Seattle Housing Buzz

Got the urge for a little DIY? Some people engage in home-improvement to enhance the functionality and comfort of their living space. Most often than not, improvements increase the home resale value bottom line. Some, however, may not:

Homeowners can find plenty of information on which improvements will help boost the value of their houses. But significantly less attention is paid to what to avoid when remodeling your home. Consider the following seven deadly home-improvement sins before committing to projects that may work against you to lessen your resale value.

Read on- the seven deadly sins of home remuddling

In a previous post I wrote a post about a study which Texas A&M University undertook regarding the net effect of utilizing a discounter or limited service company. Their findings indicate there was no net dollar advantage to using a discounter.

I wanted to follow that up with case in point. I recently competed against a 4% listing company for a single family home listing. The owners ultimately selected the discounter because they were saving 2% off the commission (4% instead of 6%). The discounter listed the price at $420,000, considerably below market value by $20,000 - $30,000 when analyzing comparable sales, neighborhood market activity, like size and finishes, and lack of inventory in the neighborhood. It was not the best decision for the seller.

* Assumption: I would have listed at or close to market value based on seller’s requirements. Example uses the low-end of the market value range.

Based on this comparison, by trying to save 2% off the commission, it actually cost the seller $10,400 in gross proceeds.

I’m not privy the the information shared between the seller and the listing company for why the listing was priced so low below market. The seller is relocating but that itself is not sufficient reason for the lower price.

At the time of the sale, the neighborhood was sought after and inventory was very low. I had just listed and sold a home in the neighborhood that was comparably priced and received multiple offers. I had done my market analysis so I knew the market and neighborhood well. Had it been listed at $440,000 and with full-service marketing and promotional activities, the property would have sold at the higher price, possibly with multiple offers as well.

An independent study by Texas A&M University revealed there is little, if any, savings for sellers who utilize discounters or limited service companies. The study of 55,000 residential transactions found that discount companies sold their listings for 1.7% less than full-service companies and took 17.1% longer to sell.

The 1.7% reduction is sale price offsets the average 2% commission savings of most discount companies (i.e. 4% vs 6%), resulting in a negligible net dollar gain for the seller.

Most of the study results were statistically significant, indicating valid relationships exist between limited service representation and agent experience and marketing performance (time to sale and sales price). Licensing type did not demonstrate such a clear relationship.

Interestingly, the empirical results from the models show that limited service listings sold for 1.7 percent less than typical exclusive-right-to-sell listings and took 17.1 percent longer to sell. Given that the typical discount offered by limited service brokers is approximately 2 percent, there does not appear to be any net gain to sellers using limited service representation.

If the limited service broker charges a total 4 percent commission, then the commission plus the 1.7 percent lower price is approximately equivalent to a 6 percent commission from the seller’s perspective. If this result holds up in additional studies, it would indicate that limited service brokerage offers no dollar advantages to the seller over typical brokerage when using the exclusive right to sell contract.

One observation is that discounters work on volume and may not be able to fully represent, promote and conduct a thorough analysis of the market, neighborhood and pricing of the listings they are taking, and thus, detrimential to the seller’s best interest.

Article was originally posted on 6/19 and re-created on 6/22.