Since we talked about real estate in an IRA last week, I thought we would stay on the real estate topic this week. I know home prices are sky high and homes “practically sell themselves”, but the reality is that they don’t sell themselves. I often hear clients say that they are thinking about selling their house, and I’m “doing it myself” because they want to save on the fees.
Today I thought we would explore that in greater detail. As I mentioned in a previous article, I get very nervous with investors wanting to do it themselves, not merely out of self-interest, but because the data suggests that it’s a very bad idea. The annual Ibbotson study suggests that investors lag the market by a wide margin due largely to mistakes made in the execution of the plan. Well, in my opinion, the same goes for real estate buyers/sellers.
Look, I certainly understand the desire to save on the costs of any transaction, but the reality is that the value provided by Realtors vastly exceeds the cost. Yes, we have all heard of someone who sold their own house and maybe even quickly, and maybe even for around the asking price but I always ask the question, how do you know the asking price was the right one?
How smoothly did the transaction go? Did they give back most of the savings by making a bunch of concessions due to a suspect inspection? These are just a few of the questions that need to be asked before you can determine if it was truly a good deal. Let’s look at both sides-
There is a reason the vast majority of transactions go through a Realtor (over 90%). The benefits include:
1. A “true” comparison of comps. A comp is the sale of a similar property to yours. While no two are exactly alike, there are primary similarities that help determine the best price. This is much harder to evaluate on your own since factors such as geography, size, age, bedrooms, bathrooms, renovation dates, (starting to see why this becomes so difficult?) etc. all make up the value of a property.
2. Simply knowing the process. If you’ve ever bought or sold a property you know that there is an awful lot of paperwork involved, coordination of other professionals, negotiating, etc.
3. Knowing who to contact to get the deal done including contractors, title companies, appraisers, mortgage brokers, banks, home inspectors. The list goes on.
4. Time, time, time. I don’t know about you but I can barely find time for anything lately, so adding the full-time job of trying to sell my own house is not something I’m adding to my plate. This is all Realtor’s do day in and day out. I can’t imagine thinking I could do it better.
5. The other party has one. This is not to be overlooked. The other side has a professional in their corner helping them with the negotiations, etc. and you don’t. Personally, I want a level playing field, so I want someone on my side too. Don’t forget, this is a legal contract you’re making with the other party. There is a lot at stake if you don’t do it right.
If I get all of these benefits for a few percentage points, I’ll take that deal any day!
So what are the downsides? Well, it will cost you around 5-6% for all of those benefits. Yes, this can be a lot of money, but like a good accountant, a good Realtor can often make up a lot of expenses by getting you the most value for your home and save you time, which as we all know is money.
Other issues can be the client load of a Realtor. Are you one of 50 people whose house they are selling? That might not matter if they have the staff to run an efficient office. It’s also a sign that they are probably pretty successful at what they do.
Not one of these factors would ever make me consider not using a Realtor to help me price, market, sell, close on my house.
Things to ask your real estate professional include, are you a Realtor? This is actually a professional designation as opposed to a real estate salesperson. This is a good starting point for finding a good candidate to help you.
Also ask for a list of references. You want to know things like, are they experienced in your town? How many homes do they sell a year on average? How do you intend to market my home?
I wouldn’t do my own taxes or write my own legal documents, I’m certainly not buying or selling a house without a Realtor. I would advise that you probably shouldn’t either.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.