How to Effectively Shop For A Listing Agent (Part I)
This is the final article in this series, and the most difficult. The reason is very simple: Unlike shopping for buyer's agents or shopping for loans, you have to make a binding choice - it is in your best interest to make a binding choice - before you obtain the result you want. With buyer's agents or loan officers, you can judge by actual results - the bargain properties they show you and the loan they actually deliver when the trust deed is all ready to go. Shopping for an effective listing agent is always a leap of trust. It shouldn't be a huge leap into the unknown, but it's a lot easier to talk a good game than it is to deliver.
Now, the important thought to remember as you read this article and shop for a listing agent is this: You might get what you pay for. You won't get what you don't pay for. Make certain you understand what the level of services provided are by a given agent before you sign on the dotted line, whether their fees are contingent upon a successful sale or are paid up front with no guarantees. I wouldn't sign on the dotted line without compensation being contingent upon a successful sale. If they're not confident enough of their abilities to bet their paycheck, I wouldn't bet on those abilities either. Of course, the contingency commission will be for a higher dollar amount, but ask yourself this: Suppose you got $10,000 for successfully completing a project at work, nothing for failing. Is your motivation to get it done, and get it done sooner, more or less than if you get a flat $5000 in advance whether you complete it successfully or not? Would you be willing to put in more effort? Spend more money? Be more aggressive? I assure you that real estate agents have basically the same motivational attitude as the rest of the world.
Most people do not take sufficient account of the time critical factor: Nothing happens immediately in real estate. If you have ninety days to get the house sold, you've really only got about sixty to get an accepted offer - maybe less. Just because some loan officers make it a religion to get the loan done in 30 days or less doesn't mean it's common. I have seen many articles in financial publications advocating sixty day locks at a minimum, because so many people have been burned by shorter locks. Not only does this waste money, it gives incompetents way too much time to not come up with the loan they talked about. Based upon no other information, I will bet you money that a loan funded in thirty days or less is a better loan than one that takes sixty days or more. I'm not a gambling man. I've just seen enough of the industry to understand that I'll win way more than fifty percent of these bets. The quicker everything moves, the better off everyone is, but even in the most optimistic scenario, this means that if you need the property sold in ninety days, you need an accepted offer within sixty. If you need an accepted offer within sixty days, you need an initial offer you can negotiate within forty-five to fifty days. I just opened Escrow March 21 on a negotiation that started February 7th (all of my responses were same business day, but the other side wasn't nearly so punctual). Forty-two days is definitely on the marathon end of negotiations, but you do need to make allowances for the time it takes. Furthermore, all of your advertising (except MLS and internet) takes anywhere from three days to thirty to appear. So from the time you know you need to sell in 90 days, you may really only have thirty to forty-five days to make it happen.
You need to have figured out what your time frame for selling is. If you need the transaction done in ninety days, we've already seen that you really have about fifty at most to attract a buyer. If you have to sell in thirty days, you really waited too long to list it. If you have to sell in sixty days, you've got maybe three weeks to get an offer. If it's rented with tenants and your cash flow is positive, you don't have a real deadline, but having tenants in a property you're trying to sell raises its own issues. Otherwise, until the whole thing is finished, as in grant deed signed, loan funded, old loan paid off and you get your money and your Reconveyance, you are paying mortgage and property taxes, either insurance or homeowner's dues, and possibly several other monthly fees. To pick lower than typical numbers, on a property in California that you bought for $200,000 and has a loan for that same amount at 6%, that's roughly $1600 per month it's costing in money out of your checking account. Most folks can't add $1600 to their monthly cost of living for very long. A $400,000 property with a $400,000 loan would be roughly $3100. If it doesn't sell before your reserves run out, you've got yourself a real problem.
The absolute first thing people look at is price. If your asking price is more than people are willing to pay for a property of those characteristics in that neighborhood, the buyers and their agents are going to ignore you. In fact, your traffic will largely be governed by the relationship between your asking price and everyone else's, in conjunction with your days on market counter. Price it right in the first place, and you get lots of traffic your first days on the market. Wait until later, and you'll not only miss out on your time of highest interest, you'll have to go lower to attract the same level of interest. So if you've got a short deadline, I'd be careful to price under the market. What's a short deadline? That's determined by how long properties are taking to sell. If it's selling in three days, you're likely to be okay as long as you don't overprice. If the average property is sitting for ninety days or more and you need to have it not just in escrow but sold in ninety, I'd offer it up below the comparables were I you.
Condition can mean a lot more than square footage or number of bedrooms and bathrooms. Sometimes the first thought in my head when I drive up or walk in the door is, "It may be larger, or it may have this or that where the competing property doesn't, but I like the other place more because it looks better." I assure you that I'm not alone, and that "The buyer will be able to spend $20,000 fixing it and have a million dollar property," does not justify a $980,000 price tag in anyone's mind. Get that whole idea out of your head. If you want the money fixing it up is going to bring, do the work yourself. Price the property for its value and condition now. In other words, even if you're right, you have to spend the $20,000, and be the one to deal with the hassle of making it happen yourself, in order to get that $980,000 net. But it's hard to quantify condition. Even most agents don't look at enough properties to be certain. I'm out there looking at a minimum of twenty per week, which means I know what the ones that sold recently looked like, but if you're outside my normal stomping grounds it's going to take me at least two trips looking in your area to figure the optimum listing price. That's a cold hard truth. I see something listed with an agent outside the county or even a different part of the county, the odds are that agent has no clue what they should have listed it at. In urban areas such as San Diego, even a few miles away can be bad news. I'm not certain which is worse: an agent thinking "La Jolla" when the property is in Santee or an agent thinking "Santee" when it's in La Jolla. The former will overprice the property, resulting in the property sitting unsold, and possibly all kinds of unpleasant consequences. The latter will underprice the property, resulting in less money than you could have gotten, and usually way less net. There aren't any rules of thumb you can follow - you just have to know the neighborhoods, and even though these neighborhoods are only fifteen miles apart, anyone who tells you they know both is lying. There's too much for one agent to know. I've lived here essentially my whole life, and it takes me two "fishing trips" to neighborhoods I've known my whole life in order to start really understanding enough about that neighborhood professionally, that I can start spotting which properties are bargains and which are not. The markets change way too fast for anyone to keep track of too much area. I might believe someone could understand the entire Manhattan condo market. Doubt it, but I might, although I'd be more inclined to trust the agent who said they specialize in a smaller area. I wouldn't believe they could understand Brooklyn or the Bronx as well. Where population is less dense, which San Diego definitely is, I'd say about quarter million population, tops. Out in rural areas, probably less than a third of that. I'd want to see something that indicates your neighborhood or area is one the agent really makes a habit of working.
Your time of highest interest is right when your property hits MLS. The vast majority of buyers are out there looking at what hit MLS this week, or today, not what hit six weeks ago. The feelings I hear most buyers articulate is that the good stuff gets found quickly. This is something which is generally true - most of the good stuff does get found quickly - but not universally true. Some of the good stuff slips through under the radar. Some stuff becomes a worthwhile bargain when the seller gets real on the asking price after their deadline to sell has already passed. It may be crazy, but I've heard people talking about blowing off properties that looked like great bargains because they saw that the "Days on Market" counter was too high for their tastes. So you want to keep this in mind. Your agent is required to put your property in as quickly as possible once they have the listing contract, unless you instruct them in writing not to. If your deadline to sell is not looming too quickly, it can be a good thing to delay the actual listing until your longer term advertising is ready to appear! You don't want the advertising to appear first, but the property gets stronger traffic if the "days on market" counter says 4 when the ads appear than it does at 45 when those potentially interested see the ad.
Open houses are worth doing, but not worth doing too often. I want to do one the weekend after a property hits MLS without fail, and before that I want the neighborhood to know there's going to be an open house. When the neighbors bring you a buyer, that's a good way to sell the property for more than the typical MLS searcher. The latter is looking for a bargain. The former wants to live in this neighborhood, and already has a connection to it. I may also do an open house aimed at brokers and agents that first week, during the week, and a caravan is a good idea also - which is another possible reason to delay the listing appearing on MLS if either takes more than a few days to arrange. On the other hand, if there's an open house every weekend at Joe's house, there's no urgency. Many agents do open houses to meet new buyer prospects - that's really why they want a listing. I used to space them about four weeks. Now, I'm most often waiting at least six, and it seems to work better for actually getting interested buyers.
Broker caravans and broker open houses can help also, but the require the agent be willing to actually share the commission with a buyer's agent. If they're not, you're wasting your time, and likely turning off prospective buyers as well. If you can do these the week it hits MLS, you're ahead of the game.
If you're getting the idea that agents shouldn't list more than one property per week, you're getting the right idea. Actually, one listing per week is likely too many to service well in the current market - because if they price it right, the average property is not going to sell in three days. In strong seller's markets where things do sell that quickly, yes, one listing per week is doable. In buyer's markets where things are sitting ninety days and more on average, you are begging to become neglected with a listing per week agent unless you're paying the highest commission to your lister. If someone has more than four to six listings at any one time, I'd cross them off the my list.
Continued in Part II
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