3 Things Every Seller Should Know To Protect Their EquitySep 22, 2022
Equity is the difference between how much you can sell your home for and how much it costs you to sell it – in other words, how much you walk away from the closing table with. The value you have built in your home is an asset worth protecting, and this article is about the best ways to protect yours.
Equity is built in two ways. First by paying off the principal balance on your mortgage. And second, the law of supply and demand creates appreciation in value. For most sellers, paying off the principal balance of their mortgage at closing is the largest single cost. The second largest line item is usually the real estate commission.
Understanding how real estate commission affects the outcome of a sale is critical to maximizing your equity. Here are the 3 facts you should know.
- For Sale By Owners who try to avoid paying real estate commissions by doing the work themselves accounted for the smallest percentage of total sales last year (7% overall) in forty years. According to the National Association of Realtors, "The typical or average For Sale By Owner home sold for $260,000 compared to $318,000 for agent-assisted home sales." That represents a difference in price received of over 18%. What For Sale By Owners discovered during the most recent frenzied Seller’s market is that while finding a buyer was more than easy, finding the right qualified buyer and getting to closing has become more complicated and problematic than they thought. If you think by doing it yourself you will save money, get the facts.
- Commissions are negotiable, not fixed. There is a reason why sellers have insisted for over 200 years that commissions be paid on a percentage of the sale price rather than a flat fee. Commissions incentivize all the parties involved in a transaction to get the highest possible price from the best possible buyer. That is how everybody wins.
Flat fee and discount commission brokers can rarely afford to provide the full range of marketing, negotiating, and closing services necessary to get the job done and protect their seller's equity. In fact, three recent nationwide studies have determined that brokers who discount their commissions by 1-2% percent, end up netting their clients 10- 12% less than full-service brokers.
- Commissions are paid to the listing broker of record, not directly to the agent. The listing broker shares the commission with the buyer's broker and then pays the listing agent. Out of a typical 6% full-service commission, the listing agent will end up with somewhere between 1.5% and 2.5%. On a $400,000 sale price, the listing agent would realize somewhere between $6000 - $10,000. These agents are independent contractors and pay all of their own expenses, their own health care, and their own marketing and education. They have no workmen's compensation or unemployment insurance. And they only get paid if the sellers are happy with the end result, often months after the time of listing.
If I were selling today, I would insist on a full-time, full-service agent who charges a normal commission and subscribes to the Realtor Code of Ethics and a set of Core Values that ensure world-class service, total transparency, and complete communication. One who would work to find the readiest, most willing and able buyer with the right price and terms. That is the agent who will partner with me in protecting my precious equity.
The Floyd Wickman Team Blog by Mike Pallin
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