Urban Legends in Real Estate.... Cheaper is Better?

There’s a progression that I’ve seen that takes place with a lot of people that want to sell their homes. I’ve watched it over and over again, and it works out the same just about every time. It goes like this: FSBO, Discount…Full service.

There are several reasons for this, but mostly it’s because people commonly think that low or no fees will mean extra money in their pocket at a real estate closing.

In interest of full disclosure, if you’re just stumbling on to my blog for the first time, I am a full service agent. I work for a full-service broker, the largest and most successful in my market area. But I am writing this because it’s true. In fact, I have been the last link in the chain many times myself over the course of my career. Here are a couple of stories; the names have been redacted to protect the participant’s identities. Also, it doesn’t matter who they are as this is a very common tale.

A couple of years ago, I took a listing from a very nice couple in Macomb Township. They had been listed with another broker in the area, and their listing had expired. They really were ready to move the house when we met as they had been on the market for over a year with no bites, and the house that they had built was ready to move into. When we met to talk about my listing their home, they told me all about the experience they had had to that time.

When they decided to build their house, things were really booming. The builder told them that the timetable would be at least 10 months, and the extras they wanted were more expensive than they expected, so they decided they would save some money by going FSBO. They weren’t really pressed for time, and the selling market was very strong, so they went to one of those websites that offer services to Owner-Sellers and bought the most expensive package. It was, they thought, a whole lot cheaper than using an agent but they did have to pay them up front for the whole thing. After about 6 or 7 months, they started to get a little anxious. They hadn’t seen any offers, and they knew that the new house would be finished soon. An agent had knocked on their door and had offered them a very cheap listing commission, so they decided they would chalk up the cost of the FSBO website to experience and really get things moving.

Well, the really cheap deal that that agent had offered them was what we call a “net listing.” Basically, it’s an arrangement between the seller and the listing agent that says that the seller wants to have a certain amount of money at the closing, and the agent can have the rest of the money that is left over. These are actually illegal in Michigan. There are several laws on the books like this that are designed to protect consumers from unethical practitioners like this one. Well, it goes without saying that she started at a very high listing price. When these poor people called her to reduce the price to a more reasonable asking price, she did, until the price started to get close to that net price. Then she stopped returning calls until the listing agreement expired.

Finally, desperate and irritated, they called me. I listed their home, now vacant because they had moved into the new house, for a reasonable price, and sold it in a relatively short amount of time. All’s well that ends well, but they finally got an opportunity to get it done right. That’s not always the case with people in this cycle. Sometimes they get a sale before they go through the whole cycle, and sometimes that’s the worst thing that could have happened. I don’t have time to write about it now, but look to future posts to see how paying up front for real estate services can really come back to bite you.