What Every Seller Should Know

Effective Advertising

Selling your home can be one of the biggest financial decisions of your life. Unfortunately, the vast majority of sellers know little to nothing about marketing or how homes get sold. This leads to millions of sellers each year getting far less for their homes than they should. It's important to choose the best way to sell your home and protect your investment!

Before you can choose how to sell your home, you must understand what actually sells homes. Most people believe that homes sell because of conventional ads. The fact is that only 17% of homes sell from conventional advertising, and 10% of that will be from people actually calling of off a different ad. That may sound a little strange, so let me explain.

Real estate companies don't advertise homes to sell them. There is only a 2% to 3% chance that a home will sell because someone calls about its specific ad. Much more likely, when the ad does get called, the caller will find something about the house that doesn't work for them and the real estate agent who took the call will then direct their attention towards a different house. However, there is about a 10% chance that the home will eventually sell because someone will call about a different house, then be directed towards the home in question. Also, about 5% of homes will get sold because of For Sale signs, Open Houses, fliers, and other conventional advertising. The total chance that you home will be sold by one of these conventional methods is about 17%. This is why people who try to sell their own homes get so frustrated. Since they can't tap into the 10% that sell from people calling about other houses, they have really limited themselves to only about 7% of the buying market.

So why do real estate companies even bother with conventional print advertising? Well, real estate companies advertise for three different reasons, and none of the reasons have anything to do with selling the house in the ad. The main reason they advertise is to get future home listings. When people decide that they are going to sell, they often look around for the company doing the most advertising, and assume that company will be the best at marketing their home. The second reason real estate companies advertise is to get buyers. The more houses they run in the publications, the more buyers will call them and the more transactions that company will be a part of, even though those transactions will most likely ultimately be with the houses listed by other companies. Finally, real estate companies advertise because the homeowners that gave them the listing expect their homes to be advertised. They may not understand that this gives them only a 17% shot at the market, but the real estate companies understand that their clients will get thoroughly upset if the client doesn't see their specific home advertised in the Sunday paper every week.

If conventional ads sell 17% of homes, what makes up the other 83%? The answer is internet marketing and Realtor-to-Realtor contact. Here's what sells homes: virtual tours on the internet, broker caravans, the Multiple Listing Service (MLS), lots of phone calls, post cards to agents, marketing meetings, faxes, email campaigns, and web commercials. Many old-school agents don't even know what a web commercial is or how to make one. However, these are the things that sell real estate today. Not passing out fliers. Not open houses. Not yard signs. Not quarter-page full-color ads in magazines. There are lots of things done to make sellers happy, to get more sellers in the future, and to get a larger buyer pool, but 83% of sales occur because of Realtor-to-Realtor contact and internet marketing. That's not to say that the other 17% should be ignored. Every percent is a good percent; it just all needs to be put into perspective when you decide how to sell your home. It's important to know what your Realtor should be spending ad money on.

Choosing a Commission Rate

So, what is reasonable to pay in commissions to get a home sold? There is no national conspiracy to set commissions at between 5% to 7% (most commonly 6%). Higher priced properties and a strong seller's market tend to drive commissions down slightly, while lower priced properties and a tough market are factors that increase brokerage fees a bit. Homes sell because of Realtor-to-Realtor contact, and it's important to understand how commissions work. Some people believe that after a home sells that the listing agent takes a big bag of money equal to 6% of the property value and outs it straight into his or her private bank account. That's actually far from the case. When I sell a home at 6%, I plan to make about a 1% profit. If I take a listing with a commission higher or lower than 6%, I still expect to make about 1% profit. Everything else is scheduled to be paid out to advertising and to other people involved in the sale (with usually 3% off the top to the buyer's agent). Using a listing agent will make you an average of 14.9% more in the final selling price than if you sold For-Sale-By-Owner. Using a excellent listing agent should benefit you even more. Using no agent at all means that you may think you did a great thing by avoiding commissions, but you almost certainly have lost out financially and put yourself at considerable legal risk.

In deciding what commission to sell your home for, it's very important to understand the huge effect of the commission given to the buyer's agent. Out of the 3% the buyer's agent usually gets, his or her company will probably take about 1%, leaving the agent with a 2% profit. So it's good to be the buyer's agent. In fact, we want to give these people all the money we can (within reason, of course). The higher the commission for the buyer's agent, the more potential buyers will be brought to the property. The property will therefore tend to get more offers, sell quicker, and sell for more money. Hypothetically, if a buyer's agent pulls up information on four potential properties to show his clients, and three of them are paying 3% commission split, and one of them is paying only a 2% commission split, guess which one is going to be ignored? National studies have shown that you tend to make the most money is you sell using a 6% or 7% total commission. 8% and above is too high, and 5% and below is too low.

Choosing the Right Method to Get Your Home Sold

So what options do you have for selling you home? Well, three options come to mind. First, you can sell your home on your own. Secondly, you could list with a discount broker. Finally, you could list with a full-service company. If you decide to sell on your own, you have only a 9% chance of actually getting market value or better for your home. Most of the 9% that get a good value are selling directly to a family member or friend. However, 91% of For-Sale-By-Owners will either eventually give up and use a Realtor, sell for below market value, or stop trying to sell the home out of frustration. The average that a For-Sale-By-Owner loses in their home's value is 14.9%. Most For-Sale-By-Owners think that all there is to selling their home is to put a sign in the yard and run a few ads in the newspaper. Ultimately, by suffering months of frustration and losing 14.9% of their value, these people can proudly claim to have saved 6% on commissions. Please don't try to sell your home yourself, especially in California! California is one of the most litigious places in the world. There are close to 30 disclosures and many procedures that you must follow, by law, when selling a home. Last year in California there were over 25,000 real estate lawsuits, and over half of them involved a For-Sale-By-Owner, even though For-Sale-By-Owner properties make up less than 5% of all transactions.

The next worse thing you can do is use a discount broker. Nationally, discount brokers represent only about 4% of all properties that actually sell. Now, don't get me wrong, discount brokers get far more than 4% of the listings, but many of their listing will expire or have to be reduced in price for the property to sell. Once again, by trying to save a little on commission, you are likely cutting your own throat when it comes to the final selling price. Discount brokers who will sell your property for a 3% or 4% commission are usually making drastic cuts on advertising and on what they are offering the buyer's agent. Cutting down the advertising budget isn't a good idea. Cutting anything off the buyer agent's commission is a really bad idea. The result is often a property that takes longer to sell and that ultimately sells for less than it should have. The other common result is that the property doesn't sell at all.

Some discount brokers amazingly say they will sell your home for only a 1% or 2% commission. These places almost always cut the buyer agent's commission entirely, which also usually means they are barred from putting it on the local Multiple Listing Service (MLS). What you usually end up with is a bad experience as these companies focus entirely on 17% of the market they can reach with ads, while ignoring the 83% of the market that would have helped actually drive your final price up. Some unethical brokers will even take on such listings just to get ads calls and increase their pool of buyers to represent in purchasing other properties. Think about the large amount of your home's value that you are probably losing when you consider saving a few percent on commission. Once again, there is no conspiracy that keeps the national average for commissions at 6%; that's simply what it takes to sell a home right.

So how do you make the most money and stay protected? Well, like the customers in over 90% of all transactions, your best way to stay financially and legally sound is to use a full-service brokerage. A full-service brokerage will likely make you the most money. It will also likely do an excellent job of protecting your legal interest and making the total selling process as smooth as possible. Full-service brokers usually have home warrantee plans, referral networks, teams of contractors and inspectors, in-house mortgage departments, and simply tons of different professionals and technological tools that help the whole process along. If you are selling in the Santa Barbara area, please take a minute to review my résumé and marketing examples on "Sellers" page of this website. In 2007, no local REMAX agent sold more properties than I did, and I would be happy to talk to you about your plans and how best to proceed. Give me a phone call or an email at your convenience. My main number is 805-284-8422.

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