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For Sale By Owner (FSBO) Myths (And a Couple of Facts)

Friday, June 17th, 2016

Updated in 2016…

With more than 90% of prospective buyers beginning their home search online and multiple web outlets for listing publication, it seems that more sellers would be bucking the broker’s commission and listing their property for sale by owner (FSBO). Cutting a commission by 3-6% could save thousands of dollars, but it would also put some real estate brokers out of business. At RealDirect, we recognize that the traditional method of selling real estate needs to adjust and embrace a new way of doing things in order to stay relevant. However, to many brokers who are wedded to a standard commission, the easiest way to keep money coming in is to use fear. Fear that selling with anyone but a traditional broker is hard. Fear that buyers’ brokers won’t show homes that are not listed with the big brokers. Fear that sellers won’t know how to price their property. While the list goes on and on, most of these fear tactics are inaccurate at best, and outright lies at worst. If you’re thinking about selling your home without a traditional broker (or a FSBO), we’d like to debunk some of the for sale by owner myths (and share a couple of facts).

Myths

Myth: If you don’t list with us, we won’t bring our buyers.

Fact: Buyers’ agents want to earn a commission. If their client says they want to see a property, agents will typically try to work out a deal. However, getting brokers and owner to agree to a deal can be tricky, with many of the large brokerages refusing to show homes where they do not have agreements in place. But by working with an FSBO like service such as RealDirect’s Owner Managed service, we take care of the agreement, so it will be easy for brokers to show your home. Plus we are members of the Real Estate Board of NY – which is the de facto MLS in NYC. Being a member of REBNY requires that you co-broke with all other REBNY brokers.

Myth: You’ll get more money if you sell with a traditional broker.

Fact: That’s just plain fuzzy math. First, this does not take into consideration that the net proceeds could be higher with alternative sales models because the closing costs are lower (i.e. commissions) even if the sales price is lower. But even if you do not take that into consideration, if the property is marketed to every possible buyer, as done with RealDirect, the sale will be highly competitive, and you will get the highest possible price.

Myth: It’s too much work for you to handle on your own.

Fact: Maybe. It depends on how much time you’re able to devote to showing and answering questions about your home. That’s why RealDirect offers different listing options which allow you to handle your own showings and open houses or have a licensed agent do them for you. Our platform has baked in marketing that covers all the mediums a traditional broker would use (and several they don’t). We’re available to negotiate for you, or you can handle it yourself. Because every situation and every seller is different, we don’t prescribe to a one-size-fits-all real estate model and we don’t believe in one-size-fits-all pricing. You shouldn’t have to, either.

That said, there are some scary things brokers will tell you that are actually accurate.

Fact: People won’t find you unless you’re in the MLS.
Your local MLS is what most buyers’ brokers use to find properties for their clients, and also where sites such as Streeteasy, Trulia, Zillow and others get some of their listing info. While it’s certainly possible to find a direct buyer by doing your own advertising, if you want to appeal to the widest buyer base possible, it is critical that your listing appear in the MLS. And being in the MLS (or REBNY database in NYC) will also help you with the next one…

Fact: You have to offer a buyer’s broker commission.
While you can forego paying 2.5-3% to a seller’s broker by listing your home “for sale by owner (FSBO)”, if you want brokers to bring buyers to your home, you have to be willing to pay their commission. You can opt to only show your home to direct buyers with a strict “no brokers” policy, but in doing so, you eliminate every single buyer who wishes to work with a broker instead of representing themselves – and that is the majority of buyers. And eliminating buyers from the buyer pool can result in a lower purchase price, and work against your sale.

So the key to successfully selling your home as a FSBO is to do your research, understand how the process works, realistically evaluate your level of time and willingness to do work, and make a decision you’re comfortable with. Scare tactics are just that. Don’t believe the “for sale by owner” myths.

How to FSBO in NYC

Friday, June 17th, 2016

Updated for 2016…

When you are a real estate agent, one of the first rules of business is to reach out to “For Sale By Owner” listings (FSBO) and try to convince sellers to list with you.  It makes sense, since this group typically has a high rate of failure and usually decides to list with an agent after going it alone for a few weeks or months.  Since we operate a new kind of real estate company that can truly benefit FSBO sellers (among others), I figured I would share what I have learned in talking to NYC FSBO sellers as well as other real estate agents that call on FSBOs.

Here’s what I’ve learned:

Unfortunately, when some agents call on the FSBO, they don’t just come out and say they want their listing. Instead, they apply the “bait and switch”. First they say that they want to “preview” the apartment for an unnamed client or clients. This gets the FSBOs excited that they have an interested buyer and also puts the FSBO seller in a frame of mind that is more receptive to talking to a real estate agent (many FSBOs explicitly say “no brokers” on their listings for this reason). After a tour of the home and some compliments (“did you decorate this yourself?  It looks fantastic!”), the agents take out a glossy folder extolling the virtues of their firms, suggest that if the sellers wants to list, they should list with them, and then never bring a single buyer to the sellers’ homes. (more…)

How Real Estate Brokerage Commissions Work

Friday, April 24th, 2015

Before I became a real estate broker, I thought I knew how real estate brokers were paid. Listing brokers would simply split the commission with the buyer’s broker, and everyone took their money at the closing and lived happily ever after. And if there was no buyer’s broker, I figured the owner of the property would save the buyer’s broker commission.

Well, I clearly had no idea how it all worked. Here are some of the common misconceptions about real estate brokerage commissions, and the truth about how real estate brokerage commissions work.

1. Real Estate Brokerage commissions are way too high!
Actually I started RealDirect because of this myth, but eventually learned this was not, in fact, true. What I did discover, however, is that real estate brokerage commissions are almost always wrong. For every deal that closes in 2 weeks from when the property was listed, there are others that are on the market for a year and then get de-listed, only to be given to another brokerage. In the first case, the broker probably received a windfall for 2 weeks’ worth of work. But in the second case, a year’s worth of work was provided for free. So in all likelihood, any given deal is probably paying too much or too little to the broker.

2. Real Estate Agents can cut their commission to get a deal done.
While some agents will cut their commissions to get a deal done, not all can. Depending on the price of the home, the number of agents on the deal and the commission offered, it may or may not make sense to reduce the commission. And some brokerages have a blanket prohibition on this.

3. Real Estate Agent commissions are fixed by the brokerage.
Rarely do brokerages have fixed commissions – but they will often have minimums that they will take, and those are often tied to gross commission revenue rather than percentages per deal.

4. All Real Estate Brokerage commissions are 6%.
Commissions vary by region and company with some higher than 6% in low price areas with slow moving inventory, and lower in others.

5. Real Estate agents split their commissions evenly with their brokerage.
Commission splits vary dramatically between brokerages and even withing brokerages. There are 100% commission brokerages, where agents pay a fixed transaction fee per deal, and a monthly “desk fee”, and more traditional brokerages where the split is determined by how much business a broker does – i.e. the more business they bring in, the higher the split.

6. Real Estate Agents split the commission evenly between buyer’s and seller’s agent.
Listing agents offer what appears to be a 50:50 split, but it doesn’t have to be. Many listing agents are willing to pay more to buyer’s agents than they are getting for their listing.

7. If I don’t use an agent, the listing broker will make more money.
In many cases, listing brokers will keep the entire commission if the buyer comes without a broker. But some brokerages, like RealDirect, take a fixed commission or fee regardless of whether there is a buyer’s broker – so the seller gets the benefit of a direct deal, and not the broker.

8. If I don’t use an agent, the owner will save money, making my offer better to them.
While this is true for RealDirect, and for FSBO sellers, in most situations, as we have said above, the owner does not benefit from direct deals. So using a service like RealDirect for Buyers is the best way for buyers to gain an advantage on a purchase.

Kitchen Renovations for Resale: What You Get For the Money

Friday, April 24th, 2015

From a few hundred dollars for some paint and new hardware, to a six-figure gut renovation, updating a kitchen can be accomplished in a multitude of ways. Whether your kitchen just needs to be freshened up, or requires a complete overhaul, you’ll want to create a space that works for your own needs and adds to the resale value of your home. We’ve put together this guide to help you determine what your kitchen renovation needs really are and how best to accomplish your goals with an eye to resale.

Before undertaking a kitchen renovation, it’s important to assess your needs. Ask yourself the following questions:

What is my budget?
Does my current kitchen layout work?
What condition is my kitchen in? Can it be refinished, does it need to be gutted, or somewhere in between?

Once you have a clear picture of what needs to be addressed and how much you want to spend, you can move forward with your renovation project.

The Budget Kitchen Overhaul:
kitchen has functional layout, working appliances, cabinets & countertops in good condition
-paint walls
-paint cabinets
-change hardware
bonus – change out flooring, laminate, peel & stick, tile, add backsplash

Entry level renovation:
kitchen has functional layout, may need new appliances, countertops, floor
-paint walls
-paint cabinets
-change out light fixture
-new countertops (laminate)
-change out flooring
-add backsplash
-new hardware
-stainless steel appliances

Mid-range renovation
layout doesn’t work, nothing is salvageable
-new kitchen layout
-move plumbing
-midrange appliances
-rearrange cabinetry
-new cabinets (Ikea or Home Depot)
-new hardware
-new flooring
-new fixtures

High-end renovation
custom everything
high end appliances
architect design

http://www.remodeling.hw.net/2011/costvsvalue/division/middle-atlantic/city/new-york–ny.aspx

budget:
paint
flooring
backsplash
diy

low:
ikea cabinets
tile
stainless appliances

mid-range:
pre-fab cabinets
solid surface countertops

high end:
custom cabinetry
space reconfiguring

How to Save Money When Buying or Selling a Home

Friday, April 24th, 2015

Use these 4 tips to save money when buying or selling your next home.

Buyers:

1.  Negotiate directly with FSBOs.

Many FSBOs advertise that they are willing to pay a brokers commission, but keep in mind that if you bring your buyers broker to the deal, the price you offer will be 3% less attractive to the buyer than if you were to have come to them as a direct buyer.  So while buyers brokers offer a lot of value and do a lot of work in a transaction – and do not typically cost the buyer any money (because of how commissions are structured) – a buyer can sometimes get a better deal without one if the seller is a FSBO.

2. Ask for a rebate.

Sellers often ask for reduced commissions from their listing agents, but buyers rarely do.  Since buyers do not technically pay the broker (the commission is paid by the seller), buyers often feel that the service is free.  Of course, nothing is free, and that is especially true in real estate!  A buyer’s broker gets a percentage of the deal (usually 3%) and a buyer can sometimes negotiate a rebate from the buyer’s broker ahead of time.  In our case at RealDirect, we rebate up to 1% of the sale price to the buyer on closing, keeping just 2% for ourselves.  This rebate is, in effect, a reduction of the purchase price, and a great way to get a better deal on a property.

Sellers:

1. Use the web to list your home.

The internet provides great opportunities to reach buyers more efficiently than ever before, and you can use web based services to easily get the word out that your home is for sale.  Places like NYTimes.com, Streeteasy and Facebook will reach most of your buyers.  And some companies like RealDirect’s Owner Managed service will send your listing to those places and also the local broker database for a monthly fee. In this case, you can save a listing broker’s commission, and potentially save the full commission if you sell to a direct buyer.

2. Negotiate a different commission with your broker if a buyer doesn’t have a buyer’s broker.

Many sellers try to negotiate their overall commission, but most do not realize there are other ways to bring your commission lower and can have a higher degree of savings.  In a typical commission agreement, if a buyer is unrepresented, the listing broker keeps the full commission (usually 6%), which is usually at least 2x as much as they would have received if there was a buyer’s broker on the other side.  Yes, there is often some more work to do if there isn’t a buyer’s broker, but not 2x the work.  Some brokers would consider shaving a point off the commission if there was a direct buyer. And other firms, like RealDirect’s Agent Managed program, only takes a 2% commission regardless of whether the buyer has a broker or not.  If they do not, the seller gets the benefit of the savings, not the brokerage.

Low Inventory: What does this mean for NYC Home Buyers and Sellers?

Tuesday, December 16th, 2014

Brokers like to quote market reports showing that NYC Co-op “inventory” is lower than last year, and that in general, there are fewer homes on the market now than in the past few years. What does this mean, and why is this happening?

First, the word “inventory” needs to be explained. While homes are not like cars that sit on a lot, the amount of homes that are for sale at any given moment is the “inventory” that buyers have to choose from. There is also the “shadow inventory” that people referred to a few years ago – homes that would have been for sale but for the fact that they have mortgages that have put them under water, keeping them temporarily off market. But those don’t have much of a presence in the NYC since most homes are purchased with a 15% or more down payment, and the market never had the sustained dip that others have had.

But the question remains – why are there less homes for sale now – specifically in the NYC market – than there have been historically?

There are all kinds of theories about why (both macro and micro) but our opinion is that people prefer cities to suburbs more than they did in the past. It used to be that the “first home” segment of the market was heavily favored towards urban living, but that as people advanced to other stages of life, they would gradually leave for the suburbs. This started in the 1950s when highways opened up suburban neighborhoods, and many middle class families fled to suburbs for lower crime and open spaces.

However as we now see, with a steep decline in the crime rate, and the appreciation for a shorter commute and greener footprint, city living is a more and more attractive alternative not just for young singles, but for families, retirees and other demographics. Others have pointed out that suburban homes were designed to have a full time “homemaker”, and that families with a homemaker are in rapid decline.

And as fewer people leave, and demand grows, inventory declines and prices increase.

This is exacerbated in Manhattan and to a lesser but still significant extent, Brooklyn, by the fact that all new construction seems to only be for the wealthy and foreign investors, with prices from $2-4K/foot.

So with the new construction market favoring the wealthy, what’s an average buyer to do? RealDirect CEO, Doug Perlson, offers the following 3 tips:

“First, if you want to live in a “hot” neighborhood, buy a co-op over a condo (assuming you can qualify). You will get more bang for your buck, because you will not be competing with investors and foreign buyers, who are typically limited to condominiums.

Second, consider neighborhoods that are “up and coming” rather than the ones that you have been priced out of. For example, if you can’t find the perfect home in Park Slope, consider Jackson Heights, where a charming pre-war classic 6 apartment could be less than half of the price.

Third, use RealDirect and get back up to 1 percent on your purchase to offset the sting of the high price.”

And if you are a seller, congratulations! You are selling into a market with limited choices for buyers, so you should see a great return on your investment.

14 Tips To Pass Your Co-op Board Interview

Thursday, December 12th, 2013

Every NYC buyer must make the decision whether or not they want to live in a condo or co-op. If you want to go with a co-op, then understand that there is a process involved. A big process. With lots of steps. Lots of paperwork. But the last step in the process can sometimes be the most frustrating (and scary!)…The board interview. (cue Jaws theme song)

If you’ve gotten this far though, please remember that it’s a great sign. It means that the board feels your paperwork was sufficient and now they want to get to know you better as a person. So here’s a few tips of the trade that we advise our clients before the big day:

1. Make sure you know the time and location before the day of the interview. Nothing could be worse than showing up at the wrong location or arriving late.

2. Answer only the questions that are given to you. No need to add extraneous information that they have not queried.

3. Smile! Above all, these people will be sharing the elevator, mail room, etc with you — they want to know that you will be a good neighbor.

4. Dress like a job interview. Try to be as “put together” as possible. Nobody wants a messy neighbor.

5. If it comes up, try to express any long term plans to stay in the apartment. Absolutely do not mention anything about wanting to sublet or leaving the apartment vacant for too long. Even if it’s a pied-a-terre, they want to know that you will be using it as a weekend residence as opposed to a hotel.

6. If it pertains to you, talk about your stability of career, family ties, etc. Do NOT mention if you know anyone in the building unless you are sure everyone loves them. (Being friends with the neighbor who takes out his garbage in the nude won’t do you any good.)

7. Do NOT mention anything that would infer you would be coming into/out of the building late at night or hosting parties.

8. Do NOT bring a gift or flowers.

9. Do NOT tell them you are a smoker, and if you are, please do not smoke before the meeting. (although you might want one afterwards!)

10. Try not to ask too many questions. You are the one being interviewed.

11. Don’t be offended if they ask you personal questions. This is par for the course and unfortunately part of the process. Answer these questions with direct responses and try not to elaborate too much.

12. It’s the 21st century, so please realize that the board members will likely google you either before or after the interview, so it’s important to take a quick look at what the public can see on your twitter/FB/instagram accounts. Make sure that whatever you are telling them about your job, living situation, etc matches up with what they can find online. (aka take down any pictures of you hugging a 200-lb pitbull)

13. Board interviews can range from exchanging simple niceties to an all-out inquisition. The best policy is to expect the worst, but hope for the best. That way there are no surprises!

14. Be yourself, be polite and don’t forget to mention how much you love the apartment and want to live in the building!

Best of luck!

Simplify Your NYC Apartment Search with New Buyer Tools

Thursday, February 28th, 2013

The core of our mission at RealDirect is to utilize technology to simplify the process of buying and selling real estate. With everything we do, we continue to push toward more efficient methods of matching properties with buyers. To this end, we have recently released new features which make it easier for buyers to quickly find the most suitable properties for their needs.

Buyer Survey
One way we’re helping buyers find their new home faster is through integration of our Buyer Survey with property search. Buyers wishing to receive personalized property recommendations can fill out all or part of our 65 point survey which helps define which criteria are most important in a new apartment. Our survey asks buyers questions such as which schools, parks or transit lines they wish to live near, are they willing to do renovations or live in a walk-up, and how important are these criteria. We then take all of the survey respondent’s answers and compile the data into “Must Have,” “Wish-List,” and “Deal Breakers.” This information is compared against available listings in order to recommend the most accurate matches for each buyer.

Tips

The goal of a real estate listing is to make the property seem as appealing as possible in order to get potential buyers through the door. But with the need to give a strong overview of the apartment, little details are often missed. For example, a built in bookcase in the living room, the view from the kitchen window, or a better look at the outdoor space. While the listing may not note that there’s a dry cleaner conveniently located in the lobby, this is the sort of thing that may be a selling point for some buyers. That’s why we’ve created the ability to leave tips on a an apartment or building. Anyone who visits the listing can leave a text and/or photo tip which will be shared with registered RealDirect users searching for properties. Much like Yelp or TripAdvisor, RealDirect brings a candid crowd sourced perspective to real estate.

Top NYC Neighborhoods for 2013 Real Estate Investment

Monday, February 4th, 2013

Wondering where you should spend your real estate dollar in 2013? We asked our agents to pick out the neighborhoods that they felt were going to be hot in the coming year and got a wide range of answers. While our top picks aren’t necessarily hidden gems or NYC bargain neighborhoods (as if!), they are areas where home buyers are likely to see a strong return on their investment while enjoying a high quality of life. Whether it’s ease of commute, great schools, trendy nightlife, fine dining or open space, there’s something for everyone in our list of top  NYC neighborhoods for 2013 real estate investment. (more…)

Is December a Good Time for Real Estate?

Thursday, November 29th, 2012

This is the beginning of the holiday month and real estate will be a little slower in December. However, contrary to conventional wisdom, in my experience, December is a great time to be in the real estate market.  I find that listings that are active at this time, especially those that are running open houses, tend to be from more motivated sellers. Additionally, buyers who are actively looking in December are more serious. As a result, over the years I have seen the best deals happen for clients during the month of December.

So…for those of you who will be in town I would urge you to stay active throughout this month – you may be glad that you did. (more…)