OK, it’s time again for a small rant. I signed up for a web based leads system whereby potential buyers and sellers request services from local Realtors. The vast majority of these leads aren’t worth the time to respond to. Prospective buyers wanting 5 bedroom houses in Hillsborough for under $100,000, that kind of thing. Well, one lead came up from a seller looking for a listing agent the other day that I thought would be worth commenting on here simply because it goes to the heart of the thinking of plenty of sellers who really don’t understand the unintended consequences that are headed their way via this thought process. Here’s the post:

“Need agent who is an excellent negotiator and has sold homes in my area. Agent needs to come in with a very competitive commission quote, as this home will take very little effort and time to sell. Quoted commission rates will receive preference over “negotiable” quotes.”

The property in question is a 3 bedroom, 2 bath house in San Mateo and the seller is stating that he wants $1,500,000 for the place. Here’s a few small, but relevant facts:

* The most money ever spent for a 3 bedroom house on the sellers street was $1,275,000

* In San Mateo right now there are exactly 2 pending sales on homes priced at $1,400,000 or over while there’s 15 active listings whose average days on the market are 64.

Somehow the claim that “this home will take very little effort and time to sell” seems unlikely to me…and I don’t care how nice the home is.

The obvious, most important factor for this seller is a low commission structure yet is asking for an “excellent negotiator”. If an agent caves in immediately, via an e-mail, while negotiating his or her own money…how ‘excellent” do you suppose they’ll be negotiating with the sellers money?

I guess what bugs me the most is the perception here, not an uncommon one either, that all real estate agents are the same…and since they’re all the same all that really matters is how much commission they’ll charge. If you needed surgery how comfortable would you be finding a surgeon through and an online search and then demanded that they compete for your surgical business for the lowest fee. Would you be comfortable with the discount surgeon? OK, allright…we’re not surgeons, but we’re not mowing your lawn either. There are outstanding Realtors and lousy Realtors just like there are outstanding (and lousy) painters, plumbers, contractors, babysitters, hairstylists, chefs, lawyers, accountants, acupuncturists, gardeners and coffee shops and I’m not going to any of them just because they might respond to an online query with the lowest fee. I’d simply be too worried about their competence! The unintended consequence here could easily be that the seller hires an agent willing to take an overpriced listing that will be on for too long and ultimately cost the seller significantly more money in a declining market. Make the right choice the first time…and please don’t make the commission the primary focus. It’ll cost you in the long run.

It’s a tad bit different for sellers in Foster City than it was just a few short months ago. Inventory is up (32 single family and 42 condo/townhouse) and the number of pending sales is down (9 single family and 8 condo/townhouse). In this era when the average number of days on the market has increased…and may continue to increase, sellers will need to be prepared when negotiating an offer when it comes in. Buyers in this current market feel like they have plenty of leverage when it comes to negotiating, particularly in the range over $1.3mil, and selecting the right real estate agent is more important than ever.

Already in Foster City we’ve seen a few examples of listings that go into escrow only to have their deals fall apart…and sometimes that’s happened after a painfully long time in the process. In this market it’s not uncommon anymore to hear stories of buyers re-negotiating 2 and 3 times after the contract has been ratified over issues involving credits or repairs and in some cases buyers have asked for price reductions prior to removing contingencies 10 days to 2 weeks into an escrow. It’s also more common to see offers accepted contingent upon the sale of a buyers property…something that was virtually unheard of in years past.

So, what should you do? Here’s a couple of important suggestions: 1) Make sure that the buyers are not only qualified, but approved for their loan. It wouldn’t hurt at all to ask that the buyers be approved by two separate banks. If you as a seller are comfortable early on in the process that your buyer will get their loan, you’re certainly going to sleep better…and the chances of chiseling on price later in an escrow will be reduced.

2) Have a solid contract going in. The fact is that the buyer is most likely going to have some leverage in negotiating the price right now. Having a contract that gives you favorable terms should help you to eliminate arguments over repairs and other problems that could come up later. I also think it’s important to be aware of any and all problems that the property has going in…so that your not surprised by an inspection done by a buyer in escrow and fall victim to a bid given by a contractor of the buyers choice.

Gone are the days when sellers held all of the cards and every sale was “As Is” with no contingencies and sellers just relaxed all the way to the bank. It’s really is a new world out there.

How to pick a Realtor…now that IS the question. Here’s my perspective that comes from being a Realtor for almost 20 years in this area and seeing many, many changes along the way. At the end of 2007 there were over 21,000 Realtors in the Bay Area. I have no doubt that we’ll see that number drop significantly in 2008 but the fact remains that there are lots of us running around out there. Here’s an important fact: Realtors are not a commodity. One is not just as good as another.  There are several factors to cover when considering listing your home, below are six.

1. Experience  Real Estate is an incredibly competitive, some would say “cut throat”, business and the value an agent with years of experience is critical. Our culture gets more and more litigious with each passing year and as that happens the value of an experienced agent is paramount. Almost anything can happen inside a Real Estate transaction and emotions are commonly frayed. An experienced agent will not panic in the face of an unforseen problem and in many cases has experienced that problem before and knows what to do about it. An experienced agent most likely has seen or sold a property just like yours before and that kind of familiarity helps you. It’s also an important fact to determine how many transactions an agent has done in the last 12 months, since the “Mortgage Meltdown” for sure. The numbers came out recently from the San Mateo County Board of Realtors and I was shocked to learn that 42% of the agents in this Board didn’t sell a home in 2007 and 58% sold 3 or less. Maybe just as amazing is the fact that only 7% sold 12 or more. Let’s be liberal and say that the agent selling 3 properties closed all of them at $1,000,000 each. They grossed $75,000 assuming a 2.5% split. Now take into consideration they have to give their office a cut, typically at least 40% and you have that agent making $45,000 last year. Remember, 58% of the agents in the Board made less than that in 2007. Heck, most of the Real Estate agents writing Blogs right now don’t have much experience either! They just know how to type well. Isn’t it reasonable that the experienced and successful 7% are going to be far more comfortable negotiating with YOUR money than an agent worrying about whether they’ll still be a realtor in 6 months?

2. Go Local Try to make sure that all of the agents you talk to are doing the majority of their business locally: ie Mid-Peninsula and naturally it helps to have plenty of experience in Foster City. I would never use an agent who wasn’t local. Local Realtors know the market better, have better connections and are much more likely to sell your house at a price and with terms that you are most likely to agree too. When prospective buyers agents see a phone number starting with 916 or 510 or 831, for example, it’s often a red flag. Agents from out of the area are very often unfamiliar with our local forms and disclosure requirements. In addition they obviously have no relationships built in the local area and thus run the risk of losing traffic. It’s going to be a VERY rare agent that holds the house open consistantly or meets the inspectors or potential buyers, or replaces the flyers in the attached sign box when their office is located in Sacramento or Rohnert Park. Often, the out of area agent is a family member or a close friend who’s services come at a reduced cost. Unfortunately the seller often get’s what they paid for. In 2007 in Foster City this scenario played out on the sale of a house in Neighborhood #2 where a listing agent from out of the area and a relative of the seller took an offer almost $70,000 under asking on the first day of the listing and the house, in my opinion, was priced pretty well to begin with. I had a similar listing on Lurline in Foster City in 2007 that followed the proper gameplan and we ended up with 11 offers…and it went over asking by $129,000.

3. A Gameplan A top agent will come to see you with a detailed CMA, (Competitive Market Analysis) a list of references and a gameplan for how to sell your house for the most money possible. In all honesty, I’ve got a really nice and professional looking CMA but unless somebody asks about something that’s specifically in there it’s usually something I leave behind as I exit. 25 years ago I was in the Grocery business and I represented Clorox to a large Independent grocery distributor. The Clorox regional manager and I were presenting some new product to them and, of course, the regional guy had a detailed 45 minute presentation planned for the buyer that included all kinds of graphs and visuals. Right before he began his pitch the buyer said: “I’ll take all of these items in all sizes if you stop right now” The Clorox guy said he thought it was important that the buyer learn about their big television advertising schedule and when the commercials would run. I had to drag him out of the office before we lost the sale! I, too, hate hearing long “dog and pony shows” so I tend to not show graphs comparing cost per square feet or show you pie charts comparing Re/Max Today’s market share vs. Coldwell Bankers Burlingame office. I believe it’s important for an agent to listen to what a sellers needs are and formulate strategy around that. A game plan is going to be different if you just got transferred to Boston than it would be if you wanted to move to a single family house in Foster City from your condo there. Obviously the game plan has as it’s goal achieving top dollar for a seller and that’s where it’s focus should be. An agent should always spell out all of the services they will provide, particularly those that will be paid for out of their own pocket (like inspections, staging, photography, flyers…etc). You’re paying alot of money for this service, you need to feel that it was worth it!

4. Savvy Kind of hard to quantify that one, huh! Ultimately it comes down to how technologically proficient is the listing agent and how can that proficiency translate into an advantage for you. Buyers often ask me why a given listing that they’ve seen online doesn’t have photos attached. Usually they assume that the MLS is experiencing a glitch with that listing. In truth it’s because the listing agent didn’t take pictures! Not having a listing broadly distributed via virtual tours and still photos on the Internet is the kiss of death in this current age…yet it happens all the time. All of the disclosures should be available for viewing online at any time. It’s more important to have an Open House ad online now than in the newspaper! We live in probably the most technologically savvy area in the World and it’s really important that a listing agent reflect that savvy.

5. Uniqueness It’s another intangible but there are other factors that cause people to choose the right agent. There will always be something that sets a given agent apart from others and when it’s right you know it. In my case I’m extremely relational. I build strong relationships with my clients as well as service providers and other Real Estate agents and those relationships have consistantly paid off for both me and my clients for years. How, you ask? Would it help if we had a problem escrow that a Title company could help with and because of the volume I’ve done I have great relationships with most of the senior Escrow officers in this area? I’ve actually had that scenario play out many times. There’s plenty of similar examples out there just like that. Some agents have superior backgrounds in finance, lending, construction practices or marketing but the point is that Average won’t due anymore. The market’s tougher and the stakes are much higher.

6. Commissions  Notice I left this one until last! Most of the commissions on property in Foster City last year were 5 to 6%, of which that is split in half to the buyer’s agent. 108 Single family homes sold in Foster City in 2007 and 8 of them offered commissions lower than 2.5% to the buyers agent. Of those 8, three were sold by their own listing agents who brought their own buyers in and two others were on the market for 349 days and 102 days respectively. One of those came off of their original price $550,000 from start to finish. All commission are, of course, negotiable by law but you really do get what you pay for. Some agents take less commission…and they should! No seller should take the chance of disincentivizing a buyers agent from showing their place. Yes, we can all agree that it’s patently unethical for an agent to avoid showing a house because the seller is paying less commission but in the real world, remember, 58% of the San Mateo county agents sold 3 houses or less last year. It’s too much of a risk for what amounts to peanuts in the long run. I’m sure I’ll have many more posts in the future about commissions, discount brokers…etc.