To Realtor, or Not To Realtor: Lesson Seven
What realtors do and whether it makes sense to use one.
Welcome back to the Theopetra Testament. Subscribe now so you don’t miss our weekly educational posts bridging the gap between cryptocurrency and real estate. This post, composed by our Self-Repaying Home team, will give you a brief update of financial markets in relation to housing before diving into the seventh part of our series on purchasing a home.
Current Mortgage Rate: 5.48%, with some whispers of conventional quotes at 6% or higher
Sooo the bears are dunking on the bulls, are they? And not just in equities, but in all markets. The Nasdaq drawdown (~30% YTD) is nearing COVID 2020 drawdown levels, fixed income (down ~8% YTD) is experiencing its worst start to a year in 3 decades, and individual name stocks such as Peloton, Coinbase, etc are all off 80% from their highs.
Bears have pushed bulls to two spaces: The Dollar (strongest level since the early 2000s; as such, great time to travel to Europe) and energy (oil over $100 a barrel, partially driven from supply chain issues). The move in energy has been so strong that it has masked a larger drawdown in the S&P500; while the index is down 17% YTD, the energy component of the S&P (making up just 4% of the index) is up an astonishing ~30%. Said another way, 96% of the S&P is easily in official bear market territory.
Oh Jay, what have you done? Unfortunately, the Fed is trapped, attempting to stave off the multi-decade high levels of inflation; May’s CPI report showed inflation still running hot, with airfare a large driver in printing another 8%+ inflation number. After this month’s 50 basis point hike, the market is now pricing in three consecutive 50 basis point hikes over the summer. With rates already off 0 and sitting at 1% (still historically ‘easy’ and ‘dovish’), this would put the Fed Funds target rate at ~2.50% by fall and matching last cycle’s highs.
In the background is the consumer, where data shows credit card utilization is at pre COVID level highs while savings rate has dropped to pre COVID lows. Not exactly a surprise when 2 pizzas and 20 chicken wings is now $110 (looking at you, Mellow Mushroom). A negative Q1 GDP print, reports of layoffs at mortgage originators (slowing housing market and Refis with where rates are), and the wealth effect destruction from aforementioned equity market losses means the market may already be in a recession and not even know it.
But let’s leave it to the Fed to see what they think, since they were so accurate in their judgment on inflation in 2021:
“Recession risk for US Economy not high at the moment” - Bullard
Interesting Housing Headlines
Goldman Sachs Group Inc. has put an $811 million mortgage-bond deal tied to five luxury hotels on hold, citing market volatility
Americans are stretching their budgets to buy new homes, hustling to strike deals quickly to avoid higher mortgage financing costs later
Buying a home may seem like a distant dream for many in today’s cutthroat housing market. That is, unless they’re willing to share that dream with a roommate or two
Lesson Seven: Seller’s Market... Do I Need a Realtor?
This post includes content from one of our friendly Theon realtors while the core team puts the finishing touches on our white papers. I have long been of the opinion that paying for realtors is a bit of a racket: 3% to the seller agent + 3% to the buyer agent for 6% total? Child please! I’m skeptical of anyone who gets paid based on a percent of something rather than a set fee. Does it really take 3x the work to sell a $900k house than a $300k house? How are fees still 4-6% of the sale when the commissions on everything else have compressed over the years? Let’s hear from our realtor friend on what realtors do and whether it makes sense to use a realtor or try to sell on your own.
Being a Real Estate agent is a full-time job. Having to make yourself available at someone else’s convenience is generally, well...inconvenient. The thought of saving some extra $$$ on the sale of your home may sound like a no-brainer, but the sacrifice you make along the way may or may not prove to be more costly. According to the National Association of Realtors (NAR), For Sale By Owners (FSBO) sell for about 13% less on average than agented properties. **One giant caveat here is that less expensive homes are more commonly sold as FSBO, dragging down the average sale price. Therefore, I highly doubt that for the same house a realtor sold home results in a 13% higher sale price (statistics can be used to tell whatever story you want!).
Who can see your home? Long gone are the days of front yard signs and newspaper ads being the main way of marketing your home. It is all about the MLS (multiple listing service) these days, which gets pulled by agents and popular sites like Zillow and Redfin. Through these servers, agents routinely create automated listings for the clients to show any properties that may fit their desired criteria. While sites like Zillow allow for anyone to create their own listings, there is a potentially larger (more professional) audience to be had when using an agent. You may need to gauge how strong the market is at the time of sale whether having a slightly bigger audience will be the difference between selling or not.
Mispriced Listings. Emotional attachment to homes is a real thing and can lead to mispriced listings. Sentimental value, while true, does not get to be factored into the price. From the buyer’s perspective, it is a foundation with walls, a roof, and some unique paint colors that they most certainly will not agree with. Aspects of the home you “lived with” are glaring eye-sores to the buyer and things they would change “right away”. Through the guidance of HGTV everyone is a self-proclaimed fixer upper or the next home decor guru so the ideas and visions are never in short supply. Nonetheless, the value at which you see your home may not be entirely objective, and these remarks from potential buyers may not sit well with you. If on the other hand you can be objective and have a good sense of where the market is, this shouldn’t be an issue.
Negotiation skills. Those little digs about your taste and style and decor and fixtures and color choice for walls and cabinets and carpets and flooring and...get my point? Buyers can have a lot to say when it comes time for negotiations, so determine whether it makes sense for you to have someone else negotiate on your behalf. Allowing all negotiations to go through a realtor could allow for objective pricing and for the more levelhead conversations about terms and agreements. There is always the guy out there trying to trade you their WR5 for your RB2 in Fantasy Football just to see if you’ll accept it. Try to self reflect on whether you’d be comfortable negotiating on your own or if you’d prefer a realtor.
Time. Selling a house may be a time consuming endeavor, especially if the market isn’t hot or your home isn’t super desirable. You may have dogs and kids running around or prefer to spend your time yield farming the next ponzi and not want to deal with the extra work. Be realistic about how much time you have to devote to the sale if you don’t hire a realtor.
Turn-off to Realtors. Although not necessarily a deal breaker, some buyer’s agents are reluctant to show FSBO homes. Mainly because paperwork and compensation are sticking points that do not want to be dealt with appropriately from the seller. The amount of paperwork can be cumbersome when writing/reading real estate contracts. The amount of time and effort an agent takes to show their clients multiple listings can be extensive and they wish to be compensated appropriately. Considering the seller is responsible for the commission rate, the buyer agent is often overlooked and undervalued from their point of view. This leads to lower commission rates and additional headaches that may just be avoided altogether by some agents.
Savings. This is the big one and for some may outweigh all of the realtor benefits. 3-6% can be a substantial savings, especially as home prices have soared. You can (mostly) only control the seller agent fees but it would obviously be even better if the buyer agent is cut out as well.
Control. You will be in complete control of the process and final decision. Realtor’s incentives are not always aligned with the seller as they’d rather sell the home quickly at a slightly lower price than do more work for only a small amount more in their pocket.
Not super complicated. You remember that football player kid from high school who barely graduated and now is cleaning up as the real estate agent as he retells his glory days? If he can do it, you probably can too. There are more resources than ever on the internet at your disposal and it could be a fun skill to learn.
Seller’s To-Do list
Still considering selling on your own? If you are the motivated, go-getter, organized type - then more power to you! Here is a quick look at what some consider the most troubling task when going to sell...
Preparing home for sale - home staging, decluttering, removing personal items, and touching up work in most needed areas can be cumbersome.
Paperwork - while documents and contracts vary by state, the legal aspect of selling a home can be daunting to sellers. FSBO used to be around 20% in the 1980s before the NAR lobbying cartel had the process made more complicated.
Pricing the home right/Selling on time - as stated above, taking the emotional value out of the listing price can be difficult. If you choose not to get a realtor you can have an appraisal done prior to listing.
Having enough time to sell - making yourself available around everyone else’s schedule isn’t easy. Most buyers are available for showings during nights and weekends. Your free time turns into their time a.k.a. No Netflix, no chill.
FSBO Resources (not comprehensive and we have no affiliation)
These sites (and those like them) generally help with the most important part of listing your home- getting on the MLS. They also help with annoying parts and provide direction throughout while saving you a ton if you can make it work. You may also consider a discount realtor like Redfin or others who still provide many of the same services but typically charge lower fees.
Summing it up
While not a comprehensive list of all the details that go into the FSBO process, this should shed some light and help prepare you if this is the route you choose to take. Many choose to sell on their own and this may vary by region depending on state requirements and time/motivation of the seller. One last major hurdle purposefully omitted on this post is...where are you moving to? Most sellers need to find another home to move into. Add in this additional stress of finding another property, lining up closing dates, and transferring funds can further complicate the entire selling process.
Having said all of that, it may make sense to at least test the waters and ask around or post on your neighborhood NextDoor/Facebook/listserv to see if any neighbors know of any potential buyers. Cutting out the standard 3% + 3% on both sides of the trade while coming to a fair price can be a win/win if done well.
Realtors can definitely make the process much easier but make no mistake- you are certainly paying for it. It is up to you whether the cost justifies the convenience.
More to Come...
In this post we discussed the job of a Realtor from a seller’s perspective and what the process may look like if you choose to try the For Sale By Owner (FSBO) approach. In our next post, we will discuss the realtor process from the buyer’s perspective.