You’re about to find out how your neighbour who is selling their house with a discount agent is killing your home value!!
We all want to save money, and I can assure you I’m no different. I work very hard for the income I earn and while many people believe real estate is easy (evident by the fully packed Ontario Real Estate Association classes and the 42,000+ registered Realtors in Toronto alone) I can assure you it’s incredibly difficult and takes just as much work, if not more, as building any successful business from the ground up.
The trouble is it’s all too easy to get into. Pay a few thousand dollars, take a few courses online or in a classroom and Viola, you’re a Realtor. And herein lays the problem.
When hundreds of new Realtors (if you can call them that yet) enter the industry each month, the mass group inevitably divides into two group. Full-Time and Part-Time.
The smart few will commit 200%. They’ll immediately hire a coach or find a mentor. Join a team. Commit to spending the first few months just learning the industry, their market, a specific neighbourhood, getting to know their ideal clients better than they know themselves. They are building market knowledge and they are earning the trust and respect of their friends, families and co-workers. They’re striving to be professionals and they lean on their coach, mentor, team members or manager to guide them and protect their clients while they learn. They are building a business and it’s all they do, they’re Full Time….it’s their new career.
The rest do it part-time. When they get home from work they might see if they have some time between dinner and bed time. They let guilt trip their friends, family and co-workers into supporting and committing to them when they haven’t even committed to themselves. They’re only available during the evenings and on weekends, which might be fine for showings but does nothing for negotiating the sale and dealing with backend paperwork – the part of the business that actually really matters! Showing clients homes is just the surface of our business. The real purchase or sale happens when our clients have gone home or are at work. 90% of what we do as Realtors happens when our clients aren’t around, and when Part-Time agents are at work….their other work.
Typically they join a discount brokerage that offers no support or training because its cheaper than the others. This is when they realize that real estate is an expensive business to be in, especially when they aren’t selling homes…because they’re too busy at work. They’re finding that their full-time salary is paying for the fees of their part-time real estate hobby that they thought was so easy. And so 95% quit.
Now if they last longer than most they will inevitably get an opportunity to sell someone’s house but they’ll likely be competing with another Realtor for the listing. And THAT is when they ask themselves the exact same question the owners are going to ask them. “Why would the owners hire them to sell their how instead of anyone else?”
They realize now that they really have nothing to offer. They’ve only be a Realtor for a short time. They haven’t had the time to research the market because of their full time job. They haven’t seen many homes because the Agent Open Houses are during the day while they’re at work. They don’t have a marketing plan because they haven’t had to do that yet, and they certainly don’t have a marketing budget because they haven’t made any money yet.
So where’s the value?
That’s when they decide to do it for less. There’s perceived value if they’re cheaper, and heck once the sellers signs the contract they’re stuck so they can’t go anywhere else.
It wasn’t their intention to become a Realtor and sell houses for 1%, it’s just that they have nothing to offer. They have little, if any, experience. They have no negotiating skills. Little confidence. Little market knowledge (which they can’t get since they work full time), no staging or design ideas and no marketing plans, skills or budget. They’re desperate for a deal. So they’re only value proposition is they’ll just cut their commission to 1%, the REALLY desperate ones do it for less.
And if the other Realtor did a poor job showcasing higher value or the home owner is more focused on commission than final sale price and how much they are walking away with in their pocket, then the part time agent might actually get the listing.
So you might be wondering what some newbie part-time agent has to do with you. I mean you wouldn’t hire an inexperienced agent that offers nothing but charges less.
Well it’s what comes next that affects you, whether you listed with a 1% company or your neighbour did.
Now’s the time to list the house. So how does a new agent – who has no market knowledge, no staging or design ideas, no marketing plan or marketing budget – price a home? Do they list the house at the high end of the market, maybe even pushing market value a bit and justify that price by investing their own money and experience into getting the house ready and looking it’s absolute best? Hire a professional photographer? Advertise in numerous locations? Buy Adwords and much more? All in an effort to get their listing in front of and bring as many interested buyers to the home as possible?
Or do they list it on the low end because they don’t understand what makes a house sell for more? They don’t understand what buyers want in a house and what finishes are in demand. They don’t understand that sales is a numbers game as much as anything and that getting the house ready and in front of as many people as possible will ultimately help the house sell for the highest price.
Well I’m sure you figured it out but I see it time and time again these discount agents listing and selling homes below market value, leaving THOUSANDS of dollars in equity in the house for the new buyers.
But what about all the 1% signs you see all over the place, obviously they aren’t new agents, right.
No, they aren’t new, but the found that by advertising a cheaper commission price they could get in front of many more interested sellers so don’t understand their business plan. They don’t accidentally list houses low because of inexperience, or lack of market knowledge. No, they list houses low BECAUSE of their experience and BECAUSE of their market knowledge. They understand that a house listed low will sell faster. They understand that a house listed low will often sell over asking because buyers and their experienced agents see the equity being left in home.
And THAT my friends is all they care about. Sell the house as fast as possible so they can move on to the next pay cheque.
And if and when the house sells “over asking”- but below market value- they can advertise they sell “over asking”, as if they did a good job. They don’t care if they sell the property under market value because they made a few bucks and are on to the next seller looking for a “deal”.
Whether you’re selling your home with a discount agent or your neighbour is, you’re losing money.
I’m sure it’s now obvious that you’re losing money if you actually hire a discount agent because as I’ve explained they are either inexperienced or are intentionally looking for a quick sale.
But if your neighbour lists with a 1% company it costs you as well. The reason is Market Value.
How do we, as professional Realtors, place a value on a home? We look for homes in the neighbourhood that are similar to yours and base the price off of them. So if there are a bunch of homes in your neighbourhood that are being sold for less than others they will pull down the neighbourhood values. Listing agents and buying agents will ultimately see those homes and know they are compatible in size, bedrooms and finishes.
So during our negotiations it’s kind of like a mini trial where both parties are trying to prove their own case for value. Listing agents (Professional ones-working for their clients, not themselves) will look for higher value comparable properties. Buying agents will look for lower value listings to work for their clients. Each 1% discount agent listing adds more ammunition to the buying agents pulling values down.
So next time you see a 1% agent listing a house in your neighbourhood just know that when it sells value of your home just went down!