Who Really Pays the Broker / Agent?

Common wisdom has it that the Seller pays for all the real estate commissions; at least that's what agents have been telling their buyers for decades now. "Buyer representations costs you (the buyer) nothing, the seller pays for the commission out of their proceeds".

That's all well and fine, but is it really so?

Take seller Mr. "X" selling his $250,000 home. Things are not moving (probably because his house is overpriced) and in order to create an "incentive" for the buyer agent, he offers a $20,000 selling agent bonus (as opposed to lowering his price by $20,000; or offering 20,000 to the buyer for closings costs, furniture or whatever). Who *really* pays for this $20,000 bonus, or whatever else the incentive may be? I think it's fair to say, it's the Buyer and not the Seller who is paying for this incentive, in form on a higher / inflated purchase price.

Plus to be totally frank, I believe that the buyer and not the seller is paying for absolutely *everything*, after all, the buyer is the one who is showing up with cash at the closing table.

(Interestingly enough the IRS recognizes this fact in that the seller's NET PROCEEDS are what he gets for the property, and the GROSS PURCHASE PRICE is what the buyer pays for the property and represent the basis of the property. In other words when buying/selling an investment property you cannot say 'I sold my home for $250K and my gain (if any) is based on that and I'll deduct my expenses as ordinary business expense, nor can you say my purchase price is $250K and that's the basis of my property, and I'll deduct all the add'l expenses/closing costs as an ordinary business expense. Rather to the IRS, and in Reality I may add, there are only two numbers: net proceeds to the seller and total cost to the buyer.)

So to suggest that the buyer pays for nothing when it comes to buyer representation is simply put not true - a convenient myth often told by buyer agents (who in all fairness may even believe their own story and are not knowingly/willingly misrepresenting).

On the subject of (often secret) incentives paid by sellers - especially developers - to real estate agents, there was recently a very interesting and important article posted in the Wall Street Journal: "Do Real Estate Agents Have a Secret Agenda?"

All of this underscores what is really wrong with this industry: It's all about the agent, when it really should be all about the consumer. Instead of offering a secret incentive to the buyer agent sellers would be much better advised to offer that very incentive to buyers. Especially in today's buyer's market with hundreds of competing properties vying for the buyer's attention, this may be a much more effective strategy to employ.

As a buyer I think you should always ask your agent to disclose any incentives or bonuses the agent may receive from the transaction. Is he or she trying to sell me this property because there is a $10,000 bonus, or because it really is the best deal available? I think buyers deserve to know and ethical agents should disclose.

Thomas Heimann, President
Bravo Real Estate
www.BravoBrokers.com

Affordable Housing Finally a Reality in Sarasota / Manatee

Last August the Sarasota Herald Tribune ran a story on "What $200K will buy" - click here for a copy of the article. At the time there were only 12 homes listed for sale under $200,000 in the entire Sarasota MLS system.

First time buyers, or lower income families that need affordable housing simply could not find anything affordable, and many were forced to purchase above their means by utilizing Adjustible rate and Pay Option ARM type loans.

Today, the picture looks very different: As of this morning, there are 528 (!) single family homes listed for sale in the Sarasota MLS, and 604 (!) single family homes listed for sale in the Manatee MLS under $200,000. This does not include condominiums!

I think this is fabulous news for first time buyers and those looking for affordable housing. In our own company we see many deals taking place in the $170K to $200K range, and there is truly a lot to chose from.

While a recent article in the Herald Tribune suggested that renting is in many ways less expensive than buying, I think that nevertheless right now is a great time for first time buyers to purchase their first home. These low prices are not going to last forever, and once demand starts to pick up again I believe that the lower priced homes (homes priced below the median) will be the first to experience appreciation.

Thomas Heimann, President
Bravo Real Estate
www.BravoBrokers.com

October Market Stats and Price Drops

I finally got around to finishing the October Market Stats for Sarasota sales figures when I saw today's article on CNNMoney: Home prices: Record drop in October. Apparently, the NAR just released nationwide sales stats that showed the "biggest drop on record", a 3.5% drop in median home prices this October vs. last year.

To be frank, I wish we only had a 3.5% price drop in this market, however just as Sarasota/Manatee led the home price appreciation spiral in 2005, likewise we are now seeing some of the biggest price drops in the country.

But it's not all bad news to report.

Looking at the October MLS Market Stats (click here for a PDF version of the report, or a Microsoft Excel file), I would like to offer the following comments and analysis.

First of all, the obvious: When looking at overall sales prices - and I am taking into account average sales prices vs. median sales prices - we notice an 11.55% drop for properties under $1MM, and a 16.49% drop for all price ranges. Number of units sold are still down sharply, and days to market are up to over 4 months for single family homes, and over 5 months for condominiums.

An exception is - again - the high end market over $1MM. It appears that while we certainly have seen a sharp decline in the number of sales (actually down by 65%) vs. last year, prices nevertheless have continued to rise by 11% which is simply put phenomenal. While the wealthy are certainly taking more of a wait and see attitude, clearly the more unique type of property that commands the higher prices seems to be more immune to the present market forces.

Another encouraging fact which is not represented in this specific analysis is the fact that when looking at Oct vs. Sept vs. Aug we no longer see a drastic increase in listing inventory. While clearly a lot more homes are listed than sold, there is also a tremendous number of expired listings that are being re-listed, so the disparity between listed and solds does not represent a true increase in inventories.

Plus, and this is also good news, real estate professionals across the board are beginning to see an increase in inquiries, showings and yes, even sales.

Nevertheless, we still have an almost 2 1/2 year inventory of homes and condos listed for sale, meaning that it will take probably close to 2 years for this market to balance out.

None of this should come as a big surprise to anyone, and finally we begin to see both real estate agents (many of whom to be honest have been playing an 'Ostrich' for the better part of this year by ignoring the facts in front of them - why else would agents even take listings that are plain as day overpriced by at least 20%+ when compared to identical comps?) and sellers realize that values actually have come down since last year - i.e. homes are now worth less, plus it will take a lot longer to sell them now.