Making Reduced Agent Commission Adjustments

[Michigan CG]

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.

The seller who reduces his price 6% is going to net the same as the guy using a Realtor and his house will sell faster than the others. Sounds prudent to me.

 

[Evincere]

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.

Unless communication is another language needing an interpreter for accuracy or to discern inferences, what you asked about 1/3 of the market is exactly what's being said about FSBOs.

Bad Bad dummy driven FSBO comps! Purposefully lowing prices and not striving to get the MOST money he can.

 

[Gobears81]

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?

Commercial is different simply, if for no other reason, the percentage of direct transfers are considerably higher in many cases. Actually, I have found for some commercial property types that, on average, it sells for a little higher if it is NOT listed by a broker. That is largely due to a buyer often approaching the seller and thus the seller holding the cards. Brokers often list a property when it does not have a buyer, thus it goes lower. I wouldn't tell this to some of the local guys, but certain property types might net a higher price if it is with a broker specializing in that type of property. I remember seeing a trailer park selling for a 25% cap rate (not including mobile homes). Many of the brokers specializing in mobile home parks do not sell parks quite that small, but I believe that property would have been better off being sold by someone else (or even themselves). Now, obviously there is a highest and best use element there, but that is over and above the consideration of the purchaser, functional obsolescence of the property, etc.
On residential, I think it is silly for some people to even try to list FSBO in some markets, and many of them end up going to a Realtor after it doesn't sell. A lot of times, the asking price on the FSBOs are not reasonable (too high), but they also don't reach the same number of people as brokers do when they put it on MLS, etc. Other markets have a higher expectation of FSBOs and it might be wise to try to go that route and save a few percentage points.
No one has mentioned this in the thread yet, I don't believe, but all of the discussion in this thread can be summed up in a couple words: Market imperfection or market inefficiency. In my old finance classes, we studied efficient/ perfect markets and it is well known that real estate is generally not one of those, which is manifested in these types of issues.

 

[jackimoya]

Good discussion, thank you! I did not put anything regarding the reduced commission in the sales grid, because I do see how this could be a 'black hole'. I just mentioned it in my reconciliation comments.

 

[residentialguy]

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.

BS...the seller would have sold for $5,000 less. The commission is something that probably brought in a higher yield in the seller's pocket and saved them from spending all of that time trying to sell it themself. It paid for itself, unlike the concessions which just sucked the seller's profit. It's just like when a seller hires a painter to paint the house to get a higher price.

 

[residentialguy]

The seller who reduces his price 6% is going to net the same as the guy using a Realtor and his house will sell faster than the others. Sounds prudent to me.

well....if the home magically marketed itself correctly and legally....but it takes time and skill to learn how to sell and then sucks up your time selling your property. Time is money. Liability is money. If they ended up selling 6% below, then trust me, it cost them a whole lot than that.

 

[residentialguy]

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[Deleted member 134708]

BS...the seller would have sold for $5,000 less. The commission is something that probably brought in a higher yield in the seller's pocket and saved them from spending all of that time trying to sell it themself. It paid for itself, unlike the concessions which just sucked the seller's profit. It's just like when a seller hires a painter to paint the house to get a higher price.

So do we adjust for services such as closing costs that bankers get paid, commissions realtors get paid and taxes, transfer fees city/state gets paid?

I would just like to be consistent.

Note: I don't want to be the outlier in the industry adjusting for 100% of fees included, but I also don't want to be inconsistent. So I don't adjust for any services/fees.

If I could do my way, I'd analyze net to seller and represent that price to the bank as the MV they really want. But, I don't make the rules so I fall inline. At least I'm consistent.

 

[residentialguy]

So do we adjust for services such as closing costs that bankers get paid, commissions realtors get paid and taxes, transfer fees city/state gets paid?

I would just like to be consistent.

Note: I don't want to be the outlier in the industry adjusting for 100% of fees included, but I also don't want to be inconsistent. So I don't adjust for any services/fees.

If I could do my way, I'd analyze net to seller and represent that price to the bank as the MV they really want. But, I don't make the rules so I fall inline. At least I'm consistent.

If you don't understand the basic concept seller paid concessions vs taxes and fees...then I can't help you.

 

[Michigan CG]

Market imperfection or market inefficiency. In my old finance classes, we studied efficient/ perfect markets and it is well known that real estate is generally not one of those, which is manifested in these types of issues.

Real estate can certainly be imperfect and that is why I chuckle when I see adjustments in residential appraisal that are so inconsequential. $2,000 adjustments on $200,000 homes are simply not supportable considering the imperfections of the market.

well....if the home magically marketed itself correctly and legally....

I didn't know that it was illegal to market your own property and violate a law.........

it takes time and skill to learn how to sell

The Realtor brand markets itself very well but the truth is an 18 year-old just out of high school with no formal training can become a Realtor in about two months is no secret. We have a ton of new agents here now that are absolutely clueless. They couldn't sell ice cubes in Texas, but they can list a property.