Making Reduced Agent Commission Adjustments

[Ahhhh Yeahhhh]

No, what you have to remember is that the commission doesn't "come out of" the sale price.

The seller PAYS the comission. The Comission does not go from the buyer's proceeds directly to the agent.

The comission has nothing to do with the market value of the subject. It is a service that the seller paid for to take some of the work off his back. The seller COULD have sold it for the same price without the agent... The buyer would have paid just as much. The seller pays the agent to weed out the BS lookie loos, put the deal together, help with negotiations, know the myriad of laws involved in the transaction, move the transaction along, get it to closing etc. This is a LOT of work for an inexperienced seller.

Its kinda like an appraisal. The homeowner can price his house on his own without calling me. But he calls me for my expertise and because he doesn't have the time to figure out what I do. But if the homeowner is say a loan officer or a builder with a good knowledge of the market, he can likely arrive at a similar value opinion without having to pay me.

If a seller is a moron... He can sell his house himself, but it will be a TON of work for him to figure out all the crap an agent knows like the back of their hand. If the seller is an experienced seller with some knowledge of how stuff works (maybe this seller is a closing attorney) he probably has the knowledge to market and sell his house himself without professional help.

In either case the potential buyer is willing to pay the same price. If the FSBO seller chooses to reduce the price by 6%, then he isn't striving for the MOST money he COULD get and therefore, this sale cannot be used as a comp (with or without a positive adjustment).

 

[Evincere]

Look at it this way.

]If you have 5 houses listed for sale in your subdivision and they are all basically the same. The listing prices are 500K, 505K, 510K, 507K, 503K.

Ok. Look at it this way. 6 houses listed for sale AND sold in the same subdivision and they are all basically the same cookie cutters, none are more or less improved than the other; sale dates are all within 60 days, rates are steady, market is robust.
Sale prices of 3 are; $470; $475, $480, Sales prices of 3 are $500, $505, $510

What price should you list your house at to get the most money? Somewhere between 500-510? or somewhere in the $470K-$480K range?

3 on the lower end sold FSBO and 3 on the upper end sold with a Realtor.

Given a small GLA differential - whats the market value of the Subject given its similar in all other ways to the 6 sales.

If you are not trying to get the most money, you are not a seller acting prudently.

Is a seller really recouping the most money if they are paying a 6% commission on the 3 upper end sales and effectively netting the equivalent of the lower end sales after commission is paid? Is the Buyer getting a better deal on the more expensive homes?

FSBO's sell at full retail value all the time.

?? Retail value? OK. What is the market (retail?? ) value of the Subject in terms of real property bricks and mortar .

Some FSBO sellers reduce the price because they don't have the knowledge to effectively market the home like an agent or an experienced seller. Some sellers choose to use an agent because they simply don't have time to field calls, deal with pre-quals, showings, etc.

The reasons for a Seller or Buyer using or not using a Realtor you state correctly - but is your presumption that bricks and mortar aka real property is worth less or more if it was sold FSBO because you kinda threw me off with the sell at "full retail value" comment.

Gone are the old days when MLS was more exclusive and Buyers relied on yard signs and driving neighborhoods. Given market exposure tools today - Truilla, Zillow, Redfin, etc. A seller can market a house as easily and as effectively as a Realtor these days. Many also list their house FSBO on these services and are willing to work with a Realtor (non exclusive listing) for a lesser commission -

A REALTOR will negotiate for their own benefit - the highest commission possible = the highest price possible but the highest price possible does not necessarily equate to real property value. Does it?

In either case the potential buyer is willing to pay the same price. If the FSBO seller chooses to reduce the price by 6%, then he isn't striving for the MOST money he COULD get and therefore, this sale cannot be used as a comp (with or without a positive adjustment

Is your logic that 3 of the 6 sales above could not, MUST NOT be used to determine market value because they sold for less as FSBO's?

You, must be a REALTOR or using an Abacus. Where on the grid are you putting your Realtor commission adjustments?

 

[Evincere]

The comission has nothing to do with the market value of the subject. It is a service that the seller paid for to take some of the work off his back. The seller COULD have sold it for the same price without the agent... The buyer would have paid just as much. The seller pays the agent to weed out the BS lookie loos, put the deal together, help with negotiations, know the myriad of laws involved in the transaction, move the transaction along, get it to closing etc. This is a LOT of work for an inexperienced seller..

Yes I see your point. Buyers pay for Appraisals and sellers pay commissions. Like all those necessary, experienced AMCs and services they provide for for us inexperienced, moron Appraisers and Lenders.

Its kinda like an appraisal.

Yes, it is........kinda...

 

[residentialguy]

For the sake of debate and pondering - How much does an agents commission actually contribute towards the market value of any property's bricks and mortar. What is the market value of an agents commission.

Zero. It's a service that pays for itself. We don't adjust it. That goes for @nottrav as well.

 

[Michigan CG]

If the FSBO dude listed his house purposefully below market to compete against professionally marketed homes, I could make the case that the comp shouldn't be used as it was not professionally marketed by a knowledgeable party.

A decade ago when I moved from Iowa 1/3 of our market was FSBO. Are you saying that 1/3 of the market would not be good comps?

 

[Michigan CG]

I am finishing up a commercial report today. The report is being written for an estate. I have six comps. One sold with no broker involved, four sold with brokers involved and the sixth sold where I don't know if a broker was involved. I was able to verify the leases in the sixth comp and it is a good sale and most similar.

The sale prices are in the $500,000 range. Do I adjust sale #1 with no broker $25,000 because of no commission being paid in my sales comparison approach?

What about the income approach? Where do I account for no broker in the income approach?

This whole discussion is interesting and we are talking about 6% (residential) of the sale price could be "wrong" depending on how many Realtors are involved.

Sale #1 sold for $200,000, there is a buyer's agent and a seller's agent. Total commission paid is 6%
Sale #2 sold for $200,000, there is no agent involved at all. No commission paid.
Sale #3 is a FSBO where there is a buyer's agent but no seller agent, total commission paid is 3% with a sales price of $200,000.

But wait, Sale #4 is goofy. It sold for $200,000 and was listed by one of those limited service brokers who get 1%. There is a buyer's agent who gets 3% of the first $100,000 and 2.5% of the remainder. Total commission paid is 3.75%.

Sale #5 sold by limited service agent and the buyer has no agent so total paid was 2%.
Sale #6 was a FSBO where the owner took into account the 6% commission and split it and sold for $194,000.

Seller #1 got $188,000
Seller #2 got $200,000
Seller #3 got $194,000
Seller #4 got $192,500
Seller #5 got $196,000
Seller #6 got $194,000

Now we must consider that about 50% of appraisers say they don't ever call agents to confirm sales so how would all of this be known?

Six houses sold for $200,000 yet the net to the seller ranges from $188,000 to $200,000. That is a $12,000 difference in terms of "sale conditions".

Kind of makes those goofy $1,500 fireplace adjustments look silly (again).

 

[Evincere]

Zero. It's a service that pays for itself. We don't adjust it. That goes for @nottrav as well.

That's right. Commissions aka services that can add or subtract thousands to millions of dollars towards the reported sales price and subsequent market value of a property comparable sale is something we don't adjust for - we never have and never will. We adjust or not for financing concessions, terms of sale, etc. etc. etc. Commissions fall into no quantitative category/line item and yet, they do NOT make a property more or less marketable or functional, add or detract from economic life. Yet, It's an elephant in the room that trumpets loud and ignored by all schools of thought, including USPAP.

I just find it ironic we can be dragged to state boards, score dinged for a revision or not adjusting the differential for a stinking fireplace, a garage or 20 square feet of GLA and ignore adjusting the cost of a service costing thousands of dollars that adds ZERO value to actual market value of real property - but instead, actually inflates the value of real property.

But since just about all Appraisers as a matter of routine use and are encouraged to use MLS properties as comparables, no worries. We are safe. Problem fixed, apples to apples. And data not MLS derived is, as explained away by Realtors, suspiciously questioned by Lenders whose business it is to generate loans, often objected too by Sellers whose LP/CP might be considered too exuberant , as odd, outlier properties and not true representations of market value.

I just think it humorous that we operate in this parallel world of conceptual disparity - that a factor that adds ZERO value to real property bundle of rights, financing terms, physical condition, etc. is added to a property value, yet ignored by making believe it does exist.

 

[Deleted member 134708]

Zero. It's a service that pays for itself. We don't adjust it. That goes for @nottrav as well.

I'm fine with that. Banks are free to ask for any value they want. If they want the current method of what can I buy it for, go for it.

If it was me loaning money, I'd want to know what I can Net sell it for, not buy it for.

 

[Deleted member 134708]

Zero. It's a service that pays for itself. We don't adjust it. That goes for @nottrav as well.

My Man.

Reason I don't adjust for concessions is reason you don't adjust for realtor fees. If we don't adjust for money exchanged outside the 1 bank transaction of $500,000. Not gonna adjust for the $5,000 gift the seller gave buyer for closing costs. It was a service credit. Not a price credit.

Violation of cert folks. Nope. Didn't affect sales price. Was a service credit.

 

[Ahhhh Yeahhhh]

A decade ago when I moved from Iowa 1/3 of our market was FSBO. Are you saying that 1/3 of the market would not be good comps?

I didn't say that FSBO's are bad comps. But the dude who PURPOSEFULLY lowers his price by 6% isn't striving to get the most money he can. He is not acting prudently. Plenty of FSBO's sell for the same thing that realtor handled sales sell for without needing a price reduction. So why would this particular FSBO lower his price? Because he is a dummy and we don't use sales or purchases when dummies are involved. They have to be knowledgeable and prudent.