Remodeling Impact Report 2019

The National Association of Realtors (NAR) recently released their 2019 Remodeling Impact Report. The report, which examines homeowners’ reasons for completing the projects ranked, also provides the costs and seller recovery values for many of the tasks.

The annual report does provide insights into the home ownership demographic concerning their desired improvements and thus potentially predicting the future market concerning sellers and buyers. It is no secret with housing prices in some markets having risen exponentially since The Great Recession has changed the traditional cycles concerning move-up and move-down buyers. Thus entry-level homes have become scarce yet the upper-end of the luxury market has been challenged for the last few years as move-up buyers are staying in their homes and embarking on structural and cosmetic improvements versus moving.

While not surprising new roofs and kitchens continue to be popular as roofs are a basic and important structural component of the home and updated kitchens provide not only satisfaction while in-residence also is desired by potential buyers and usually provides one of the highest ROI when selling.

Of interest in the report is closets: “This year, we saw the estimated cost of closet renovations increase from 2017; however, we also saw an increase in the cost recovered from this project,” Brandi Snowden, director of Member and Consumer Survey Research at NAR, “Because homeowners are staying longer in their homes, we see them investing more elaborately than in the past.”

Another effect of homeowners staying in their residences longer is they’re choosing to invest their money in projects that they’ll use on a daily basis, and that will improve the functionality and livability of their home.

Aside from kitchen renovations and upgrades and closet renovations, other interior projects hugely popular with both homeowners and REALTORS® this year are HVAC replacements, new wood flooring, bathroom renovations and adding new bathrooms.

As far as exterior projects, the REALTORS® surveyed in the report note that new roofing was most popular among homeowners, and, in their opinion, would add the most value to a home.

Of interest during the last two years I too have updated my kitchen with new cabinets, countertops and backsplash. I too had two bedroom closets updated with Elfa from The Container Store. In my former home I had a phenomenal walk-in closet designed by California Closets and was a joy for 25+ years. My next projects are an updated bathroom and refinishing of the wood floors presently hidden under worn wall-to-wall carpeting. While I know I will be in residence for the immediate future I also know the improvements when designed in a timeless, classical manner, I shall be able to recoup the cost invested and enjoy during my residency.

 

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Do Not Over Improve or Over Indulge in a Stabilizing Market

May I take my readers on a journey back to 2005?

A friend asked me to opine on a potential purchase of a single-family home (at the time I was a commercial real estate broker). The house was a pop-top on a secondary block (one block south of a more desirable neighborhood); the only pop top on the block and across the alley a nefarious use for many prospective homebuyers, a playground.

The asking price at the time was $810,000 ($1,064,000 in 2019). I warned my friends not to purchase as I thought the residence was over-priced and over-improved for the block and neighborhood. Long story short the buyers purchased for $810,000 and I was advised by the buyer “In 10 years this will be the cheapest house on the block”. The buyers subsequently invested another $40,000 ($52,500 in 2019) into custom shelving and other, in retrospect over-improvements.

Fast-forward to 2012. The Great Recession is has decimated real estate around the country. Here in Denver we are finally seeing green-shoots as savvy buyers are taking advantage of rock-bottom prices. Long story short the same buyers who paid $810,000 + $40,000 in 2005 sell their residence $710,000 ($793,000 in 2019). Thus between 2005 (close to the height of the market during that cycle and 2012 as we began to climb out of The Great Recession the sellers lost in real dollars $140,000 or $20,000/year not including expenses related to their mortgage, property maintenance and upkeep, homeowners insurance, real estate taxes, utilities and so forth.

The reason I bring this up; I do not believe we are in a period of concern about another Great Recession HOWEVER the tea-leaves are advising a slow-down is imminent as I do not believe business cycles have ended i.e. the Goldilocks Economy is fleeting.

Yes we have buyers who may be swayed by historically low-interest rates yet these buyers do not seem to understand low-interest rates usually indicate the market economy that is not robust. The reason we are seeing zero to negative interest rates in Europe and Japan; their economies are stagnant or worse potential deflation.

Yet as I work in multiple affluent Denver neighborhoods I see the massive duplexes, row houses and single-family homes still being built on speculation in Cherry Creek North where I reside. I am seeing the Contemporary Farmhouse being built on speculation in Washington Park (where I have a listing) commanding seven (7) figures where the adjacent bungalows are valued at half or less or are on the market priced based on irrational exuberance for eventual razing and rebuilding.

Are there opportunities out there? Of course and to many buyers credit they are being more selective, taking their time and I believe being more rational. And while asking prices seem to be adjusting to a new reality concerning supply and demand I am still witnessing a combination of over-improvement and over-spending.

In real estate I still believe to this day purchasing the smallest or least expensive home on the block allows one to be insured so to speak for the future. Yet when I see buyers in the 7-figures purchasing assuming their investment will only continue to rise my gut is they seem to have forgotten the years between 2008 and 2013. Many brokers I know are advising internally their sellers believe it is still 2018 and their buyers believe it is 2020 or beyond.

I find it interesting that the stock market has spoken concerning the valuations or lack thereof of Lyft, Uber, WeWork, Peloton (of note, I experienced a Peloton while traveling, while not a fan of their bikes due to I feel dated technology and design; love the concept! I like Keiser Spin Bikes much better and full disclosure I own one and my club uses them for Spin/Cycle) and others i.e. floating stock yet not turning a profit and questionable if they ever will. Not to different from the Dotcom Bubble of the early 2000’s. Maybe the stock market is flashing that same warning signs for housing…..

Size Does Matter in Real Estate Part II

Seller and buyer have come to a resolution.

As advised last week I had a unique situation. While representing a buyer for a condo in Denver I was perplexed concerning the actual size of the unit as follows:

  • The MLS/Listing Broker advised the unit was 1,080 SF*
  • The Assessors Office advised the unit was 994 SF
  • An appraiser I use for measuring advised 975 SF

*The 1,080 SF measurement was off a valuation appraisal completed a few months prior.

The difference between my appraisers measurements and the marketing materials was 106 SF. While the number does not sound large at $515 PSF the value of the difference exceeded $50,000! In addition 100 SF equals a 10’ x 10’ room or potentially a 2nd bedroom.

Some background, seller and buyer agreed to transact at a PSF of $508.78 based on the 1,080 SF per the listing.

The resolution: an independent appraiser was hired, his measurement 1,026 SF.

After some back and forth between seller and buyer (my client) the final amount concerning the sale will be $520 PSF. The negotiation and final sales price was a fair compromise between seller and buyer.

Yes my buyer is paying slightly more on a PSF basis however the price is based on the revised downward size. The seller is divesting of a unit that is actually smaller than they believed however on a PSF basis; securing a price that is in-line with their original ask. Thus I believe will be a win-win for all at the closing table.

The message here is this, the Square Footage Disclosure in Colorado actually advises one to consider getting their own independent measurements. From experience builders plans and actual measurements can vary. Assessors while generally connect can be off by 10% in either direction. Independent appraisers can come up with different numbers even though technically using the same standards for measurement. The following is a screen shot of the text from the Square Footage Disclosure used in Colorado:

Screen Shot 2019-09-30 at 1.42.27 PM

Thus if in doubt laser measuring devices are inexpensive and I would strongly suggest hiring an independent appraiser that both parties can agree on. In a marketplace where $500 PSF can be the norm the reality is every square foot counts. While the phenomenon is new to Denver, in major cities like New York, Los Angeles, San Francisco and others were PSF exceeds four figures on average appraiser measurements are nothing new and are sometimes added as a contingency in the sales contract.

At the end of the day both parties are satisfied. My buyers looked at many properties and this unit met all their checkboxes. The seller while selling a slightly smaller condo is actually receiving more on a PSF basis than his original asking price. Thus a win-win for all.

Next week why negative interest rates are detrimental to real estate.

 

 

Size Does Matter in Real Rstate

I am presently representing a client concerning the purchase of a condo. In the interest of privacy I will not disclose the address or actual pricing except on a PSF basis.

The residence is listed for sale and the Square Footage Disclosure(SFD) advises 1,080 SF. As I have visited the unit multiple times with my client and the inspector I truly questioned the 1,080 SF, as eyeballing it, seemed smaller. Related the SFD concerning the listing is executed incorrectly thus adding to my suspicions.

I went to the local Assessors office for where the condo is located. The Assessors office advised on their official measurement used for taxation purposes the unit is 994 SF. Perplexed I called an appraiser I know; he measured and came up with 960 SF or 975 SF depending on how one takes into account an interior support beam. Finally a 3rd party brokerage marketing support firm RealList the size of the unit 1,008 SF. Thus the average is 994 SF and the median is 993 SF.

Basically we have a 10% discrepancy. While this may not sound like much; at $500+ PSF we are looking at a potential $50,000 change in value.

When the listing broker was asked about the source of measurements they first advised the measurement was taken off building plans. In general not the best source as plans (embellished) and reality (what was actually built) can differ. Yet a valuation appraisal completed a few months prior shows a 1,080 SF space (see picture above, my appraiser in black, valuation appraisal in red). Thus a quandary, which is correct?

At present three(3) sources advise the measurement is closest to the Assessors Office of 994 SF and two sources placing at 1,080 SF. While 10% may seem miniscule; concerning a condo we are literally missing a 10’ x 10’ room and at $500+ PSF, $50K of value.

Today the unit is being measured by a 3rd party appraiser hired by the listing agent. Will advise either by adding to this blog post or next week’s submission.

On a personal note I have found from experience the County Appraiser number is usually accurate concerning attached homes i.e. condos, townhomes and so forth. Yet in one instance on a listing I found the local assessor to be off by almost 10%. The Assessor had a measurement of 805 SF for a one bedroom condo when it was actually 900 SF (at $415 PSF selling price a substantial difference).

The mistake, the line of condos was in-fact 805 SF throughout the building HOWEVER on floors 2-3 the same condo line was larger by 95 SF due to the base of the building having a larger footprint that narrowed beginning on the 4th floor and thus the line of condos shrunk to 805 SF between floors 4 to the roof.

Thus if in doubt, consider hiring your own appraiser to measure. Can you measure yourself? Of course however if you hire a licensed appraiser and there is a challenge your evidence is strengthened by the use of a licensed appraiser and their standard of measurement taking and analysis.

 

 

When New York City Real Estate Sneezes does the rest of the Country Catch a Cold

The deluxe and luxury housing market is a unique indicator concerning the housing market and overall economy. The first indication of green shoots during The Great Recession was the activity in luxury housing as affluent, equity-comfortable buyers were able to purchase luxury housing for at the time bargain-prices.

Since The Great Recession deluxe and luxury housing has buoyed the market in part due to desired profit margins, return on investment and demand due to historically low mortgage rates (even for jumbo loans) and until recently expansive tax advantages.

However it seems the deluxe and luxury housing market is suddenly feeling a chill.

While each market is unique New York City may be a good bell-weather. Demand always outstrips supply i.e. housing vacancy rarely exceeds 1%. While not the country’s most expensive housing market; it is a market with the most diverse housing opportunities across its 5-boroughs.

What is your reaction to the following headline: “A quarter of the new condos built since 2013 in New York City have not yet found buyers, according to a new analysis of closed sales.” Yes folk’s that is 25% or 1 out of 4 and that statistic is actually optimistic.

Among the more than 16,200 condo units across 682 new buildings completed in New York City since 2013, one in four remain unsold, or roughly 4,100 apartments — most of them in luxury buildings, according to a new analysis by the listing website StreetEasy.

While the situation is not as dire as 2008 when projects stalled post-Lehman and new buildings are still on the rise evidenced by active cranes in all 5 boroughs, but there are signs that some developers are nearing an inflection point. Prices at several new towers have been reduced, either directly or through concessions like waived common charges (HOA for the rest of the country) and transfer taxes, and some may soon be forced to cut deeper. Tactics from past down cycles could also be making a comeback: bulk sales of unsold units to investors, condos converting to rentals en masse, and multimillion-dollar “rent-to-own” options.

A secret many of my peers in the brokerage community know a growing share of condos sold in recent years have been quietly re-listed as rentals by investors who bought them and are reluctant to put them back on the market. Of the 12,133 new condos sold between January 2013 and August 2019, 38 percent have appeared on StreetEasy as rentals.

Again New York City is a unique market however on my morning drive through Cherry Creek to Downtown along Speer Boulevard or 8thAvenue I see multiple cranes on the horizon. I am also seeing rental complexes advising a free month’s rent. More telling is what I consider the post 8PM test, looking at buildings that are dark or have lights on, however not a stick of furniture within view.

While I cannot predict the future I believe within the next 3-5 years we shall all bear witness that sellers of rental buildings between 2015-2018 transacted at the top of the cycle as buyers may have over-paid while chasing returns to exceed those available in a low interest-rate environment. Added concern for my readers: Real Estate Investments Are Never ‘Recession-Proof,’ but Some Are Safer Than Others.

Unfortunately statistics lag behind present and actual market conditions. Personally my listings are sitting on the market longer, showing activity is less robust and offers are coming in below asking; quite the reversal of our recent hyper-active multi-offer marketplace. Again I am suggesting a Yellow Light for caution moving into the Fall and Winter.

 

Older Homeowners Continue to Invest and Stay in Place

As brokers we are always advising homeowners (both sellers and buyers) of the list of home improvements that will improve resale values. I too did this when I sold my primary residence a few years back to 1) achieve the highest price and 2) increase my cost basis to lessen capital gains tax liability.

However our market continues to be challenged partially due to older homeowners not selling to downsize. Instead this segment of the market is investing in their residences for continued occupancy. Yet their investment and improvements may not be visible to the naked eye.

Spending on home improvement has grown more than 50 percent in the U.S. since 2010, when it hit a low during The Great Recession. And homeowners who are 55 and over are the major force behind that spending, according to a recent report from the Harvard Joint Center for Housing Studies, based on data from the United States Department of Housing and Urban Development, and other sources.

Aging homeowners, in fact, were responsible for half of the home improvement spending in 2017: 25% by those between 55 and 64 / 25% by those 65 and older:

  • Type of Improvement / # of Homeowners / Average Expenditure
  • Carpets, floors, paneling, ceiling tiles / 5.2 million  | $3,283
  • Plumbing / 4.1 million | $1,360
  • Built-in dishwashers and garbage disposals / 3.7 million | $570
  • Windows and doors / 3.7 million | $3,442
  • Water heaters / 3.6 million | $976
  • Roofing / 3.4 million | $7,674
  • Bathroom / 2.9 million | $6,362
  • Landscaping – Sprinkler System / 2.8 million | $2,497
  • Central Air Conditioning / 2.7 million | $5,113
  • Electrical Wiring – Fuse – Breaker Box / 2.2 million | $1,473

While some have argued that long-term older homeowners staying in place may be stressing the housing market i.e. constraining supply I see the positive; infrastructure of those homes being improved including energy efficiency coupled with a retention and increase of value of the residence. We may be moving towards the European model of improve versus raze and replace.

Happy House Hunting.

Does the Stock Market Know Something We Do Not Concerning Real Estate

While many pundits advise the equity markets and housing markets do not necessarily go hand-in-hand. Yes the wealth-effect when we are in a bull market may increase confidence concerning purchasing. Post Lehman meltdown the crash in the housing market was not immediate, taking 12-18 months before the carnage would become apparent.

Yet at present some would suggest we are in a goldilocks market i.e. the equity markets are close to record highs, interest rates are still attractive with some sub 4% available and asking prices especially in the upper tier of the housing market have stabilized and in many markets showing signs on weakness.

While many analysts look at the health of housing via homebuilder stocks; for example concerning the health of the luxury housing market many analysis look at Toll Brothers. I am going to take a different tack, what about the brokerages?

For the immediate future housing transactions is still the domain of real estate brokers. I do admit the newer online brokerages i.e. Redfin and Zillow are unique models and of interest yet also far from disruptor status but I digress.

Concerning Real Estate Brokerage Stocks here are three that I believe capture the activity of the resale housing market nationwide. Please note descriptions are from their corporate marketing materials:

Realogy: Realogy Holdings Corp. (NYSE: RLGY) is the leading and most integrated provider of residential real estate services in the U.S. that is focused on empowering independent sales agents to best serve today’s consumers. Realogy delivers its services through its well-known industry brands including Better Homes and Gardens ® Real Estate, CENTURY 21®, Climb Real Estate®, Coldwell Banker ®, Coldwell Banker Commercial®, Corcoran Group ®, ERA®, Sotheby’s International Realty® as well as NRT, Cartus®, Title Resource Group and ZapLabs®, an in-house innovation and technology development lab.

Redfin: Redfin got its start inventing map-based search. Everyone told us the easy money was in running ads for traditional brokers, but we couldn’t stop thinking about how different real estate would be if it were designed from the ground up, using technology and totally different values, to put customers first.

Zillow: Zillow is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. Zillow serves the full lifecycle of owning and living in a home: buying, selling, renting, financing, remodeling and more. It starts with Zillow’s living database of more than 110 million U.S. homes – including homes for sale, homes for rent and homes not currently on the market, as well as Zestimate home values, Rent Zestimates and other home-related information. Zillow operates the most popular suite of mobile real estate apps, with more than two dozen apps across all major platforms.

All three of the companies above are listed on the New York Stock Exchange. Historically equity market experts have suggested the stock market looks 6-12 months into the future concerning pricing and activity. Of course there are anomalies i.e. earnings reports, news and so forth. However let’s look at the 52 week performance of the companies noted above:

Realogy: Closed at $4.75 on Friday August 30th

52-week range: $4.52 – 21.61

Redfin: Closed at $16.89 on Friday August 30th

52-week range: $13.50 – $23.47

Zillow: Closed at $34.43 on Friday, August 30th

52-week range: $26.38 – $51.47

All three stocks are on the lower-end of their 52-week price range.  Thus is the market advising these real estate brokerage stocks may be seeing pain in their future or is this a buying opportunity? Personally if I were a betting man I would be shorting all three stocks. Related, for those who may remember The Big Short i.e. the investor who bet against the sub-prime market and made a fortune; he is short Zillow: The “Big Short” investor that bet against subprime has a new target: Zillow

For those who feel I am off-base and wish to invest in real estate stock may I suggest an real estate ETF such as The Real Estate Select Sector ETF (XLRE)

I hope all had an enjoyable Labor Day Weekend/Holiday, let us reconnect next Monday.

 

Bidding Wars Seem to Have Given Way to Détente

While I have been suggesting the real estate market has been softening over the past year, maybe longer I have had peers advise I am off base and to be honest anecdotal information has been challenging to come by. Yes we have more inventory on the market (check). Prices have stabilized and in some markets have come down from peak levels (check) with the caveat more inventory naturally leads to price stability (true). Interest rates at 3-yr lows do not seem to be impacting the buying market (check) yet refinancing is strong.

I believe the most compelling data to support my views concerns Bidding Wars of lack thereof. In the not too distant past bidding wars were commonplace. Listed properties would literally receive multiple competing offers. Brokers would advise in their comments “Please submit highest and best offer with cash or pre-approval letter ”. Some prospective buyers would actually waive contingencies including but not limited to inspections and appraisals, foolhardy in my professional opinion. I even heard of situations of offers placed site-unseen; the rationale, if it does not work out I can always place back of market and sell for a higher price.

Of note I always advised clients both seller and buyers to avoid bidding wars as in the end no one is happy. The buyers who were outbid feel rejected. The seller has to review multiple offers, many similar to each other and make a decision based on tangible and intangible data. I am not even going to mention the Love Letters; as a broker I will not read them and I advise my sellers not to either and buyers not to compose and send. Here is a link concerning The Colorado Real Estate Commission Advisory concerning Love Letters sent to the Brokerage Community: https://content.govdelivery.com/accounts/CODORA/bulletins/224e551

According to the real estate brokerage Redfin, of note the following concerns their brokers; they advised only 11% of the properties for which their agents submitted offers in July 2019 had multiple bids, down from 46% in July 2018. Of note Redfin the 11% number is the lowest share since 2011 (and for those with short memories in 2011 nationally we started to climb out of The Great Recession).

Concerning Denver we went from 49% to 14% (see chat below). I can attest as I have multiple listings that are sitting on the market, all priced mark to market, yet still awaiting a buyer.

The following chart from Redfin (based on their activity concerning offers for their clients shows that change in percentage of offers involving multiple bids or more commonly known as a bidding war:

Location:                 July 2018       July 2019

National:                    46%               11%

San Francisco            72%                35%

San Diego                   62%                21%

Boston                        64%                16%

Los Angeles                65%                16%

Philadelphia              37%                14%

Denver                       49%               14%

Phoenix                      48%                14%

San Jose (CA)             80%                13%

Sacramento               39%                9%

Washington               40%                9%

Raleigh NC                 29%                9%

Portland OR               37%                9%

Chicago                       31%                8%

Seattle                         41%                8%

Atlanta                       35%                8%

Austin TX                   39%                8%

Las Vegas                   31%                7%

Dallas                         43%                7%

New York                   41%                6%

Houston                      38%                5%

Miami                         30%                1%

Will bidding wars more commonly known as multiple offers continue? Of course. If a property is listed below market and/or has demand i.e. design, neighborhood and so forth a multiple offer situation can happen. I know brokers who purposely list properties below market as a strategy (with their clients permission) to generate interest and buzz. The downside, offers may not come in and it is always more challenging to adjust a price upward versus downward.

As a broker my suggestion to clients is to price mark to market as noted above with my listings. If priced correctly based on comparable sales, condition and so forth the laws of supply and demand shall prevail. Let us hope the chart above advises the return to a more rationale less speculative marketplace. Coupled with historically low mortgage interest rates some excellent opportunities may arise.

What Usurps Low Mortgage Rates Concerning Housing Activity? Confidence

While I truly understand as a broker the continued optimistic view of housing espoused by my peers; hey its our bread and butter. Yet even with last week’s downdraft concerning mortgage interest rates the housing market did not suddenly spring back to the activity levels of last year and asking prices did not all of sudden increase. There is a fundamental reason why activity did not spike; it’s called confidence or lack thereof.  Let me explain:

  • First: Mortgage rates have been falling sharply over the last three months, which should be incredibly positive for the housing market, but so far reaction has been muted in both home sales and new home construction. Granted part of the drop was due to the inverted yield curve and discussion concerning a Recession on the horizon but the point is…..The average rate on the 30-year fixed is now well below 4%; it was above 5% in November 2018. The drop in rates has not produced a home-buying spree for either new or existing homes.

 

  • Second: The drop in interest rates did have impacts specifically concerning refinancing activity.  This is a mixed message as refinancing may suggest prospective sellers may actually be staying in a home versus selling and moving up or down from their existing residence HOWEVER most who refinance will conduct a cost-benefit analysis i.e. months to recoup the investment and then subsequent savings. Thus due to refinancing one would assume housing availability would be further constrained. However……

 

  • Third: The further drop in mortgage rates did nothing to encourage people to buy, as there was no change in intentions to buy a home, and instead there was a 9 point jump in those that said it’s a good time to sell a house—the most since 1992 when this question was first asked. Of note I am in the same boat as I have literally stopped looking for now and am not enticed by the attractive interest rates.

Consumer confidence fell sharply in August, according to a just-released report from the University of Michigan. The report said consumers felt they needed to be cautious about spending in anticipation of a potential recession. That bled into housing. Again coupled with the gyrations in the equities market, continued volatility concerning tariffs and asking prices that has remained at 2018 levels the Fall season may be worth watching (I suggest from the sidelines) as recession fears and become a self-fulfilling prophecy.

A quote I have used this week with clients both looking to purchase and those looking to sell has been the same: “Sellers believe it is 2018, Buyers believe it is 2020 and at some point the two shall meet in the middle”.

When the For Sale By Owner Does Not Work Out

As some of the readers of my blog know I live in Cherry Creek North since 1989 (wow that is a long-time). Thus I have been through and boom and bust cycles of the neighborhood. I still remember in the beginning days of The Great Recession when a Craftsman Style Mansion was constructed on the southwest corner of 4thAvenue and Garfield Street (373 Garfield St) as I knew the owner of the duplexes (on the 100’ x 125’ lot which were sold and razed for the 8,000+ SF residence to be completed in 2008.

Fast forward to 2016/17, the mansion makes the news twice.

First in 2016 the owner of 373 Garfield Street filed a lawsuit against his neighbor across the alley concerning impeded access to his garage. Here is the story from CBS Channel 4: Feuding Neighbors Head to Court Over Alley Parking Spot. 

Then in June 2017 the owner of the house enjoyed an extensive article in the respected online BusinessDen periodical in which the owner was planning to place his house on the market as a For Sale By Owner or FSBO. The article titled: Cherry Creek Mansion FSBO: ‘I’m not going to pay 6 percent on a $5 million home’

My favorite quote from the article is as follows: “I’m not going to pay 6 percent on a $5 million home. I’m just not going to do it. I don’t need to,” Neubeiser said. “The home is going to sell itself … If you dangle $156,000 (the 3 percent commission) in front of me, believe me, I’ll jump.”

Well, fast forward two years to July 2019, the home is for sale and guess what it is listed by a real estate broker; here is the listing: 373 Garfield Street listed by Camber Realty.

Of note the co-op commission offered by Camber Realty is 2.8%, thus even if the brokerage listing the home is paid zero ($0.00) at asking of $4,995,000 the seller will still be on the hook for the commission to the co-op broker also known as the Selling Broker, the broker/berkerage who brought the buyer to the table. The amount assuming receives the full asking price: $140,000

Trust me as a homeowner and a real estate broker I understand the desire of FSBO’s; i.e. sellers assuming they will sell their own homes, ascertain a value, facilitate all the negotiations including contesting a potential appraisal shortfall, execute all the paperwork and so forth to save anywhere from 2.5%-6%. Of note many FSBO’s are now paying co-op commissions of between 2.5% and 3% thus savings are even less.

I get it; within hot/in-demand markets why pay a commission when you can sell it yourself. From experience I have witnessed FSBO’s languish on the market and after losing months of time to save a listing commission the house is them listed with a full-service or discount brokerage. Yet in the interim the seller has been paying on the mortgage, lost valuable time in marketing and prospective showings being a FSBO.

Now as the overall real estate market begins to cool and inventory increases I predict FSBO’s will be less common. Yes I know many marketing channels exist for FSBO’s and there is the false belief that brokers are taking commissions just to place a listing on the MLS and sit back. If that were the situation I would be composing this blog from The Maldives and not my office.