Coronavirus has thrown everything in life for a loop, and we imagine it will have some effect on the real estate market too.
How exactly will the real estate market be affected?
I think the only rational answer at this point is we’re not sure yet because this situation is new for all of us.
Some say spiking unemployment figures and tightening mortgage markets will cool demand and negatively impact home values. Others say we have extremely low housing inventory and Denver is a popular place to live so the market will remain steady. Where people will fall within that spectrum of opinions varies widely and many are likely to disagree with each other. I don’t have the answer. I’m watching and experiencing the local market with my clients and learning.
What I think we can agree on is during these times most people will be looking to save money where they can. So as a company, we at Focus Real Estate decided our response to this uncertain world will revolve around finding ways to save our clients money.
In this post we’ll outline our response to COVID, which includes 3 specific ideas to help save buyers and sellers significant money. We didn’t want our response to simply be “we’re here for you” (which we are!), we wanted it to be tangible and practical.
If you think any of these ideas could save you or someone you know some money please share this with them!
Idea #1 – Reduced Buyer and Seller Commissions.
At Focus, we’ve decided to lower our commissions. This is the most impactful way we can help our clients in this time as they buy and sell homes.
Real estate commissions have always been 100% negotiable, but oftentimes they aren’t clear and clients aren’t sure what to expect. Here are our new fees spelled out clearly.
We will charge 1.5% as the listing agent when we sell homes and offer the Buyer’s Agent 2.5% so the total fee for a seller would be 4.0%. How much could that save a seller? Well let’s run a quick example and see. In the example let’s assume the seller is selling a $400k home. For this home, a seller using a brokerage that charges 6% would pay $24,000 in fees. At our new pricing, they would be paying a total of $16,000 in fees. That’s $6,000 to us as their listing agent and $10,000 to the buyer’s agent that brings the buyer. That’s $8,000 in savings! What could the seller do with an extra $8,000 in these times? Put down more cash on their new home? Have a smaller mortgage? Build up their cash savings in case they have a job loss? And what if we run that same math on a $1.0M home? The savings are $20,000!
Discount commissions are not new. Anyone watching the real estate market over the last decade has seen companies offer deeply discounted rates. (I’m sure a few company names come to mind). What we’re doing differently than those companies is offering discounted rates AND providing the full-service expertise that we’ve been building for years. We’re not trying to be everything to everybody, we’re just trying to serve our city who we know and love and we can do that with reduced commissions that will help the clients in tough times.
For home buyers we serve, we will accept 2.5% in commissions as their buyer’s agent and refund the difference to the buyer if the commission paid by the seller is higher. When you’re buying a home, the seller/listing agent of the home you’re buying pays the buyer’s agent’s commission. If the commission offered by the listing agent/seller is over 2.5% we’ll rebate that overage amount to our buyer client (you!) at closing. Let’s run an example. In this example let’s say the buyer is purchasing an $500,000 home in Painted Prairie. The commission offered to the buyer’s agent by the seller/listing agent is 2.8%. In this case, we’d rebate our buyer that .03% (2.8% – 2.5%) at closing which would be $1,500! That could help our buyer client cover a ton of moving costs or maybe help with a few upgrades they want to do once they move in. Note that this program is for resale homes only. If the buyer is purchasing a new build home we’ll be paid whatever the builder is offering, which varies significantly by builder.
Will these reduced commissions last forever? We’re honestly not sure. We’re confident it will help people financially now, which is the goal, and we’ll see how it evolves over time. But in addition to helping our clients save money we also think the client will benefit from the experience we gain through helping many other buyers and sellers. What I mean is we have 6 Denver-based agents and if we’re all busy helping buyers and sellers in these uncertain times, we’re going to learn a ton of useful market intel that then benefits all our clients. We want to be in the flow, learning and adjusting.
Idea #2 – Adding Property Leasing as a Client Service.
We’re adding property leasing as a service that we offer at Focus Real Estate. Before I jump into the details on this one I should define what “property leasing” is compared to “property management”. Property leasing is when an agent helps you market your home and get it leased. Property management is when an agent helps you market your home, get it leased and then does the on-going property management during the lease period for you.
So to be clear, we’re adding property leasing, not property management.
We’re adding this service because we think some of our Denver homeowner clients may need this service. It gives us another tool in our toolbox to serve clients and help them save money compared to the cost of property management.
So how can we save them money? Well, let’s compare the cost of property leasing vs property management. In our example let’s assume a Stapleton homeowner is going to leave the state for a job but plans to move back later so they need to lease their property out for 3 years. Their home is a well-kept single family home and it will rent for $3,000 per month. For this example, let’s assume they find a tenant that will stay for 3 years.
The all in cost of the property management company for that 3 year period to the homeowner would likely be around $12,500. That total includes the property manager charging half the first month’s rent ($1,500) plus 10% of the rental income for the 3 years ($10,800) plus a conservative estimate for mark ups on other services rendered during that 3 years ($200). (Costs for property managers vary by company, this is a ballpark estimate.)
The cost of using a leasing service like ours would be equal to one month’s rent, which is $3,000. The cost of using our leasing service would be roughly 25% of the property manager over that 3 year period.
So is using a property leasing service the right answer for everyone? No! Some owners are going to value having the property manager collect rents, field tenant calls about leaky toilets, etc. Property managers earn their money and they do tedious, oftentimes thankless work. Our leasing service is a good fit for a Denver homeowner who feels confident in managing their rental, but they just need some help marketing it, finding that right tenant upfront and understanding the process. Our ideal leasing client sees the work they’ll have to do but they value the idea of saving 75% of the cost even more.
Getting a property leased is not rocket science, and I’m confident people could figure it out. But we all have other time commitments (job, family, etc) to handle that need our time and attention. So having a Denver-focused professional like us to help them prepare the home, shoot professional photos, create a 360 Matterport tour, promote it online (Zillow, MLS, our Stapleton Scoop channels, etc!), show the home and help sort through applicants may very well be worth it to many homeowners.
As we mentioned before, it’s another tool in our toolbox to help Stapleton homeowners and it’s another way they can potentially save money in uncertain times.
Idea #3 – For Certain New Home Buyers We’ll Sell Their Current Home Free.
Sometimes we have a new build Painted Prairie buyer that has already done the legwork of finding their new home – they’ve even picked out their lot! They’re ready to go but they want an agent on their side (they understand the price they pay the builder is 100% the same whether they have an agent on their side or not) and they need an agent to sell their current home. (Side note: If you’re wondering how a buyer’s agent could help with your new build home, check out this quick video.)
In this situation we recognize the buyer has done quite a bit of work on the buy side, so we’ll reward them for that by listing their current home with a $0 listing commission.
So back to our theme of saving people money…how much could this scenario save a client? Let’s run another example. In this example let’s assume the client is selling a $600k home to purchase a larger new build home. If we’re their agent on this new build they already know they want we’d sell the $600k house completely free of any listing agent fee. This would save $18,000 compared to an agent that charges 3% on the sale of that current home! This $18k in savings could then go towards the down payment on the new home…moving expenses or again building up that cash cushion for the unknown.
Note that this sell your home free option only works if you know exactly what you want as a buyer. If you’re still exploring your options and we need to guide you through the home search process, we’d still sell your house at a discounted listing commission, but it would be 1.5% (see money saving idea #1 above). This plan is only available PRIOR to signing a contract with a builder. So if you think you may want to have an agent on your side you should let the builder know at your first visit that is your plan, otherwise an agent can’t be added later.
Well there you have it, 3 ways you can save money if you’re making a Denver real estate move. If you want to start the process or you have follow up questions my info is listed below. We’d love to help!