The five critical mistakes home sellers make that cost them thousands of dollars
Mistake #1 - they hire a traditional real estate agency
First, let’s talk about why you should hire an agent to sell your home? There are a number of benefits to hiring an agent, but the biggest benefit is getting your home listed on the MLS or Multiple Listing Service. The MLS probably sells around 90% of all homes in Utah. There are a couple of reasons for this:
- It is the most common website buyers use to look for houses
- It contains the most up to date information on homes for sale in Utah
- It has the largest database of homes currently on the market in Utah
- When you list your home on the MLS, you now have potentially thousands of agents trying to sell your home
Other benefits to using an agent are:
- To help you correctly value your home. If you list your home too low, you’re leaving money on the table. If you list it too high, it will never sell.
- Agents have hundreds of hours of experience negotiating real estate deals and understand the various ways to put a deal together that will most benefit their client and still make it a win-win for both sides.
- They understand the contract terms, and the deadlines, their clients must meet to ensure they remain in compliance.
- They have hundreds of hours of experience dealing with inspections and the best way to handle any deficiencies.
So are all agents created equally?
There are basically two types of agencies – traditional 6% agents and discount agents.
Traditional agencies normally charge a client 6% to list and sell their clients home. Traditional agents offer several services that make up what is referred to as a full service listing. These services normally include the following:
- Home Value Report
- Listing on the MLS or Multiple Listing Service
- Sign in the yard
- Open houses
- Contract negotiations and contract management
- Attend Closings
- Manage negotiations and other communications between the Buyer and the Seller
Some agents also provide other types of ancillary services such as sending out flyers, 24 hour information hotlines, and soliciting feedback from showings.
Traditional agents take care of their clients and make sure the selling experience is a good one for their clients. The downside to a traditional agency is they charge 6%. They then turn around tell any cooperating agency that brings them a buyer, that they will split the 6% commission. So 3% goes to the listing agent and 3% to the buyer’s agent.
So if your home sells for $400,000, you will pay them a whopping $24,000 to sell your house. That’s $12,000 apiece. Still, that is A LOT of money just to sell your house, and a huge downside to using a traditional agent. It’s important to note that they don’t have to split the commission 50/50 with the buyer’s agent. They might only offer 2% or they could offer 4%. The decision is up to the agency. You’ve agreed to pay them 6%, what they do with that money is up to them. Which brings up another important point. If a buyer comes along that does not have an agent, and decides they want to purchase your home, you will still pay the traditional agency the 6% you agreed to pay them regardless. This is not the case with Utah Home Central.
This 6% fee was instituted long before the internet came around. Listing agents spent a large amount of money on advertising, and specialized in certain areas or neighborhoods, so they would know where to price a client’s home. Back then they earned that 6%. However, with the advent of the internet, advertising has become amazingly cheap, and an agent no longer needs to specialize in a neighborhood since all the information is now online, but traditional agents continue to demand a 6% commission, which is a lot of money considering the amount time and budget required to sell a house these days.
Most listing agents will spend, on average, anywhere from 20-25 total hours to sell and close on a clients home. If they are being paid $12,000 for putting in 25 hours of work, they are getting paid $480 an hour. Doesn’t that seem a little too high?
Recently, there have been several firms popping up that offer listing on the MLS for a small flat fee ranging from $175 - $1,000. Most of these are not full service. They are like glorified For Sale By Owner agencies. They get you on the MLS for a low fee and you do all the rest. As more and more of these firms enter this space, the competition is becoming stiffer and stiffer, causing these firms to try and differentiate themselves by offering more and more services. Some even start making the claim that they are a full service firm. Either they are in denial or are lying, but there is no way they can really service their customers under that business model. I know because we used to be one of them. Let me tell you why this is.
Let’s say that an agent is offering a flat fee listing to potential clients for $300, and this agent needs at least $6,000 a month to live on, which is pretty conservative these days. That means the agent needs to list 20 homes each month. That’s 240 homes a year. Did you know that the average traditional agent only sells about 15 homes a year on average. Which is fine, since they are making on average $8,000 a sale.
Do you think an agent can adequately manage and service 240 homes a year? No way. And if they’re only earning $300 per listing, where do you think they’re going to spend their time? That’s right, trying to find more listings, not servicing your sale. Plus, since you already paid them, there is no real motivation for them to ensure your sale is successful.
We had one frustrated customer call us and tell us that he listed his home for $175 with one of these agencies. He had received an offer on his house, but he didn’t get it until 6 days after the offer had expired. By that time, the buyers had moved on. Watch our video on the dangers of using a limited service, flat fee agency.
As mentioned earlier, we used to run one of these agencies, and after seeing our clients fail in their transactions, we realized that we weren’t doing them any favors by offering them a listing at a low fee, but we still wanted to offer our clients a fair deal. After trying several different offers, trying to balance what we needed to live off of, but also trying to save our clients as much as possible, we finally came up with a full service flat fee model. We would provide our customer’s all the same services a traditional agency offered, but only charge a flat fee of $2,500. We charge $200 up front, to pay us for that work, and a commission of $2,300 when the home sells. This has worked well for us and still allows us to save our customers, on average, around $9,000.
So I guess you could call our business model kind of a hybrid. Part traditional and part flat fee. This way all parties win.
Mistake #2 - Home Sellers don’t adequately prepare their home for showings
When buyers walk through a house that is dirty, unkempt and or in need of repairs, it’s hard for them to focus on the house, and is a huge turnoff. If the buyers do provide an offer, it’s sure to be significantly lower than asking price. It’s critical that you do a deep cleaning of the house, including those areas that you normally don’t clean like window sills and baseboards and such. If you don’t like cleaning or don’t have time, consider hiring a cleaning crew; it will be worth the money. Utah Home Central offers a free eBook on How to Prepare Your House to Sell Faster and For Top Dollar that will give you some great suggestions on what you can do to prepare your house for selling. To get your copy, click here.
Mistake #3 - Home Sellers try to sell their house by owner
Now you might be thinking that we’re just saying this because we want your business right? Well, we do want your business, but as we mentioned above, we tried to help many people sell their house by owner when we first started this brokerage. The result was not good.
Most homeowners don’t understand how to correctly price a home. We saw many who had “stars in their eyes,” and priced their home too high. The home didn’t sell, so they ended up hiring an agent anyways. On the other side, we also saw homeowners pricing their home too low. The home sold fast, but they left a lot of money sitting on the table, and would have been better off hiring an agent.
Most homeowners also don’t understand real estate contracts and laws and made a mess of things. We had one client that was selling a home for $1,200,000. At the time, we were a flat fee brokerage that only charged $199 to list a clients home on the MLS. The client was responsible for managing the rest. He received an offer for $1,100,000 and accepted it. Midway through the transaction, the homeowner decided he wanted to change the terms. I won’t go into the details, but the deal ended up falling apart. At the time we didn’t know this, but he was going into default. He didn’t get another offer in time, and so ended up selling the place as a short sale for $665,000 and got nothing out of the deal. Had he used a full service agency, his first deal would have survived, and he would have pocketed approximately $350,000.
This is an extreme example, but it was a turning point for us. We finally realized that we weren’t doing our clients any favors by offer them this low flat fee and no service.
Mistake #4 - Home Sellers don’t make the right repairs
As homes are lived in, things become loose, get dinged, or get broken. If these items are not repaired before the home is put up for sale, buyers will notice them and know the home has not been maintained. They know they’re going to inherit all of the maintenance the current home owner should have done, and it’s going to cost them a lot of money to make those repairs. As a result, their offer will be lower to reflect those costs. In most cases, the repairs will be cheaper than the discount in selling price because buyers always estimate more that it will actually costs.
One idea that that we recommend, is to hire an inspector before you put the house on the market. The inspector will make a thorough inspection of the house and will give you a list of repairs you should make. Not only will this make your house appear well maintained in front of buyers, but it will also make the inspection your buyers perform go well. Inspections cause deals to fall through all the time, so having a good inspection will go a long way towards a successful closing.
Mistake #5 - Home Sellers don’t make the right upgrades
This cannot be stated as a hard and fast rule, because it really depends on market conditions, but as a general rule, upgrades to the kitchen and bathrooms, will generally add 100% of their costs, if not more, to the value of the home. In addition, upgrades will make the home more appealing, which means it will sell faster than a home that doesn’t have the upgrades.
Other upgrades that add curb appeal and add value, though probably not 100% of costs, are as follows:
- New siding. The front of your house is the first thing people see, so it makes sense that any improvements that make your house sparkle, will increase its desirability.
- Increased living space, especially enlarging the kitchen
- New paint and carpet go a long way toward selling a home, and will usually recoup most , if not all, of their costs in the selling price.
- A new deck if the house doesn’t have one. A deck provides more than a place to flip burgers and soak up the sun. Buyers see a deck as a place to seek refuge and peace from a hectic day.
- New windows if the current windows are single paned. New windows enhance the curb appeal and increase energy efficiency.
- Landscaping. The front of your house is the first thing people see, so it makes sense that any improvements―from planting flowers to surrounding your home with a hedge―will increase curb appeal and make your house sell faster.
- Central Air. Most new home buyers will insist on it.
Feel free to request a FREE copy of our ebook - How to Prepare Your House to Sell Quickly and For Top Dollar.