own. Here are seven reasons why hiring well will pay you back in selling price and time on the market. 1) Most home sellers are cheap! – So are a lot of Realtors, so don’t take it too personally! Marketing your house should be one of your most important jobs, and good marketing doesn’t come inexpensively. If you aren’t ready to pay for all of the marketing tools that selling a house requires, maybe you aren’t ready to sell your house FSBO. To properly prepare and present a house, you should expect to pay somewhere around $1,000, maybe more if your home is in poor shape. If this is a dollar amount that you are not prepared to pay, you may be better off hiring a Realtor who will invest their own money to properly market your home. 2) Realtor cooperation – Most Realtors don’t like working with FSBO sellers, for a number of reasons, and won’t show the properties to their clients unless specifically requested. The most obvious reason they won’t show FSBOs is that Realtors aren’t sure they will get paid, and no one likes to work for free. In addition, there are legal liabilities when working with FSBOs that aren’t present with other Realtor listed properties. If Realtors sell over 85% of all homes on the market, and the huge majority of Realtors won’t show your home, you have effectively reduced the pool of prospective buyers by a huge percentage, and are less likely to find a qualified buyer willing to pay your price in the time frame you had hoped for. 3) Availability – If your home is for sale, and no one really knows about it, is your home really for sale? How are most people going to find out about a new listing on the market? They find out through the MLS and all of its affiliates through real estate companies websites. But if your home isn’t on the MLS, how are potential buyers going to find it. You are basically limiting yourself to a sign in the front yard and by word of mouth, again, greatly reducing the pool of potential buyers. 4) Value buyers – Another problem FSBOs run into is buyers who make ridiculously low offers. These are typically people who are attracted to homes sold FSBO and normally don’t view homes listed on the MLS. They are looking for a home where they think that they can save a lot of money, and don’t want to deal with a professional, and so won’t call Realtors. However, when they find homes not listed with a Realtor, they know they found someone who isn’t paying a Realtor’s commission, and then they think that commission is now up for grabs in the purchase price. The problem is, this is the same savings that the seller is looking for! Now we have two parties, each trying to save the same money. It can’t work! As a FSBO, you are generating buyers who are looking to pay as little as possible, the exact opposite of what you really want! 5) Lack of knowledge – There is more to selling your house than marketing and finding a buyer. What happens next? You have legal obligations as a seller, and many FSBOs are not aware of the necessary paperwork and their responsibilities. This is why FSBO homeowners are more likely to be sued after the transaction than the owners of homes sold by Realtors. Realtors are required by law to achieve a level of legal competency in order to obtain their license, and must attend continuing education in order to keep their license year after year. This training allows Realtors to fully understand changing laws and issues in a way most FSBOs simply are not in a position to understand. 6) Showings – Who is going to show your house? You? During lunch? Most viewings of property occurs during the normal workday each and every week. But most home sellers work, which means that you may be in the difficult position of speaking to someone who may be interested in seeing your house, but you can’t show it at time that is convenient to them. If the client is always right, as the saying goes, and you can’t open up your house on their schedule, how do you think that affects future showings or negotiations? In addition, who is that person coming through your house? What do you know about them? Without a licensed Realtor, and a computerized lock box with electronic records, you don’t know who you are opening your house for. 7) Emotional attachment – Most homesellers, FSBO or not, think their house is worth more than it actually is. That is why most people’s initial inclination is to price their home too high. Without a good Realtor’s guidance, most FBOs price their home too high, and set themselves up for long market times and very low offers. In addition, if you are lucky enough to find a decent buyer, the act of negotiation can be costly for most FSBOs. If you are negotiating on your own behalf, directly with the buyer, they may be able to sense some weakness, or willingness, to sell, and that tell could cost you thousands of dollars. Many FSBOs get emotionally connected with the potential buyer, and this connections almost always works to the benefit of the buyer, and not the seller. There are more reasons that I have not detailed that make it more difficult to sell FSBO than hiring a Realtor, but these seven reasons ought to be enough! Make sure you hire a good Realtor, one who is willing to spend the necessary money to market your house aggressively, but make sure you hire a Realtor! It will save you thousands of dollars and months on the market, and you will be eternally thankful!