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FAST FACT

In 1477, the first diamond engagement ring was given to Mary of Burgundy by Archduke Maximillian of Austria.

SELLING YOUR HOME USING A REALTOR

by Dr. Sharon L. Bender
7/17/2006

When it’s time to put the house on the market, many people wonder if they are better off selling as a “by owner” or using the services of a realtor. The reason for the quandary is typically a financial one. It is a common myth, actually, that the seller will net greater proceeds from the sale if they sell it themselves. In reality, buyers are typically looking for the “by owner” to drop the price of the realtor’s commission as much as a whopping 6-10% below the price of comparable homes listed by real estate firms. Otherwise, they can find more selection of homes and a more trusted sale if they use the services of the realtor.

A “realtor” is a designation for an agent who lists and sells real estate for a broker who is a member of the National Association of Realtors. A broker is the individual licensed by the respective state to deal in real estate transactions. There are even “buyer brokers” that work exclusively for the benefit of the buyer. This means the realtor at these brokerages may try to get the seller to lower the price to accommodate the interests of the buyer. The opposite is more common, however. The realtor typically works for the seller, seeking to get the best price for the property.

How does a Realtor affect the bottom line?

Likely you just want to know in which case you will enjoy the greatest bottom line from the sale so you can afford that next bigger or better home or perhaps for retirement. The proceeds from the sale are often more important to the seller than getting a great deal is to the buyer. The reason is purely in the numbers. If the buyer can secure a reasonable loan, at a reasonable rate that meets the buyer’s monthly budget, then the sale is possible, regardless of the asking price. If the seller is willing to “hold paper,” meaning become the mortgage lender in place of the bank, then the seller and buyer can agree on an amicable interest rate. This may mean a higher sales price for the seller and a lower monthly payment for the buyer. But carrying the loan for the buyer does not come without risks. For instance, your own credit rating can suffer if you are relying upon the monthly payment to meet your own obligations, but the buyer has defaulted on your loan agreement. And the buyer can hold possession of the property for several months beyond the default of the contract.

The good news is, with the high cost of homes, real estate commissions have dropped from the traditional 5% to around 2% of the sales price, making the use of a realtor affordable regardless of the pricing market. The commission is the negotiable percentage of the proceeds resulting from the sale of the property. Realtors provide quite a bit of service for that fee, which by the way is often split four ways. There may be a listing broker involved, the firm that takes the contract to market the property, and a selling broker, the firm that produces the buyer and draws up the contract of sale. In each firm there is the broker and a realtor. Two brokers and two realtors are four entities that will split the commission. You may only see the selling realtor walk away from the closing with the commission check, but it will be immediately handed over to the broker who will in turn send a check to the other broker to be split with the other realtor.

What does the realtor do?

Realtors often strive to be both the listing agent and the selling agent in order to enjoy half of the commission rather than a quarter of it. An agent is another term for the realtor who is an agent for the broker. This “double bubble” sale is a rare occurrence. It is not often that the realtor who takes the listing winds up also be the realtor who produces the buyer. The chances are there will be a listing firm and a selling firm. One will take your contract for sale and enter it into the MLS (multiple listing service) so that all other realtors in your selling region will have access to it, and beyond. Listings are now available via the Internet. The seller can put the home on the Internet, but buyers will be looking for real estate offices rather than your site. The enormous exposure of the real estate organizations means more people will become familiar with your home. The bigger the pool of buyers the greater the competition will be for your home. This usually equates to the best price. Can you get this kind of exposure for your home as a “by owner?”

Something more to consider that could affect you financially is that there has been an alarming increase in legal claims made by buyers against sellers. If the seller does not fully disclose any and all defects, those discovered after the sale by the buyer can add up to some heavy damages. Take for instance, the failure to disclose a toxic black mold condition (Stachybotrys atra) that you discovered in the walls in your basement and “innocently” sealed away with a new panel of sheetrock and a fresh coat of paint. An experienced realtor can help the seller to minimize such risks. Many are well educated, holding degrees like GRI (Graduate Realtor Institute). The best policy, however, is honesty with your realtor.

Many real estate firms provide a homeowner’s warranty package that not only safeguards the seller against risky lawsuits, but it can add value to the home in the eyes of the buyer. That can mean thousands more dollars are possible in your asking price. Or at least your home may sell faster than the one across the street that is identical, but lacking the same protection. A homeowner’s warranty package is a form of insurance policy that covers certain repairs to major appliances and some systems in the home for a specific time period. A realtor may also order a home inspection that will further uncover any defects. Even the nifty listing and sales contracts used by the real estate firms today are filled with protective language. You could sell your home yourself and hope that your lawyer will have access to these kinds of agreements. In some states no attorney is used for the closing. Then you may be at the mercy of the title company.

What is my investment in the sale?

Selling the home “by owner” can also take a lot of your personal time. Imagine the phone ringing at your home instead of at the realtor’s office. You are responsible to do the screening. You can be doing something else more productive than answering the phone and being on hand to show the home at the convenience of the buyer. Expect that a lot of your time will also be spent talking to realtors who are interested in coming over to give you a free market analysis. Sometimes your “for sale” ad or sign is nothing more than an open invitation for realtors to call and pitch their services. In truth, that can be handy in getting to know the services they offer and finding one or two to invite over for a presentation. The market analysis is handy because it will help you to understand how to correctly price your home. With a realtor, you can save the money you would have to fork over for the production of your “for sale by owner” sign. Surely you would not want to present your home with an unattractive message.

Consider that as the one handling the sale you will have to screen the buyers that call you, asking them very personal questions that they may not want to answer with you; and you may not feel comfortable asking either. There is a good chance you may not find out that the buyer is actually not qualified to buy your home until it is too late, and you have wasted precious time off the market. Other possible buyers for your home will have moved on. If you take on a buyer who is not qualified, it could also mean many dollars spent each time you need to use the services of your attorney to find out the hard way that you were dealing with a buyer who was not able to consummate the purchase. The realtor’s job is to bring you only pre-qualified buyers.

Why is it better to use a realtor?

Reason #1 For Using a Realtor:
A Realtor has a larger volume of potential buyers.

Reason #2 For Using a Realtor:
A realtor can protect you from the risk of lawsuits.

Reason #3 For Using a Realtor:
A realtor will save your investment of time.

Reason #4 For Using a Realtor:
A realtor will help you to price the home correctly.

Reason #5 For Using a Realtor:
A realtor can screen the buyer for qualifications.

Reasons to sell the home as a “by owner” are really not worth listing here as they would have more to do with personal reasons than those that are financial. Financially speaking, there are far greater reasons why realtors coast to coast are part of a thriving field. Your only decision might be to select which type of firm to use. There are those that advertise a savings in commission, but talk to realtors from all types of firms to get a clear understanding about the pros and cons of each.

Considering to sell your home as a “by owner” or whether to use the services of a realtor is an easy choice if you are considering dollars and cents, which is the typical concern of the seller. Some times it is to hand-pick the buyer, but in reality that may constitute discrimination, landing you in an attorney’s office for a different reason. This is yet another risk owned by the seller when acting alone, and once again affecting the financial outcome.

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