When you are selling a property you want to get the best price possible. There are pros and cons to listing a house on the MLS with a traditional realtor vs. selling it off market to a private buyer. Realtors are knowledgeable experts that you should work with, but you need to know how to determine when to list your property with a realtor and when to consider selling off market to a private buyer. In general, property owners who are selling properties that need a lot of repair or that might be considered a “fixer upper” should consider taking an all cash offer from a real estate investment firm or redevelopment company. This is because there are a lot of fees and often significant cost involved in listing these types of properties with a real estate agent on the MLS. In general, when you are selling a house and are working with a realtor you will need to pay 6% sales commissions (3% to the buyers agent and 3% to your agent).
You want to align your goals and the property you are selling with the right buyers. In 2005, the book Freakonomics highlighted how in some circumstances a realtor’s incentive is not always aligned with a property owner’s goal of getting the best sales price. The book highlighted that realtor sales commissions are structured to incentivize realtors to sell a property fast as opposed to trying to maximize the property owners sale price. (See the excerpt below).
“First of all, a 6 percent real-estate commission is typically split between the seller’s agent and the buyer’s. Each agent then kicks back roughly half of her take to the agency. Which means that only 1.5 percent of the purchase price goes directly into your agent’s pocket. So on the sale of your $300,000 house, her personal take of $18,000 of commission is $4,500. Still not bad, you say. But what if the house was actually worth more than $300,000? What if, with a little more effort and patience and a few more newspaper ads, she could have sold it for $310,000? After the commission, that puts an additional $9,400 while she earns only $150, maybe your incentives aren’t aligned after all. (Especially when she’s the one paying for the ads and doing all the work.) Is the agent willing to put out all the extra time, money, and energy for just $150? There’s only one way to find out: measure the difference between the sales data for houses that belong to real-estate agents themselves and the houses they sold on behalf of clients. Using the data from the sales of those 100,000 Chicago homes, and controlling for any number of variables—location, age and quality of the house, aesthetics, whether or not the property was an investment, and so on—it turns out that a real-estate agent keeps her own home on the market an average of ten days longer and sells it for an extra 3-plus percent, or $10,000 on a $300,000 house. When she sells her own house, an agent holds out for the best offer; when she sells yours, she encourages you to take the first decent offer that comes along. Like a stockbroker churning commissions, she wants to make deals and make them fast. Why not? Her share of a better offer—$150—is too puny an incentive to encourage her to do otherwise.”
Obviously, realtors are experienced professionals that bring a lot of value to their clients. At Padstone, we rely heavily on working with our trusted realtor partners for several of our purchases. However, for those properties that need significant repair it will probably be more profitable, less hassle, and more efficient to sell the property to a real estate redevelopment company or real estate investor for all cash. When a property owner works with a redevelopment company there are no sales commissions, no inspections, and no repairs required by the property owner. Real estate redevelopment companies purchase the property “As Is” without any additional requirements from the property owner. At Padstone we have a team of experienced professionals who are also able to help remove personal property, hazards, or dangerous structures on the property. When a property is listed with a real estate agent on the MLS there will be repairs required or clean up required in order to prep the property to sell to buyers who are using traditional financing methods.
Make sure you have evaluated all your options and are aligning your goals with the right buyers to optimize your sales price. Padstone Properties is a real estate redevelopment company headquartered in Richmond, Va. Customers who work with Padstone Properties receive:
- A no obligation cash offer in 24 hours
- Ability to pick the date and time of closing
- A quick close
- No repairs necessary by the property owner
- No commissions or extra fees
We hope this information helps when trying to evaluate the best way to sell your property. Please fill out the form at the bottom of this page or consider giving us a call if you have any questions or want more information about selling your property.
