The massive “Hidden Cost” of selling your home

by Neil Jenman

The auction was over. The agent was beaming. The sellers looked like many sellers at the end of an auction – as if they’d been slapped around by Conor McGregor. The buyers had a silent smirk – having come prepared to pay $1.4 million, they bought this gorgeous home in Sydney’s south for $1.2 million, a massive two hundred thousand dollars below their maximum price.

As the parties went to sign the paperwork, the agent noticed me watching proceedings. “G’day Neil, who are you with?” he asked. I said I was doing some real estate research.

“Well, if you write about this auction mate, be sure to let everyone know I did these sellers a good deal. I charged them one per cent.”

One per cent is a low rate. Most agents charge between two and three per cent; or, as is often laughingly said in real estate circles, “As much as we can get away with.”

As for a “good deal”, well, that wasn’t true. Like many sellers, especially those who sell at auction, these sellers were massively under-sold. They had been hit by the massive hidden cost that hits so many home sellers these days.

The buyers were willing to pay $1.4 million, but because the other bidders dropped out at $1.19 million, all the winning bidder had to do was bid more than the bidder below – i.e. $1.2 million – and that was it – “SOLD”! To be truthful, the auctioneer should yell, “UNDER SOLD”!

Yes, this home was under-sold by a massive $200,000. Now, whether the sellers knew it or not (and most don’t), the amount by which they under-sold – $200,000 – was a cost. A hidden cost, to be sure, but still a cost. A massive cost.

So, yes, the agent did charge a low rate being $12,000 (one per cent of $1.2 million) but, when added to the under-sold amount of $200,000, the cost of selling this home rises to a massive $212,000. That’s equivalent to a commission of 17.5 per cent, a far cry from the “good deal” the agent claimed he’d done for them.

The above story is true.

It’s a common and typical story of what happens at most auctions. Yes, that’s right, most auctions. Auctions are where homes are notoriously under-sold and where everyone seems to be in on what’s going on, except home sellers. Most sellers never know their homes have been under-sold, often by hundreds of thousands of dollars – sometimes, millions.

Be warned, however: The under-selling of homes isn’t reserved for auctions. It happens in most real estate sales, especially where agents don’t know how to negotiate – which applies, sadly, with most agents. They are hopeless negotiators. As such, these agents do what they know best: they pressure sellers into accepting offers far below what the buyers are willing to pay.

In the example just mentioned, the agent – like all agents who recommend public auction – was an incompetent negotiator. Had the agent been a skilled negotiator, the home would have sold for $1.4 million, a whopping two hundred thousand dollars more.

So, let’s look at two scenarios.

Let’s say the same home had been given to an agent who was a skilled negotiator. Instead of charging one per cent, this agent charged, say, two per cent. The skilled negotiator sells the home for $1.4 million and charges a fee of $28,000 giving the sellers a net price of $1,372,000. The incompetent negotiator sells the same home, but for $1.2 million and charges a fee of $12,000, giving the sellers a net price of $1,188,000.

Here’s the bottom line:

THE SKILLED NEGOTIATOR PUT AN EXTRA $184,000 IN THE SELLERS’ POCKETS.

The biggest hidden cost to home sellers these days is under-selling their homes. It’s often a massive cost. The cause of this cost is choosing an agent who is not a skilled negotiator. It doesn’t matter how long agents have been “in real estate”, what matters is this: Can they get you the best price?

Skilled agents do exist, you can find them if you know what to look for and you have patience. Better to take two or three weeks to find the right agent, than under-sell your home by two or three hundred thousand dollars with the wrong agent.

The message is clear. When selling your home, make sure you hire an agent who’s a skilled negotiator.

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If you need help to find an agent who’s a skilled negotiator – or you’d like to make sure that your agent gets you the best price for your home, please call Jenman Support on 1800 1800 18 or email support@jenman.com.au.

We look forward to helping you sell for the highest possible price in today’s market.

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