Home Selling Tips for a Slowing Market

In last year’s sellers market, selling your home fast and for top dollar was easy. In most parts of the country, it’s now a buyers market. Nevertheless there are many steps sellers can take to enhance the likelihood of a relatively speedy sale.

The first thing home sellers must do is recognize that the mood of buyers has changed dramatically. The inventory of homes for sale has doubled, and in some areas tripled, since last summer. Buyers have plenty of choice, are very much aware that they have the negotiating edge, and they have no reason to look at homes that aren’t priced competitively. Realistic home pricing is thus much more important today than in recent years, when the rapid appreciation could turn an overpriced home into a fairly priced home in a few months. Today the opposite is more likely to happen.

When pricing a home in today’s market, sellers should make sure their asking price is very competitive in their current marketplace. In looking at prior sales, they should consider only the most recent comparable home sales in their neighborhood (or zip code if necessary to get enough examples), because sales that are more than 3-4 months old (which were based on market prices several months earlier) may be substantially higher than today’s market prices. In setting a price on your home it is important that your home is priced very competitively, especially if you have moving deadlines to meet.

There are some other things a home seller can do on the financial side to gain a bit of an edge. Today 70% of home buyers do much of their home search on the Internet, where the multiple listing services (MLSs) now also provide partial listing information to their member brokers’ consumer-facing websites and to Realtor.com, the largest single compilation of homes for sale. Thus if your home is in the MLS, competitively priced, and well presented, a large number of potential buyers will see it, whether you have listed your home a with a traditional full service broker (at 5-7%) or a flat fee real estate broker, who will list your home in the MLS (and through it to 70% of buyers) for as little as $200.

That’s all many flat fee brokers will do for you (some have a menu of additional services, such as hosting open houses, assisting in negotiations, for additional fees). You also need to make sure you meet all the regulatory requirements of a home seller (if you decide to use a real estate attorney for your settlement you should pick them in advance, and ask them to also advise you on what else you will need to do in that state). The effect of that savings can substantially increase the home seller’s proceeds. However sellers should remember that custom in the full commission broker segment that continues to dominate the industry is for listing brokers to offer to roughly split the traditional 6% commission between themselves and the broker that procures the buyer. A home seller using a flat fee broker does not have to offer 3% to a broker that procures the buyer, since home buyers who find out about the home on the Internet may come to you directly, or even if working with a buyer’s broker may insist that their broker show them the home. Keep in mind however that brokers who represent buyers need to make a living, and that many will be very reluctant to show a home if the seller isn’t offering them a commission on the buyers’ side. Nonetheless, even a 3% commission + $200 is a heck of a lot less than a 6% commission, so even if a seller is using a flat fee broker they should consider this option.

There are other things on the financial side that sellers can do as well. Offering settlement cost assistance, such as paying the points on the buyer’s mortgage or providing a “decorating allowance”, even if the home doesn’t need it, can effectively lower the initial costs for potential buyers that may be a little shy of the full amount needed for a down payment and settlement costs. Offering to “buy down” the mortgage interest rate for the first year or several years can also be attractive to potential buyers. Another alternative is for the seller to finance part of the purchase, but they need to be wary of the risks this can entail in a declining market. Some sellers are offering new cars, vacations, or other economic incentives as well.

Sellers need to make sure their home is in the best possible condition if they expect to get top dollar. Today’s buyers will not overlook cosmetic flaws that they would have turned a blind eye to last year. Unless you are willing to take a substantial markdown, and wait longer to sell your home, make sure you have done all you can to improve its curb appeal. This does not necessarily mean following every single recommendation of a real estate agent. It doesn’t always make sense to spend $100,000 on home upgrades to raise the selling proceeds by $50,000.

Pricing today is very important, so an alternative in many cases is to recognize that your home’s condition isn’t competitive with some of the homes in your area and cut the price by $50,000 instead. That’s not to suggest that some improvements aren’t well worth the effort. Studies by the National Association of the Remodeling Industry have shown that some improvements, like updating a bathroom or kitchen that is in very poor condition or badly out of date, will return nearly 100% of the investment as long as you don’t go overboard. Some other improvements will return very little of the investment.

Thinning out cluttered homes is a helpful step because it makes the rooms look bigger, so consider having the yard sale before you list the home. Repaint in neutral colors rooms that need it or which have loud colors (same for the home’s exterior). Steam clean stained carpets, and consider replacing them if they are worn or the stains won’t come out. Consider spending a little on landscaping if the yard could use it. Even a few hundred dollars worth of trees, shrubs, and flowers can substantially improve the home’s curb appeal.

Sellers should be flexible on other aspects as well. If the buyer needs to move in before you were planning to move out, consider that sellers are hard to come by these days. Because of the glut of homes, most open houses have less traffic today than they did last year. But if no one is coming to your open houses at all, it's probably time to lower your price. The reduction should be large enough to get the attention of more buyers, and it would also make sense to realist the home in the MLS at the same time you drop the price so it appears new to the market.

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Congress Scrutinizes Real Estate Competition

Congress capped a growing body of exposes’ regarding real estate malpractice with July 25 hearings focusing on the anti-consumer practices of the National Association of Realtors and state real estate associations and commissions. Anti-competitive practices are beginning to be removed, thanks to pressure from federal agencies and consumer organizations. All of this augers for more choices for home buyers and sellers.

The Consumer Federation of America (CFA), the national advocacy group which represents the American Homeowners Grassroots Alliance and nearly 300 other consumer advocacy organizations, issued a late July study that revealed that 79 percent of all state real estate commissioners "earn a living through real estate transactions," with 70 percent working as real estate brokers or salespersons and 9 percent working in real estate-related professions. The commissions’ responsibility is protecting consumers, but both the Department of Justice and the FTC have had to intervene many times to stop state real estate commissions from adopting regulations that would hurt consumers.

Both their actions and their composition justifies the call for independent regulation of real estate commissions and the real estate brokerage sector. CFA’s study proves that the majority of Commission members, who are active real estate professionals, have surrendered to a "blatant conflict of interest," according to the study. The real estate law in four states -- Idaho, Louisiana, Mississippi and Nevada -- requires that all real estate commissioners be real estate brokers or salespersons. Eleven states "require at least four-fifths of commissioners to hold real estate licensees."

CFA also published an eight-page report, "How the Real Estate Cartel Harms Consumers and How Consumers Can Protect Themselves" in June. It demonstrated how industry and regulatory practices have stifled competition and hurt consumers' interests. CFA had plenty of company voicing similar opinions at a July 25 Congressional hearing that focused on the anticompetitive practices in the consumer sector.

At the hearing federal agencies, consumer advocacy organizations (including CFA and AHGA), and both an association of flat fee brokers and several non-traditional real estate brokers all documented the anticompetitive practices of the National Association of Realtors, state real estate associations and commissions, and multiple listing services (MLSs).

Mr. J. Bruce McDonald, Deputy Assistant Attorney General, Antitrust Division, Department of Justice, said “it appears that the effect of these (industry) restrictions is not to protect consumers, but to interfere with their freedom to choose, and pay for, only the services they want. The Antitrust Division recently has brought an enforcement action against the Kentucky Real Estate Commission, which had imposed regulations prohibiting brokers from giving clients rebates on their commissions restrictive real estate brokerage rules that violated Section 1 of the Sherman Act. The Commission gave in and rescinded the regulation. Since then, real estate commissions in West Virginia and South Dakota likewise have decided to rescind regulatory bans on rebates, without the need for any enforcement action.

In September, DoJ filed an antitrust action against the National Association of Realtors (NAR), which had adopted nationwide rules that limit competition by real estate brokers using innovative business models and the Internet to offer better services to their customers. The NAR rules, which apply to all of NAR’s local multiple listings services (MLS), discriminate against brokers that use the Internet to communicate to their customers the listing information about houses for sale in their locality. NAR’s so-called “opt out” rules allow traditional brokers to withhold their listings from the websites of these web-based brokers. The opt-out restrictions prevent brokers using the Internet from providing to customers a full picture of the houses available in the community. The NAR rules undercut competition from this innovative business model, discourage discounting, and limit consumer choice.

NAR’s original opt-out rule allowed traditional brokers to single out individual web-based brokers for this discriminatory treatment. On the morning the U.S. lawsuit was filed, NAR announced a revised rule, under which traditional brokers can elect a “blanket opt out” and withhold their listings from all broker websites, but cannot choose to withhold listings only from selected web-based brokers. However, this revised rule specifically exempts from a blanket opt out NAR’s own official website, Realtor.com; so in practice the opt-out rule targets only the web-based brokers. In DoJ’s view, “neither version of the rule has any procompetitive merit, and both violate the antitrust laws.” AHGA also believes the revised opt-out rules will be utilized to undermine competition by the dominant real estate brokers in the many markets where one or two firms dominate. “The large brokers in some markets have a critical mass of both buyers and sellers” said AHGA President Bruce Hahn. “They’ll be very tempted to use the revised opt-out rule as a cover for withholding listings from the consumer-facing websites of all of their competitors, including small independent traditional brokers, effectively starving them out of business, while limiting the exposure of consumers’ homes”.

Maureen Ohlhausen, Director of the Federal Trade Commission’s Office of Policy Planning noted that “alternative brokerage models that offer a real promise of greater competition (and greater savings) for consumers, and we are committed to using our enforcement, advocacy, and research capabilities to protect the interests of consumers in this important market.” Ms Ohlhausen also noted that “minimum-service laws limit consumer choice and harm consumers who would otherwise choose a limited-service option by preventing them from purchasing their most-preferred combination of price and service. Required to provide more services than they otherwise would (in the face of a minimum-service law), a limited-service broker must raise his or her price accordingly. The result is that some consumers will be forced to purchase more real estate brokerage service than they otherwise would prefer – at a higher price than they otherwise would pay.” Many of the DoJ and FTC views were echoed by Mr. David G. Wood, Director, Financial Markets and Community Investment, Government Accountability Office.

Consumer witnesses and several new business model owners also condemned the anticompetitive and anti-consumer efforts of the real estate trade associations. Stephen Brobeck, Executive Director of the Consumer Federation of America, testified on behalf of both CFA and AHGA. He took aim at state anti-rebate laws: “These blatantly anti-competitive laws, which have been opposed by the Department of Justice, make it impossible for buyer brokers to introduce price competition through rebating a portion of near-uniform commission splits.” In addition Mr. Brobeck recommended that “because the MLSs and Realtor.com so dominate listing services, they function as a near-monopoly and should be regulated as a public utility.” In both its testimony and CFA’s recent report it “strongly recommends that states prohibit practicing brokers from serving as commissioners” noting that a “more desirable regulatory system would allow brokers to serve on advisory groups but allow fulltime professionals to regulate brokerage services. That would make regulation of these services more like the regulation of other services such as insurance and utilities.”

AHGA separately submitted its own testimony supplementing CFA/AHGA’s joint views. Speaking only for itself, AHGA recommended additional actions by Congress, including “legislation outlawing specific types of anticompetitive state legislation or industry regulations; the creation of a federal “Real Estate Commission” that would oversee the regulatory activities of NAR and the state associations (much as the SEC oversees the activities of NASD and the stock exchanges); and providing additional powers and resources to the Department of Justice and the Federal Trade Commission that would be dedicated to this effort.” AHGA also noted that there are other problem areas in real estate services – such as dual agency – that deserve a separate set of hearings and separate solutions.

Aaron Farmer, with Texas Discount Realty, Austin, TX, testified on behalf of the American Real Estate Broker Alliance (AREBA/wwwAREBA.org). Mr. Farmer chronicled the efforts of the Texas Real Estate Commission to deny consumers access to flat fee brokers despite the fact that the commission had received no consumer complaints in this area. TREC administrator Wayne Thorburn (who was at the time also President of the Association of Real Estate License Law Officials) refused to distribute AHGA’s comments to commissioners for consideration during review of their proposed minimum services regulation. Under pressure from the Justice Department and FTC, Administrator Thornburn’s commission subsequently withdrew the proposed regulation.

Glenn Kelman, President & CEO of Redfin Corporation, the first online real estate brokerage in the United States, revealed that “Sixty-three percent of our customers report meddling from other agents, who in the absence of clear consumer law make up grade-school legal mumbo-jumbo to scare our clients... Many agents have told our clients that the sellers would never see their offer because it came from Redfin.” He also noted that “The realtor industry’s rhetoric opposing government action is hogwash.”

Kimberly Gorsuch-Bradbury, Senior Vice President, Real Estate Networks, LendingTree, LLC, observed that “today’s customer is extremely savvy and comfortable making his or her own decision...We believe that our consumers expect to be able to choose the particular real estate brokerage services they want and need.” She also gave an excellent accounting of how much state anti-rebate laws are potentially costing consumers: “Last year, there were approximately 160,000 sales of existing homes in New Jersey, and the average sales price of these homes was approximately $365,000. At that sales price, consumers using our service could have each received a rebate of $1,250. Therefore, the potential savings to New Jersey consumers is enormous, nearly $200 million last year alone. Yet the State of New Jersey prohibits such consumer benefits.”

The National Association of Realtors (NAR) resorted to its shop worn obfuscation/mantra. Almost all of NAR’s members are full service/full commission brokers and salespersons. Pat Vredevoogd-Combs, broker-owner and partner of Michigan-based AJS Realty as well as 2006 NAR President elect pointed out that “Agents in local markets compete fiercely for listings from potential sellers, for potential buyers, and many times, for both.” Of course the high levels of competition within NAR’s members’ full service/full commission market segment does not justify the ongoing efforts of NAR and state real estate associations and commissions to undermine and/or eliminate other business models in real estate brokerage.

Fortunately there is recent good news for competition in real estate services. In July, the FTC announced a consent agreement with the Austin Board of Realtors to eliminate the practice of segregating non-traditional real estate listings of properties from internet websites. Other MLSs are expected to cave in to federal regulatory pressure as well. As a result home buyers will no longer find those listings hidden from their initial view of listings. In addition the New Mexico Real Estate Commission recently rescinded a minimum-service rule. And Michigan governor Jennifer Granholm has threatened to veto minimum services legislation advocated by the 2006 NAR President-elect’s state real estate association.

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