Kindergarten & Real Estate

January 29, 2012

I bet you are thinking to yourself, “What does Kindergarten have to do with real estate?” Believe it or not a lesson I learned in Kindergarten was put to use in my real estate business.

SLIME GREEN REALTY

I’ll be honest, when I first heard those words in June 2009, it hurt. Although I am a confident business woman, I am still human and although you are prepared to defend against negativity from your competition in a sales presentation, you don’t expect kindergarten tactics to enter the picture.

After I hung up the phone with my colleague, I realized in that moment that I had a choice and reflected upon my experiences in kindergarten. As a five year old child, when another 5 year old was picking on me or calling me names on the playground, I had a choice to ignore them or to allow them to hurt my feelings. If I allowed them to hurt my feelings, they won so at 5 years old I learned to ignore them and even at the tender young age of 5, this reasoning empowered me.

As recent as the day that I am writing this blog, I continue to hear through the grapevine that some of our colleagues still refer to us as SLIME GREEN REALTY. One colleague even went so far as to write in his 2011 Christmas letter that he sent to various agents that he did a transaction with throughout the year “may you not slip on anything green or slimy.” And he also wrote “If you are reading this letter, it means you are one of the better REALTORS® in town, as we did at least one transaction together.” Ironically enough, of all the agents that did a transaction with him by selling one of his listings, I did the most besides himself. I sold 3 of his listings in representing buyers which was the most for any other agent that represented buyers on his listings. And you probably guessed, I wasn’t one of the lucky recipients of his Christmas letter but by his definition I am one of the better REALTORS® in town which makes up for his green and slimy comment. <WINK><WINK>

Despite the controversy we have created with our new age commission models, other agents continue to show our properties and sell our listings because it isn’t about their personal feelings, they have a legal obligation to act in their clients best interests. Consumers who are making a purchase expect their agent to put their personal feelings aside and assist them in a professional manor when buying a home. In a world where the consumer has access to the internet which gives them the same information that their agent has, an agent should not want to risk losing a buyer client because they refused to show them a property listed by Lime Green Realty. Not only would it make the buyer suspicious and question the intentions of their agent, it would be the loss of a sale for the agent if the buyer decided to find a different agent. And if that same buyer decided to call Lime Green Realty directly to view the property, they would find out that we give free cash on possession day to all of our buyers and provide exceptional service so what consumer would give up awesome service and free money when buying a home?

From a business perspective, one important strategy we use to ensure that other agents are just as interested in selling a Lime Green Realty listing as another brokerages listing is that all of our programs offer a typical buyer’s agent’s commission of 3% on the first $100,000 and 1.5% on the balance to the buyer’s agent. This is a typical rate that is paid to a buyer’s agent in Central Alberta. Calgary is slightly higher at 3.5% on the first $100,000 and 1.5% on the balance. So regardless of which property a buyer decides to purchase, it is irrelevant to the buyer’s agent from a financial perspective. And buyers do not purchase a home based on who has the property listed, they buy a home based on what their needs and wants are!

In reality, the interactions we have when working with buyers agents on our listings are no different now than when we worked in a Royal LePage franchise office. Given how gracious and kind our colleagues are to us when dealing with one of our listings, we would have no idea the kindergarten shenanigans were going on behind our backs if it wasn’t for the other colleagues that tell us these things. So the name calling and other rumours that may be floating around are a result of our success which is a symptom of the jealousy and fear by our competition...especially when the competition is powerless to control the consumer, who is the one ultimately responsible for our success.

I share this story with you, the consumer, because if you are looking to hire a professional to represent you in one of the largest decisions you may ever make in your lifetime, I have to ask: do you want the agent that acts like the 5 year old at the playground to represent you or do you want the empowered business woman from Slime Green Realty on your side?

Transparency & Accountability – Part 2

January 22, 2012

I was having a conversation with a colleague of mine just a few days ago regarding final signing of a contract and I was surprised in what she said to me. She implied that in her experience, 90% of agents representing sellers did not follow their legally binding fiduciary responsibilities when it came to final signing of a contract and the potential for multiple offers. Of course, the 90% is an over exaggeration but it got me thinking. This is not only a breach of an agent’s fiduciary duties but could also be costing sellers thousands of dollars. Here’s why:

I had a seller who received an offer in the afternoon on a Wednesday after being on the market for 3 days. My seller was an investor who was selling off one of his revenue properties. When deciding on his asking price, he made the decision to price the property at market value rather than price it above market value as he didn’t want to risk having the property on the market for an extended period of time. The buyer that wrote the offer was also an investor. The buyer was represented by another agent from another office. The initial offer from the buyer came in almost $15,000 under my seller’s asking price and after 3 days on the market and multiple showings, my seller was not that eager to entertain the offer. We spent the day verbally negotiating and came to a verbal agreement to a price that was $5,900 under my seller’s asking price so my seller verbally agreed to accept the offer. The offer was open until 9am the next day (Thursday) which meant that both parties would have to sign the contract and have final signing completed for it to be a legal and binding contract. My seller was unavailable to sign the offer that evening as he was at an event so the buyer’s agent had the buyer sign the documents and extend the time on the offer until noon the next day (Thursday). This is where things became complicated. By law, there was no legal and binding contract between the buyer and the seller until final signing was completed by the seller. The next morning (Thursday) as I was making arrangements with my seller to send him the offer to sign, a different agent called me to tell me that she had a buyer that was interested in making an offer on this property and a signed offer would be to my office within the hour.

In representing my seller, it is my fiduciary duty to have undivided loyalty towards my seller. Undivided loyalty is defined as “the Agent must act solely in the best interests of their client, always putting the clients’ interests above their own interests and above the interests of other parties.” So in this situation, I had a legal obligation to advise my seller of his rights. By law, since my seller had not signed the contract, he could entertain the second offer but would have to advise the buyers’ representative in the first offer of his decision which would then create a multiple offer situation. This did create an ethical dilemma for my seller because he had verbally agreed to sign the contract. But my fiduciary duty was to give my seller the information and he would have to decide how to handle the ethical dilemma. Going back to the conversation I was having with my colleague, this is where she implied that 90% of agents would not allow the second offer to be entertained. She indicated the agent representing the seller would just explain to the second buyer’s agent that there was an accepted offer, even though by law, the offer was not finalized. In my understanding of our legal roles in representing a seller, this is not a decision to be made by the sellers agent, this is a decision that should be made by the seller. If an agent acts as a filter and does not tell their seller about a second offer or decides to tell a secondary buyer’s agent that a second offer cannot be entertained when the first offer has not been finalized is a violation of an agent’s fiduciary duty to their seller and in my sellers situation, would have lost him $4,000. GASP!

My seller had an ethical dilemma and had to make a decision as to whether he was going to keep to his verbal agreement with the first buyer or whether he would risk it all and force the two buyers into multiple offers. I reviewed the risks with my seller and in the end he decided that he was going to entertain both offers. I called the first agent to let him know what had happened and to notify him that he was now in multiple offers. Of course, the agent was shocked and then angry with me although I was just following the law and the instructions of my seller. Upon reflection, I think this is where agents may become misguided with their roles. My role in representing a client, whether it is a buyer or a seller, is to ensure that I am acting in my client’s best interest and sometimes, it could be perceived in the wrong way to the co-operating agent.

Both offers were presented to my seller. The price on the second offer was just $900 under asking which was much better than the $5,900 under asking that my seller had verbally agreed to but the rest of the terms on the second offer were not as good as the terms on the first offer. My seller decided to counter the first offer he received and went back at $1,900 under asking which required the first buyer to increase his offer by $4,000. The first buyer obviously felt the asking price of the property was reasonable and agreed to $1,900 under asking so we had a deal.

I do realize that from a practical perspective, there are going to be times that an offer will be delayed with final signing and in many of my experiences with my sellers, they have agreed to not entertain other offers when these circumstances arise and have instructed me to reject any other offers that may come in the time between verbal agreements and final signing. But this is a decision for the seller to make, not for the sellers agent to decide amongst the buyer’s agent, in my opinion anyway.

Transparency and Accountability in Real Estate

January 11, 2012

Did you know in the MLS Rules & Regulations of the Central Alberta Real Estate Association, there is a rule that allows the buyer’s agent to contact the seller directly if the seller’s agent does not respond within a reasonable amount of time? The rule states:

So you might be asking yourself, why does such a rule exist? In my experience, it is to protect the integrity of the industry by encouraging agents to work together and to ensure that the best interest of their clients, both the buyer and the seller, are promoted.

For instance, let’s say you decide to sell your home and list your property on the MLS® System. The next day, a buyer’s agent makes a request to view a home to your listing agent but unfortunately your agent fails to respond to the buyer’s agent. How would you feel as the seller, to find out that you missed out on a potential offer because your agent was not doing their job? And better yet, how do you even know that your agent failed to do their job? Well the answer to that second question is simple, you won’t know. You, as the seller, will have NO IDEA that you missed out on a showing which could have potentially led to an offer which could have potentially sold your home. And the reason you will have no idea is because the agent that is representing you, acts as a filter.

Rules are usually the result of trying to prevent issues from happening in the future. So it is my guess that this rule was created as a result of issues that were faced in a highly competitive, commission based industry. The Central Alberta REALTORS® Association has ensured that the listing agent that you have hired (“the filter”) to represent you has accountability by allowing some transparency and giving the buyer’s agent an opportunity to contact you if your listing agent is failing to perform their obligations. Transparency and accountability seem like a good thing to me!

Personally, I appreciate being held accountable to my clients by having a rule that allows a buyer’s agent to contact my sellers directly to arrange a showing should they not be able to reach me. I would never want my clients to miss out on a viewing as it the first step to an offer. As an agent, if I am acting in my seller’s best interest and if I have nothing to hide, then why would it bother me if a buyer’s agent felt the last resort was to contact my seller directly?

Punishing the Wrong Consumer

December 16, 2011

I read an article today titled “Is it Time to Pop the Hood on Real Estate” posted on www.propertywire.ca. It discussed the controversy over commission amounts and the public’s perception with regards to those commissions. It asked the question of whether or not consumers would understand the business if they could have a look from the inside out.

THE CONSUMER WHO SELLS THEIR HOME AND SELLS THEIR HOME QUICKLY IS PENALIZED UNDER TRADITIONAL COMMISSION MODELS.

Even upon entering my sixth year in the business, I cannot grasp the logic of my own industry. It makes absolutely no sense to me that someone who sells quickly likely pays the same amount of commission as someone who takes a year to sell. Why would we penalize the wrong consumer? This is totally backwards to me.

We, real estate agents, have designed a business model that does not compensate us for the work that we do. Rather, we play this “game” of telling a consumer that they don’t have to pay us anything now (which sounds great to the consumer and makes it easy for us to get a contract signed) but then we charge the consumer an arm and a leg when they do sell because our overhead costs include hours upon hours of services we provided to their neighbour who didn’t sell. This doesn’t seem fair to me at all!

This is exactly why Lime Green Realty Inc. decided to change things up and try a different commission model in May 2010 which we call our $1499 program. Rather than making the seller pay a large amount of money when and if they do sell, we have been offering the consumer the option to pay a smaller “non-refundable advertising fee” upfront for the listing portion of the commissions. We still offer full services and we still offer typical commission rates to the buyer’s agent (in order to ensure other agents are just as eager to sell our listing as they are another brokerage’s listing). We also give the consumer an entire year on the market for the $1499 they pay.

We have learned a lot from consumers since we introduced our $1499 program, the most valuable lesson is that consumers do not like the traditional commission structure and are more than happy to pay an up-front non-refundable fee if it means that when they sell, they will save money with regards to commissions. Consumers do not want to pay for the mistakes of some other consumer, nor do they want to feel like they are overpaying for a service hence where the notion of feeling “ripped off” comes from.

So, if we popped the hood on real estate, would we see that the issue with the amount of current commissions is strictly due to all of the hours that a real estate agent is not getting paid for or could it be something else? Maybe it is a portion of the unpaid hours but maybe it is based on the culture of the real estate industry. What do I mean by culture of the industry? I will take the definition of our real estate culture from a You Tube video that I was watching by a real estate trainer who referenced that real estate agents were no longer white haired, retired teachers. That is what I am talking about when I am talking about our culture. There are endless jokes at sales conferences about making sure the picture on your card is a picture of what you look like now and not when you were in your early twenties. So when I entered the business in 2006, I had no idea that many real estate agents entered the business more for a lifestyle than a career. I decided to join real estate because I was looking for a career that would utilize all of my previous career experience, that would be intense & exciting and most importantly that was my own business, my own creation. I wanted to invest my time and energy into my own business rather than someone else’s. Little did I know, not everyone was in the business as a career, some were in the business for a lifestyle and as I have learned since 2006, this makes a big difference to the consumer.

Anytime commissions are discussed, there is always a direct link to the number of deals an agent completes. In this particular article I am blogging about, there is reference that “the average agent only sells 8 houses a year.” So the argument becomes, if you multiply a selling commission by 8 deals and then subtract all of the expenses an agent incurs from those 8 deals, is an agent really making all that much money? The logical answer is “well of course not.” Now the more analytical thinker will say, “wait a minute, why is the average agent only completing 8 deals a year?” The answer could be culture. Maybe the culture of the real estate industry entices individuals that enter the business for lifestyle rather than a business career. If an individual can sell 8 houses a year and average $6,000 a deal, grossing $42,000 a year for those 8 deals and it requires only 80 hours of time invested per month to complete one deal (80 hours includes time that was not compensated for) and gives that individual 4 months off a year, then why not only complete 8 deals a year if you are in the business for lifestyle? So IF all of these assumptions I have made are correct, then this is precisely why the consumer has a problem with current commission models.

I BELIEVE THE CONSUMER IS ASKING FOR THE REAL ESTATE INDUSTRY TO CHANGE THEIR CULTURE.

I don’t believe for one second that the consumer does not feel we have value. The consumer values what we do as an industry and is willing to pay their proportionate share but they are expecting a different type of service.

In a perfect world and based on the different commission models Lime Green Realty has offered Inc. to consumers the last two years, I believe both the agent and the consumer would benefit greatly if real estate services were a pay as you go service. The fee structure would be more evenly distributed between consumers and agents would be able to significantly reduce their fees.

Of course I would CAUTION ALL CONSUMERS from running out and signing up to just any commission program that offers a smaller, up front non-refundable fee to save you commissions. Based on our experience with our $1499 program there are some very CRITICAL questions you need to ask before signing up to this kind of program. See our next blog on MAKING A SMART DECISION ABOUT COMMISSIONS WHEN LISTING YOUR HOME.

Is It Possible to “Recession Proof” Your Purchase?

November 10, 2011

With the change in today’s economy and the “recession” that we may or may not have had or may or may not be in, housing can take the hardest hit. So whether you are purchasing a home in a sellers market or a buyers market, is there such a thing as purchasing a house that will take less of a hit in a recession? I believe the answer to this question is YES!

Fast forward to November 5, 2011 and here is that same property in foreclosure with a current price of $289,900. A history of the previous listing activity shows that the person who bought the home on July 8, 2007 put it back up for sale on October 21, 2008 just a little over a year after they purchased it with a list price of $505,900 which I am guessing is to compensate for the newer windows, electrical, plumbing, furnace and hot water tank that now appeared in the description. Not to mention the change of date for the year built which was now changed to 1929 in the listing. After dropping the price to $492,000 and spending 182 days on the market, the property did not sell. On July 2, 2009, the property was re-listed for $499,900 and another unsuccessful 239 days on the market. Sadly, on October 7, 2010 the property was listed by the bank, indicating the home had gone into foreclosure. The initial list price with the bank was $399,900 and dropped down to $358,900 over a 90 day period on the market. The house was re-listed again on January 24, 2011 at a price of $338,900 and has been on the market for 285 days with a current list price of $289,900. From the data in the system, we are not able to tell whether or not any offers had been received and rejected by the seller(s) so there could have been a buyer out there sometime between October 21, 2008 and November 5, 2011 that may have been willing to purchase the property at a higher price. But here it still sits, still unsold at a current list price of $289,900.

Despite all other circumstances, is a $190,000 price difference in par with the average drop in housing prices that we experienced from 2007 to 2011? My answer is NO! So what happened with this particular property?

Based on my experience with buyers and the volume of sales I have completed since I started in the real estate industry in 2006, I have developed what I call a spectrum of purchasing a good resale home. This spectrum can help assess the level of risk a buyer takes when purchasing a property for future resale potential. Depending on a buyer, what they need and what they want may or may not jive with what would be defined as a good resale home.

One end of the spectrum is labeled as a “good resale home”. Buyers who are aiming towards this end of the spectrum are focusing on properties that have good resale value. Items such as square footage, location and buyer trends are what they focus on. These buyers are willing to sacrifice their wants if their wants are not in line with what would typically be defined as a good resale home. For these buyers, my experience becomes very critical because I can provide valuable information to them for their decision. This is the less risky purchase and recommended for a buyer if they only plan to be in their property for a short period of time.

On the other end of the spectrum is the “challenging resale home”. Buyers who end up at this end of the spectrum are not concerned with resale value and are choosing a home based on their own needs and wants. Buying at this end of the spectrum doesn’t necessarily mean that you are going to purchase a home that is going to lose $190,000 in value in 4 years as my example above did, rather it just means that you might have to stay in your home for a longer period of time. So if you are making a purchase based on what you want and it is not in line with what has been defined as a good resale home, I would recommend that you see yourself staying in the house for at least seven to ten years.

Of course, the next question I always get is, how do I know what a makes a good resale home? This is where I add value to the buyers I work with in their home search. My experience with the volume of transactions I have done since I started selling real estate in 2006 has given me the ability to learn a lot about properties. But the deeper level of understanding comes from my ability to analyze sales data. This skill comes from my past experience working as an analyst outside of the real estate industry. I use a variety of techniques to analyze data and then I share the interpretation of this data with my buyers who can use that information to make an informed decision. I have had a variety of buyers on both sides of the spectrum, some buying a good resale home and others buying a home that may have significant challenges for resale but fits well with what the buyers wanted. Both types of buyers on either end of the spectrum are grateful for the information that I can provide to them which allows them to make an informed decision. Making informed decisions when purchasing a home is critical in today’s market.

So referring back to my earlier example of the house built in the early 1900’s, this would have been a property that I felt weighed heavy on the resale spectrum of a more challenging re-sale property which is why I reacted the way I did back in 2007 when I saw the sold price. Unfortunately, now that the market has changed in a negative way, the price has been greatly impacted (there could be other factors that we are unaware of as well). There is also something I call “artificial value”. For whatever reason, some of these older or “historic” homes were receiving premium prices just because they were old. The artificial value was intangible as it didn’t reflect square footage, lot size, garage type or any other tangible feature rather it was a trend at that moment in the market which created a perceived value.

It has been valuable to have started selling real estate in 2006 because of the volume of sales I have been involved with which has allowed me to analyze the change in trends to isolate features and characteristics that are influencing the sale prices of homes. The last five years have been some of the most volatile pricing for Central Alberta real estate. Because of this experience, I have been able to isolate features and characteristics that are influencing the sale prices of homes. The depth of my analysis has given me the ability to determine characteristics that may negatively impact resale value or sale price in a real estate market such as we have today (Today’s real estate market would be defined as a buyers market which generates a buyer that is more sensitive to certain features of a home. This where “design defects” begin to become more prominent). This analysis allows us to provide additional information to both our sellers and buyers in order that they can make informed decisions for themselves.

I recently had a client send me the following text message as they were removing conditions on the second of two properties they were selling as they moved out to BC:

I represented these clients on two purchases, one in December 2008 and another in October 2009. One property was used as a revenue property and the other was going to be used as their new primary residence. They owned a third property that they had decided they would rent out when they moved into their new home. When they purchased these properties in 2008 and 2009, they had no intention of selling either one anytime soon but an opportunity arose and plans changed. Shannon & Gord were fortunate that when they purchased both of these properties they followed our guidelines for a good resale property AND also ensured the price they paid was on the lower end of the spectrum for market value. When the opportunity arose in 2011 to sell two of the three properties they just recently purchase, they were in a good position, even though housing prices had been declining since 2008. The revenue property had been purchased in December 2008 and they spent approx. $4K finishing the basement while they owned the property. It sold in August 2011 for $308,500. Their primary residence was purchased in October 2009 for $465,000 with approx. $30,000 added to the property for a secondary detached double garage & stainless steel appliances and it sold in October 2011 for $510,000.

In fact, of the 180 buyers that I have represented in a sale since 2006, just 10% or 19 of these properties have been sold again between 2008 and 2011 (there may be additional sales completed privately that I am not aware of). I have created a table showing 12 of the 19 sales below. The other 7 properties not included in the chart below included 4 foreclosures which were not listed by me & 1 property which was not listed or sold with me. There were 2 anomalies, one was a private sale that had a return of $135,000 and the other was a sale in Blackfalds that was a relocation which lost $27,500 due to the aggressive pricing used, both of these have been excluded from the chart as we consider these to be anomalies.

From the 12 sales below, on average, my buyers who then became sellers between 2008 and 2011 ended up with an average gain of $6,400 when they sold, even though the average price of houses was in a decline in from 2006 to 2011. I would attribute the positive return on these sales to my clients purchasing houses that were on the end of the spectrum that has very strong resale or by getting prices that were on the low end of the market value which helped to compensate for the decline in prices between 2008 and 2011. Some of the 12 buyers had planned to be in their homes a long time and others knew when they purchased the property that they would only be in their homes for a short period of time. I should note these purchases were not made with intent of “flipping”. Here is how my clients fared in a market (2008 to 2011) where prices were declining (or commonly referred to as selling in a buyers market):

For years I have avoided calling myself a number #1 agent because it sounds so pompous and arrogant. My intent of giving you my ranking and labelling myself is not for bragging credit, it is to build credibility with the information that I am providing to you.

Our Top 10 REASONS That House is Still For Sale

March 18, 2011

I am sure you have had a listing or two in your neighbourhood that stays on the market for an extended period of time.  If you ever wondered what could be going on, here is an inside look from our experiences.

• PRICE - When given an option, sometimes a seller accepts our suggested list price and sometimes they choose their own list price. Some sellers start their price higher because they would like to test the market or because they are not motivated to move quickly. In a declining sellers market, pricing your property higher than other comparable properties can lead to a longer amount of time on the market. At Lime Green Realty Inc., 90% of our listings that are listed at our suggested list price have sold within 30 days. With all of our listings, we suggest competitive market pricing to our sellers in the time they are listed with us but the final decision on price is left to our sellers.
  
  
• LACK OF SELLER MOTIVATION - Not every seller who has a for sale sign is motivated to sell quickly which can lead to an extended days on the market. The lack of motivation can be due to factors such as a forced sale due to divorce or foreclosure, sellers rejecting showing requests and even sellers rejecting offers.
  
  
• LACK OF TIMELY MARKET INFO - It is important that as a seller, you receive timely market information. Whether the market is in a decline or an incline, it is important to understand your competition in any market. Lime Green Realty Inc. ensures each of our sellers receives customized, timely market information.
  
  
• POOR MARKETING - There is effective marketing and ineffective marketing when selling your home. There is even such a thing as bad marketing and you can over expose a home in today's market. Lime Green Realty Inc. uses the most effective marketing techniques for their listings to ensure poor marketing is never an issue for our sellers.
  
  
• SHOW READY CONDITION - Having your home in show ready condition is as important as the right price in today's market. Buyers are picky given that they have many options to choose from. Showing your home to potential buyers, when you are listed for sale, is usually not the same way you live in your home. Lime Green Realty Inc. provides all of our sellers with effective staging tips.
  
  
• LACK OF BUYERS - It is true that in smaller cities and communities, sometimes there is a lack of buyers for certain price ranges. The only way to determine this is by analyzing sales data. Of course, there is always a buyer for the right price!
  
  
• CIRCUMSTANCE - For some sellers, it is due to their circumstance that they end up on the market for long periods of time. For instance, it may be a divorce or lack of equity in their home that prevents them from being able to adjust the price or accept an offer.
  
  
• LESS FAVORABLE CHARACTERISTICS - For some properties there are characteristics that buyers do not like such as location, layout or design of a house and even renovations that are poorly done or maybe even overdone. It becomes a waiting game to find a buyer for these properties or a reduction in price.
  
  
• RESTRICTIONS ON SHOWINGS - Sometimes sellers are not able to show their property when an agent requests a showing. This could be due to renters, pets, shift workers, etc. In a market where buyers have a lot to choose from, it is common for a buyer to find more than one property they like. Not being able to accommodate showing requests and missing out on a buyer short list, may cause a listing with restriction on showings to stay on the market longer than their competition.
  
  
• STIGMA - Some houses develop a stigma from various circumstances such as bad media exposure, an identified drug house, or even something as devastating as a murder. Stigmatized properties can be subject to longer days on market and may also yield lower sales prices than their competition.
  
  

Claims to Saving Sellers Commissions

February 21, 2011

I recently saw a tweet from a For Sale By Owner company that is claiming that they have saved their clients over $400,000 worth of commissions. Although this might sound impressive, I started analyzing the statement and came up with a few questions. Is comparing a house that is sold via For Sale By Owner and one that is sold by a real estate agent on the MLS® System really comparing apples to apples? Who verifies that the buyer actually came from that specific For Sale By Owner company? Here are my thoughts...

Is comparing a house that sold by owner and one that sold by a real estate agent on MLS® System really comparing apples to apples?

My answer: NO!

When I think about private sales on different products such as a vehicle, I think of my own buying habits and the reason I would decide to purchase a vehicle from an owner versus the dealership. My reason is simple. As a buyer purchasing a vehicle privately, I sometimes can get a better deal because I am not paying for commissions in the price. This doesn't mean that the seller is getting any more money in his pocket. It just means that as the buyer I get a better deal. So, if I apply that same theory to buyers shopping in the For Sale By Owner housing market, then wouldn't those buyers be expecting to get a better deal privately then if they were working with an agent? If so, then one would expect that although the For Sale By Owner seller is not paying any commissions, likely they are taking LESS OF A SALE PRICE then they would if they were listed on the MLS® System with a real estate agent. In the end, one would assume that the seller puts the same (or less) amount of money in their pocket. And let's not forget all the work the seller had to do with showings, paperwork, advertising, etc.

Who verifies that the buyer actually came from that specific For Sale By Owner company?

My answer: As far as I know, there is no independent verification!

I recently had some clients that I was working with on a purchase who invited me to their existing home to discuss the details of their purchase. There was a For Sale By Owner SOLD sign in their front yard. So, we were discussing their decision to sell privately. They only chose to sell privately given their in-depth understanding of real estate and because they wanted to be able to reduce their price for the amount of commission to attract a buyer. My clients also mentioned to me that the buyer didn't actually come from the For Sale By Owner company whose sign said SOLD in their front yard, the buyer actually came from a different For Sale By Owner website. A little false advertising if you ask me!

My Closing Thoughts

I am of the belief that when using statistical data to compare "savings" or even "commissions", the basis for that comparison should be comparing apples to apples. For instance, our company, Lime Green Realty, proudly advertises how many thousands of dollars we have saved sellers since June 2009. The Real Estate Council of Alberta requires that we disclose what we are comparing to when we make these types of claims. You will notice in our ads about saving commissions that we have a disclaimer that says "savings based on comparison to typical rate of 6% on the first $100,000 and 3% on the balance of sale price." This disclaimer clearly shows how our calculation was derived. Not only that, even more importantly, the basis of our comparison is the same as our competition. Our listings are listed by a real estate agent & are listed on the MLS® System. So when we make comparisons to saving sellers money, the basis is on a level playing field in all aspects. If it wasn't obvious from this article, I personally feel that For Sale By Owner companies claiming to save sellers thousands of dollars in commissions is generally misleading to consumers. "Educating & Advising = an Empowered Consumer" that is what Lime Green Realty is all about.

CAUTION! Days on Market STATS

There are various factors that will impact an agent’s average days on market, here are a few:

• Time of Year – Of course properties listed in December and January may end up with a longer number of days on the market because of the fewer buyers available at that time of the year. Sometimes we find that sellers will take their property off the market during the slower months and then bring them back on in the Spring. Although I am not a supporter of this strategy given the number of listings we personally sell in the slower months, this will give a lag between listings and the new listing DOM will begin at zero in the Spring.
• Initial List Price – Of course, the more closely a list price is set at or below market value, typically the quicker a property will sell, decreasing the number of DOM. Therefore, a DOM average can become skewed if a series of listings have been priced below market value. In this scenario, the DOM should be viewed in conjunction with individual sales to determine whether or not each sale was priced at market value. It would become a rather tedious and complicated analysis which brings me back to my original point that DOM statistics should be interpreted very carefully.
• Seller Motivation – It surprises some of our buyers when we tell them that not every seller that has a For Sale sign in their yard is motivated to actually sell their house. If a seller is holding out for a certain price or maybe not completely convinced they want to sell, the lack of motivation may cause an extended DOM.
• Databases – In the database that I use as a member of my board, the number of DOM is tabulated based on the MLS® number associated with that property. Therefore, if an agent cancels the existing MLS® number and “re-lists” the property with a new MLS® number, it resets the DOM to zero. So in order to get an accurate DOM number, each different listing (consecutively) for the same property should have the DOM added together to get an accurate average. When DOM stats are quoted, it isn’t clear whether the DOM are added together or the figure for DOM are only using the most current listing. Just another reason I am a sceptic of this stat.

Hybrid Model in Real Estate?

Some of the ingredients to this secret formula are pretty obvious so we will give you a sneak peek into our secret formula;

• the first and most obvious ingredient was to start our own real estate company to remove the excess costs associated with a national real estate company. We made the decision in 2009, to leave Royal LePage Network Realty and start our own, independent company, Lime Green Realty. It can cost an agent thousands and thousands of dollars each year to be a part of a national real estate company which is money that you, the consumer, end up paying for through your real estate commissions. In the eyes of the Alberta real estate governing body, RECA, our company, Lime Green Realty Inc. is no different than a Royal LePage or Coldwell Banker. We are expected to maintain the same level of standards as any of these national companies. By having our own independent brokerage, we save thousands of dollars each year which is passed on to you, the consumer.
• one of the most significant costs in real estate is the money spent on print advertising and in our experience, print advertising is ineffective when selling your house. We have eliminated a majority of our print advertising costs which is typically a direct cost to the seller from their listing commissions. Instead of print, we are utilizing the Internet which we find is far more effective than print. Of course, the MLS® System is our prime source for advertising listings, it is the ultimate source for effective exposure when selling your home.
• the next most important ingredient is to have a significant existing database of clients. Significant is the key word. I started in the business when we moved back to Alberta from BC in 2006 and Stephen joined me in 2008 after he left Red Deer College. Through that time, we developed a reputation as top real estate agents in Central Alberta that were able to produce results representing hundreds of clients. We not only list properties for sale but we are able to get them sold and that's what really counts. We always say that reputation is critical in this business and taking a leap of faith by starting an independent brokerage will certainly test ones reputation. Fortunately, we have a very supportive network of clients who continue to support our company.
• volume is critical to keeping this hybrid model alive and is directly linked to the advantage we have as an independent brokerage. For the period June 1, 2009 to May 31, 2010, I was in the top 2% of agents that represented the largest quantity of listings sold for that period. There were just 11 of us, out of 468 agents, that closed more than 30 deals for sellers in that one year period, fascinating! I was shocked to find out that 56% of real estate agents, had only completed 5 or less deals in one year with a seller.* And even more shocking was that almost 20% of the 468 real estate agents had completed just 1 deal in a year with a seller!* These numbers definitely show that the number of deals in any one year are spread very thinly over hundreds of agents that are listing properties. What I also found interesting was that the top 2% of agents closed only 14% of all the total sales for that year.* These numbers may just shed some light on why commissions are set to what they are. If the majority of agents are only closing 5 deals or less in a year when representing the seller then it may be critical for these agents to earn $6,000 on each of these 5 or less transactions in order to cover costs and make a little money versus charging a small fee such as Lime Green Realty does of $1499. The advantage we have is that we have volume.
• reducing our overhead costs was crucial in allowing us to reduce commissions. Commercial space for an office can be expensive and in our business, unnecessary. With today's technology it is possible for an agent to have a virtual and portable office which is the model we have chose to use. Not only is this model better for the environment, it is convenient and practical for our clients.
• like any successful company, results must be delivered. Lime Green Realty's exceptional delivery of results are based on our own secret ingredients that we share with our clients; ingredients that are nearly impossible for any agent to duplicate. We get our listings sold and we successfully negotiate offers for our buyers. There is nothing more satisfying then placing a sold sign on one of our listings or handing the keys to one of our buyers on possession day!
• it is our level of service that separates us from the label "discount brokerage" and why we call ourselves a hybrid real estate company. We have found a balance in this business to still offer our clients exceptional customer service but without having to pay traditional fees to get it. We have utilized the advances in technology to maintain a high level of service. We have implemented systems that effectively co-ordinate transactions whether our clients are selling or buying. We have personalized systems in place to educate and inform our clients so that they can see real estate through our eyes. This type of personal service is usually what is missing in discount brokerages and the key to why we believe discount brokerages have not over turned the existing real estate commission models.