Chapter Twenty

Selling

After your house is completed, there is the matter of selling it. Most people think in terms of dealing with a real estate agent. Most single family residence sales will involve a commission of 5% to 7% of the total sales price. Many builders use a Realtor to handle their sales.

In fact, many builders buy a lot through a Realtor, at a commission fee of 7%. They proceed to build a spec house on the lot and list the property for sale.

The selling price includes the price paid for the lot. When the property is sold, the agent will receive a 7% commission on the entire sales price. Thus the builder has paid twice or 14% for the land cost commission.

Is that any way to make money? It is certainly a way for a Realtor to make money, but a real estate speculator cannot afford to operate such a gravy train.

He must do his own selling and eliminate a commission charge. For some reason, the idea is more or less prevalent that it is necessary to engage a Realtor to buy or sell a property. Many owners are actually afraid to try to sell their own homes, because they believe that it is a highly technical process that requires a great deal of knowledge. Such an opinion is far from factual.

Others believe it is necessary to have a license to deal in real estate. I am not aware of any state that requires a person to be licensed to buy and sell real estate, as an owner. It is only required when another party is being represented.

First let us consider the procedure involved in engaging a Realtor to sell a house. In the first place we will assume that you have decided to use a certain company, and a representative has called at your house to talk business.

First comes the inspection and then the matter of the asking price. The agent will want to know if you have a definite amount in mind. In his opinion your response will either be "about right" or "a little high", but never "too low".

If you have no idea of the value of the property and are prepared to rely on him for a price, he will ask some questions before he quotes an amount. First he will want to know if the place is mortgaged and if so for how much. The interest rate being paid is important and also the matter or whether or not the indebtedness is assumable.

In the event that there is no mortgage, he will ask if you would consider carrying a first or second mortgage in the event of a sale.

And now he is ready to talk selling price. His first quote will usually be a little lower than the present market. He is feeling you out. He hopes that you will go along with his price. However, if you take exception to his judgment, he will probably agree that the house could be sold for more money, but it probably would take a longer time. He says he has quoted a price which would result in a quick sale, because it was slightly below market.

He thought that you wanted to unload the property immediately, but on second thought, he agrees it would probably be wise to add a few thousand dollars to the price and wait for offers. He based this decision on the fact that you have such a "desirable property."

All of the above moves by the Realtor have been aimed at making the property easier to sell. His source of income is from real estate sales and the simpler they are, the easier the income. He cannot be faulted for his attitude. It is perfectly natural.

However, the owner is usually operating on a false premise. When he lists his property for sale with a Realtor, he is under the impression that the Realtor is working for him.

Actually he is working for anybody and everybody but him. The salesman hopes to find someone who will make an offer which he can convince the seller to accept.

At any rate, you decide to "list" the property, and the Realtor asks that the term be for not less than six months. If you question the length of time, he will probably state that the escrow closing could stretch out the time involved. He also would most certainly point to the fact that his company would have money invested in advertising, and they must protect their investment. It probably would not occur to most owners that the Realtor would spend fifty to one hundred dollars for advertising. While he expects the seller to tie up the amount of the sales price ($150,000 or more on average) for six months.

Sixty to ninety days is plenty of time to allow for a listing. For one thing, it insures the Realtor will give more attention to selling a property which is under his control for 60 days, than for one which he controls for six months.

Let us follow through on how a real estate listing and sale is handled. The majority of real estate firms belong to the local Board. They send all of the data concerning the subject property to the Board, and thereby it becomes the right of any member of that Board to sell the property and split the commission with the listing Realtor.

The operative words in the above sentence are "split the commission." No one wants to share his money with a competitor. Actually, that would be resorted to only if nothing else worked.

Thus let us say that you listed a 3 bedroom, 2 bath, living room, dinette, kitchen and family room for sale. A prospect wandered into the real estate office and inquired about the availability of just such a house.

The salesman asked a few questions about the family, their employment and income in order to qualify the party as to his financial ability to purchase property.

It appears there would be no money problems. Here was a red-hot prospect. Immediate action was indicated. He shows photos of several homes and makes an appointment to cruise around the next day and explore several of them.

He called you that evening and asked if he could show your house at 10:00 a.m. the next day. You agreed, and he stated that it was a company policy to show a property only if no one was present. He suggested that your family probably could stay at one of the neighbor's.

From your vantage point you saw that the salesman plus a middle-aged man and woman arrived promptly on schedule and left within fifteen minutes. If you were there, you would have heard your Realtor say, "Don't worry, I have seven more places I can show you today."

He knows he has people who can pay for a house, and he is not about to split his commission with anyone.

He will show them only homes that are listed by his office. You have only one home for sale and he has a number of them. He doesn't care which one he sells and he will not push any one of them until his client shows an interest in a particular one.

Unfortunately his efforts amount to practically naught that day, except for the fact that he has learned the couple are nature lovers and enjoy gardening and taking sun baths. Nothing he showed them had facilities for such activities.

It occurred to him that your house had a large rear yard, with a southern exposure. There was also a sun deck, which was secluded enough for any degree of sun bathing.

He hadn't shown his client he grounds around your home that morning. He remembered now that they had objected to the tile floors in the bathrooms and family rooms. Since they wanted wall to wall carpeting he hustled them away to another house.

It was late afternoon, and all were tired. Still he knew it was a poor sales policy to leave them overnight with nothing of interest to think about.

He said, "I have another place not far from here, which may be of interest to you. Let's drive over there and call it the last stop for the day."

They agreed and as he pulled up in front of your property, one of them said, "This place looks familiar. Haven't we been here before?" He admitted that it was the first stop the day, but for some reason he had neglected to show them the grounds.

He said they wouldn't need any appointment, since they wouldn't be going inside. They were impressed by the landscaping around the front and sides. But when they reached the back yard, they showed a definite interest.

The first thing the wife spotted was the outdoor furniture on the deck. "I wonder if they would mind if we sat down for a few minutes?" she said.

"I am sure they wouldn't," the Realtor responded, as he sank into a chaise lounge. It was the first time they had sat down all day, except for lunch, and it was a welcome respite.

The wife fantasized about the beautiful flower garden she could develop, with plenty of varieties for indoor bouquets. The husband observed that there was room for a large vegetable garden, even a patch of sweet corn.

Suddenly he said, "It is time we were leaving, since we have a dinner date. But do you suppose you could make an appointment for us to see the inside of the house again tomorrow?"

At ten o'clock the next morning, they found there was enough wall to wall carpeting, in storage, to take care of the bathrooms and family room. It was even cut the right size, since it was originally installed, but later changed to tile.

Everything seemed very livable. It would accommodate their furniture nicely. And the back lot cried out for development.

Of course the same situation prevailed the previous morning, but the Realtor had not take time to present it properly.

Be that as it may, it appears that you are headed for a possible sale of your house. It becomes more evident when the husband bends to the salesman's ear and in a guarded voice says, "And what did you say they are asking for this place?"

The salesman holds his finger across his lips seemingly as a warning that some family member may be listening, although he knows that they are alone. He whispers, "Let's clear out so that we can talk openly, without fear of being heard."

The couple nods their heads enthusiastically. Ten minutes later, they are in a "closing room" at the Realtor's office. He speaks first. "It is fortunate that we are talking about that particular house, because I am familiar with the financial situation, since I listed it for sale."

His eyes flitted from man to wife as he spoke, in an attempt to notice any change in their expressions. The next disclosure would be the critical one. "As to the price," he said, whereupon both prospects sat up straighter in their chairs, "The listing price is $149,995."

Neither person spoke nor changed expression. This was totally unexpected. Usually a prospective buyer would protest the amount asked as too great or would assume that it compared favorably with other prices in the neighborhood. He was not aware that they had bought a number of houses in years past.

He did know that they didn't seem very happy with the price he quoted. He was not cognizant of the fact that they knew exactly how to create that impression.

He did not want to lose this sale. They liked the place and had the purchase money. So now your Realtor, who represented you in the deal, becomes a dual personality. He said, "Of course, I would never think of offering them that kind of money. You can always raise it later, if you wish. When I took their listing they seemed to be anxious to sell. What do you say if we knock off $20,000 and put in an offer of $129,995?"

"Do you think they would stand still for that?" asked the husband. "It would be a good buy."

"We will never know until we try," observed the salesman tritely. "I will certainly impress upon them the advisability of accepting your offer."

Unfortunately I, the author, have no other information as to how your deal turned out. I would be greatly surprised if you accepted their offer. If you did accept it, the commission would probably be 6% or a total of $7,800, which would leave a net to you of $122,200.

On the other hand, if you stuck to your original asking price and the sale was consummated, the commission at 6% would total $9,000 with a net, in round numbers of $141,000.

In neither case could you afford the luxury of such sales expense. Remember, you are in business to accumulate money, and to do so you must eliminate or curtail spending at every legitimate avenue. One such place is in buying and selling property.

Copyright ©1995 Robert A. MacDonald, All Rights Reserved.
Last revised: May 10, 1998.