March 29, 2007

Reader’s Questions: How To Structure/Negotiate A Discount

A “plugged-in” reader butters us up (“I've gone from clueless to rather informed in a brief period of time thanks in big part to Socketsite”) and then hits us with a question:

I recently bought at one of the new developments and was able to negotiate $X (lets say $10,000) amount towards upgrades; so I will buy the condo for the sale price but get $10,000 towards upgrades. I plan on purchasing about $20k in upgrades.
Would I have been smarter to offer $10k above asking and then ask for $20k in upgrades? The cost to me would be the same, but when I go to sell, my purchase price will be higher and more accurately reflect the additions at the time of purchasing. I always hear realtors saying what the place sold for X number of years ago and came up with this idea from that.

We have our answer, but we’re going to open it up for discussion amongst the readers first. And while we were unable to get our reader to identify the development or the exact amount of the discount (“[I] did so with the personal promise to the sales agent that I would keep it confidential”), he was willing to admit that “it is one of the new high rises.” Yes, high rises.

First Published: March 29, 2007 5:49 AM

Comments from "Plugged In" Readers

What this person pays for a high-rise condo is just about irrelevant. There are so many really good comps in a building like that, that the properties above and below will set the market price. It won't matter one bit what he/she paid. If he/she overpaid by $100k, it would be reflected by the price fetched by others. When it comes time to sell, what matters more is the price on the place across the hall...

If you're purely talking about flipping the thing in a week, well, maybe this "strategy" would work. Or, if the place were truly unique (100 year old victorian) then the previous sale price has more weight.

Posted by: ca dave at March 29, 2007 7:24 AM

I was able to get a unit at "one of the new highrises" for less than the asking. I decided to just take it off the purchase price, rather than asking for upgrades because the upgrades through the developer are usually vastly overpriced, and the lower price will reduce my property taxes (not by much, but still). Honestly, I don't think people care how much YOU paid for an upgrade, they only care if they like it.

Posted by: Mike at March 29, 2007 7:27 AM

I agree that the original purchase price is irrelevant at the time of resale. Paying $10K higher would mean that property taxes would be that much higher for the duration of your ownership. Realty agents obviously have a clear incentive for having as high a purchase price as possible, but this is one of the many areas where the interests of the agent conflict with that of the client. Without knowing any further details of the building in question, I would go out on a limb to say that if the OP paid list price to get only $10K of improvements, then he/she has overpaid waaay too much!

Posted by: trailertrash at March 29, 2007 7:33 AM

Your property tax will be slightly higher with the higher sales price.

Posted by: SF Bubble at March 29, 2007 8:34 AM

What's good about what you're doing is that your mortgage can be used to cover the upgrades, rather than having to shell out $10k upfront.

Posted by: Will H at March 29, 2007 9:27 AM

"I was able to get a unit at "one of the new highrises" for less than the asking. I decided to just take it off the purchase price, rather than asking for upgrades because the upgrades through the developer are usually vastly overpriced, and the lower price will reduce my property taxes (not by much, but still)."

Do you mind me asking how much off you got and/or where? I had thought that 1Rincon and The Infinity (I'm pretty sure that is what we are talking about) are a take it or leave it kind of place.

Posted by: tom at March 29, 2007 10:12 AM

Keep that purchase price as low as you can. When you go to sell a good REALTOR will not only look at the comps in the building but will market your property in a such way as to try to recapture some of those "upgrade costs". Maybe something you added is unique etc.

As far as REALTORS caring about commission on an extra 10K purchase price. I feel pretty comfortable speaking for 99.9% of us saying that "we don't". It is a badge of honor to get our clients the lowest possible purchase price. It gives us bragging rights and of course increases the chance of that client referring us out. That's worth a lot more than a lousy 250 bucks.

New Development advice; Make that sales agent "want" your business. Visit the building several times and work with a sales agent who you "connect" with. Have a pre-approval letter in your pocket. Make sure they know you are serious and qualified. Always be polite and don't try to be a hard core negotiator. Anytime somebody likes you, they are more inclined to work with you. Make sure you know the market and who else is offering incentives.

Posted by: Michael Novia at March 29, 2007 10:37 AM

How much are people able to negotiate for new condos now? 2-3%? More? Less? Does it make a difference if you have an agent or not?

Posted by: anonymous at March 29, 2007 10:59 AM

My advice is to go without an agent for new developments. Be pre-approved and let the sales agent know you are serious. Once the discussion on pricing happen, ask the seller to credit you the agent's 2%-3% fees. Will most likely work.

For units that are NOT in the "high rise". Go without an agent and ask for more than 3%. A couple of months ago, I went into a new development and negoiated a 8% discount w/ out an agent and this included all the other incentives they were offering.

No new developments want to lose a serious client to another development.

Posted by: advice at March 29, 2007 11:19 AM

"What's good about what you're doing is that your mortgage can be used to cover the upgrades, rather than having to shell out $10k upfront."

If you need your mortgage to pay a paltry $10K for upgrades, you probably shouldn't be in the market for real estate in San Francisco in the first place. Makes you wonder.

Posted by: Anonymous at March 29, 2007 11:33 AM

I agree with most of Mike Novia's points except that you should consider strongly using a realtor unless you're experienced in negotiating (most people are not). I also think that your best bet is to buy when you have no pressure to buy, draw the sales process out as long as possible (even at the risk of losing a unit), and when you're really close on terms; negotiate 'hard core'.

Everyone should feel pain in a sale transaction. Seller should feel like they gave up too much, buyer should feel like they paid too much. Those are the best deals, IMO. Of course the seller doesn't want you to negotiate? What kink of crazy advice is that.... Don't be some agressive jerk, but you don't have to be 'that guy' to negotiate hard core.

Posted by: eddy at March 29, 2007 11:39 AM

Every project has a rhythm. Early on, when units are being "released" it is usually harder to get concessions, especially if the development is hot. Later, when what's available is a mixture of units that didn't sell the first time and units that fell out of contract, the developer is way more motivated.

It also depends on what is more important to you, a really great unit (which will always be in demand and easier to resell) or a great deal.

Re taking the money off the sales price or off the upgrades, it's apples and oranges. 10K towards the upgrades can't just be swapped for 10K off the price. It would probably be more like 5K, which is why developers like making that particular concession. It seems like they are giving away much more than they really are

Posted by: Salarywoman at March 29, 2007 12:30 PM

Personally, I have a great experience with my Realtor who's value has far outpaced any 2.5 or 3.0% commission. He gets me in the right unit at the right time and brings me the best returns in the buildings that I buy in. He knows the market and when to pull the trigger and when to pass. I've met some other owners in the developments I own at they didn't figure out that they bought a not so lucrative unit until it was too late. The investments I have made far out paced the gains from most units and most of the decisions were made with input from my agent.

Posted by: Agent Lover at March 29, 2007 12:33 PM

If you are smart enough to read Socketsite, you are smart enough to buy a new development without an agent.

Why put the 2.5% fees into the agent's pocket, when it could go towards your new home????

Buying a new development is an EASY transaction and COMMISSION for the agent and thus why we hear from them that it is so important to hire them.

Posted by: ok at March 29, 2007 12:44 PM

What I did for my very first and new-development purchase is bring my mom.

She is a master at this stuff... somehow she stressed we didn't bring an agent and asked where that commision is going.

The agent was uncomfortably laughing, and my petite mom met him giggle for giggle and didn't back down, staring straight from behind her coke-bottle glasses. Then she said "so you're going to buy her refrigerator."

I got a fridge and washer/dryer, lighting upgrades, yr of HOA, bought down the rate (developer was offering financing), year of taxes and escrow paid.

LESSON and wise words from mommy: "It doesnt hurt to ask. The worst they can say is no."

Good luck everyone.

P.S. She is booked until after tax season.

Posted by: cd at March 29, 2007 12:58 PM

Great story cd!

As i said in the past, there is NO NEED to bring an agent to purchase a new development. Put the money in your pocket instead of the agent's. If you are reading Socketsite, most likely you know more about new developments than your agent.

Is there an agent on here that wants to tell me a different story???

Posted by: ok at March 29, 2007 1:08 PM

Agreed - it doesn't matter either way to the value of the unit once you pass the 6-12 months mark as your unit value will be decided by the more recently sold units in your building. Additionally, just document how much you spent on upgrades over the original purchase price and make it known when you go to sell it again - that would be the same in the eyes of a buyer as adjusting the purchase price.

Posted by: Anon at March 29, 2007 1:12 PM

Like some of the other comments, it doesn't matter what you paid for the condo, since the market at the time you sell will tell you what the price will be. However, it is the upgrades you have done to your unit that will set you apart from the heard of other sellers. Also, don't forget, the higher price you pay for the condo, the more property tax you are going to owe!

Posted by: mark nelson at March 29, 2007 1:28 PM

Why are non-high rise new development more likely to knock prices down rather than high rises?

Posted by: anonymous at March 29, 2007 1:44 PM

because high rise buildings are in demand. there's only 2 being built right now. if you look at all the non-highrise buildings (arterra, berry, palms, soma grand), they all compete with each other and need to lower prices to get the sale. plus, they all look at the same.

Posted by: anon at March 29, 2007 2:06 PM

Advice,

Assuming that your negotiation progressed naturally, what was the initial discount rate that you started with to arrive at the 8% discount? 10-15%?

curious

Posted by: curious at March 29, 2007 2:10 PM

"If you need your mortgage to pay a paltry $10K for upgrades, you probably shouldn't be in the market for real estate in San Francisco in the first place. Makes you wonder."

It's the only reason for increasing the sales price to get basically an upgrade voucher. I am of the opinion that improvements made independent of the developer are much less expensive, that a $10k difference is meaningless when it comes to resale price, and that property taxes will be increased ($250 in the first year).

I don't know how the thread turned into a discussion about whether or not you should hire an agent for buying at a new development, but there's obviously no hard and fast rule. Even if you read all the blogs and are super up-to-date on condo developments in SF, agents can still provide value that would arguable be worth 2-3% of the sales price.

For example, when I was at the first day of One Rincon's sales extravaganza, an agent was able to get me to the top of the list to speak to a One Rincon agent whereas I would have had to wait 3-4 hours to speak with someone. By then, the available inventory would have been largely taken. Even though I did not buy, a friend of mine that I brought with me to the table did, and this was made possible by that broker. Real estate is a broad industry, and brokers are a good source of local information, whether you are completely clueless or in the know.

Posted by: Will Hu at March 29, 2007 2:18 PM

It was simple! I sat down with the sales manager and gave him my offer on top of all the current incentives. No being pushy, I aksed him to call me the next day with an answer. Told him I was pre-approved and very serious about the unit.

The deal was done the next day. 8% off without an agent!

My guess was an agent could have gotten 5%-7% off but I got 8% without using one.

2.5% + 5.5% =8% OFF sale price without an agent

7.0% - 2.5% =4.5% OFF sale price with an agent

Posted by: advice at March 29, 2007 2:21 PM

Just a reminder to all -- the guy gave $10K as an example -- he was not revealing his actual discount.

Posted by: Mistereks at March 29, 2007 2:46 PM

An important reminder is that developer's "upgrades" are never worth the amount they want for them, which is why they are selling them - to make a profit, not so that you'll have a better life. If you have no inclination to do your own improvements, then buy into them. If you want to make your unit your own, then go out and upgrade the place on your own at cost only.

That being said, from what I've seen in this market for the past years is that no amount of "upgrades" fetch much more money. The unit down the hall with the Home Depot cabinets is still going to want $1 million for their unit. As sad as it is, the buying community in SF has NO idea of what is well designed, quality, custom work and what is Pottery Barn staging. Hence, the sport of flipping! Buy the cheapest materials you can and convince buyers that they should pay more for it. And we all come running with our checkbooks.

Posted by: rg at March 29, 2007 3:15 PM

hey what the hell is wrong with pottery barn?

Posted by: Will H at March 29, 2007 3:49 PM

This is a very good discussion! :)

If you don't bring your own REALTOR the marketing company who is selling the homes double-ends the deal.

I worked on a new development for a while and we loved it when buyers came in unrepresented.

I'm not a fan of Pottery Barn.

Posted by: Michael Novia at March 29, 2007 6:39 PM

Michael, get it straight. Were talking about people who go into new developments and negotiate based on the fact that they can get the agent's fee to lower the purchase price. How hard is it for a realtor to visit this site daily and learn of all the new developments and put the same info onto their website? [Removed by Editor]

As stated earlier, if you are reading this site, YOU do NOT need a realtor to represent you.

How about all the people who bought @ the Palms during the first release? Did their agent do them a favor on their investments? Buying high before the incentives and now stuck with an unit that probably is 10% lower than their price. Not to mention all the incentives the Palms are now offering. So, is an agent helpful when something likes thus happen ...????

I'd rather go inside and purchase my own unit and keep the commission.

[Michael], i know its hard for you to understand since you are on the other side and wants to keep the 2.5%.

Posted by: ??? at March 29, 2007 8:28 PM

"How about all the people who bought @ the Palms during the first release? Did their agent do them a favor on their investments? Buying high before the incentives and now stuck with an unit that probably is 10% lower than their price."

My agent advised against the purchase - just kidding. That has never happened in the history of SF real estate. But they are good at pointing out vital issues such as "the kitchen is old" . That should be worth at least the 3% they get.

Posted by: anonymous at March 29, 2007 8:43 PM

I know a few agents personally very well. One of them in fact is my best friend, and I love her like a big sister. You would be surprised by how big the differences are on the things that agents tell a regular client from what they tell their real friends and family members...

Take all the agents here for example. Has anyone seen an agent telling people to stay away from any development? I haven’t. It always seems to be a great time to buy, and they’ll tell you "great value, just hold longer". All you hear is "big things are happening again", or "hurry, xxx has great deals left", or "new york is gonna save the real estate bubble."

Not all agents are bad, but the conflict of interest between buyers and agents is a fact. Do your homework and you really don’t need them for many situations. And use a good agent when you absolutely have to. Just make sure you find a good one. There’s a big difference between a good agent and an agent who sells lots of units. There are many agents who represent only several deals a year. I often find them to be more honest and trustworthy.

Posted by: blahhh at March 29, 2007 9:43 PM

Donald Trump watch out ??? is coming after you! First off I have discouraged buyers from certain developments. One that you mentioned and others. Some based on price, some based on layouts, location etc. Secondly, I have not claimed to have a crystal ball. How can anyone know what will happen 6 months or a year from now. Yes I know you know, but I mean the rest of us. I know and work with a lot of real estate agents and I will tell you first hand that the vast majority of them care about their clients well being.

There is no question in my mind that you got the deal of a century! Congrats! My wife will be selling at a new development this summer. Maybe you could buy something from her too! :) And yes I do want to keep the 2.5%, if I had more buyers like you I could keep the whole 5%. Keep up the good work.

Posted by: Michael Novia at March 29, 2007 10:14 PM

blahh, I agree with you 100 percent! I was looking at an agent's website through socketsite and it looks like every new development he writes about is good and have some value. Not once did he mention how a property might be a lemon. what a great agent!

Posted by: ???? at March 29, 2007 10:19 PM

[Michael], this is not the place to have a pissing match. When the discussion started, the question was how to get a better price through the developer.

My opinion was to go to the developer without an agent and you automatically get at least 2.5% off right off the bat.

Not sure what deals you get for your clients as you never posted any great deals that you've gotten recently but i'm sure what ever price you get at a new development, another buyer can get the same but with another 2.5% discount.

I'm aware that its in your best interest to keep telling people publicly how they need a realtor to purchase a new development but people on this site is way smarter than that. Try pushing your sales scheme elsewhere.

Posted by: ??? at March 29, 2007 10:54 PM

I agree. This was a good discussion until you ran out what to say and decided a personal attack was all you had left. You should really try to stick to the topic. You are all over the place. If this is my sales scheme, I better work on a new one.

[Editor’s Note: With this we agree as well. Let's keep the personal attacks in check.]

Posted by: Michael Novia at March 29, 2007 11:28 PM

I think this is somewhat related to the topic, but it seams like the easiest way to negotiate one of these things is simply to say that, "hey, I don't have a realtor so lets chop the price by how much I'm saving you." I'm just a guy that recently bought without one, I did my research, I read this site and others, and I read a few books; I ended up doing pretty damn good and I owe most of it to the lack of an agent.

Now had this been a resale and not a new development, I would have really needed an agent to help me come up with an offer price and things like that, but in a new development, I'm not sure what the point is if you do just a little extra work.

Posted by: Guy at March 30, 2007 7:35 AM

I bought at one of the new developments without and agent and basically pocketed the buyers commission (and then some).

I'm going to be selling where I live now and am going to use Redfin or one of the other flat fee services. Although real estate agents can provide some value, their commsissions are completely unjustified.

Posted by: Mike at March 30, 2007 8:12 AM

another reason to use an agent…

an agent can obviously negotiate a sale price, incentives, etc… an agent can also rebate a portion of their commission to the buyer as well. A 1.25% rebate on a million dollar property equals a lot of money…

Posted by: todd at March 30, 2007 8:14 AM

"an agent can obviously negotiate a sale price, incentives, etc… an agent can also rebate a portion of their commission to the buyer as well. A 1.25% rebate on a million dollar property equals a lot of money…"

...and saving 2.5% by not using an agent nets you twice the "rebate".

Posted by: Mike S. at March 30, 2007 9:29 AM

A few general comments on this thread.

- Your desire to decrease your sales price or ask for a credit does depend on what your cash situation is. If you have limited cash, you may opt for the credit. If you want to minimize long-term property taxes, monthly payments, etc, you can lower the purchase price.

- In general, real estate agreements are made so that the listing (seller's) agent gets paid the full commission and distributes a portion to an agent who brings in a buyer. If there is no buyer's agent, the full commission is paid to the listing agent. The listing agent would need to forfeit part of any additional profit to give you a credit. Some listing agents would not want to deal with this duality with no benefit and either not give a rebate or even refer you to another agent.

- Some buyers are saavy enough to determine how to get to the seller's bottom line as quickly as possible however there is a tremendous amount of knowledge and expertise that some agents may have and share with their clients. The general premise is that in most professions, someone who does business in a specific trade will be more adept at that trade than someone who has less exposure or experience. A seasoned agent will know the history of sales and the trends in a given building and what concessions have been made for other buyers. They also have a network to validate some assumptions.

- A good agent will identify the pros and cons for you and leave it to you to make an informed and logical decision based on your needs.

- A good salesperson will make you feel good about the deal you just got (and it may also be a good decision).

Posted by: The Smart Guy at March 30, 2007 10:41 AM

Just for the record, we’re not "anti-agent." As with any profession, there are those who are great (and worth more than their commission), those who are not so great (and simply take/place orders), and those who are simply not (to put it nicely).

Now back to structuring and negotiating discounts/upgrades. And “cd,” tell your mother to expect our call on April 18th (we need some help with some negotiations of our own).

Posted by: SocketSite at March 30, 2007 11:10 AM

Michael Novia - what exactly does double ending the deal mean? I assume it's keeping the commission that would have gone to the buyer's agent and moving it from the liability column to the revenue column of the building budget. Thanks. BTW - I used a Realtor for my recent purchase of a new construction property, and I'm glad I did.

Posted by: Ebayj at March 30, 2007 6:50 PM

Double ending the deal is when one agent keeps the entire commission. That agent represents both the buyer and seller(dual agency). I'm glad that you used an agent. And more importantly I'm glad you had a positive experience. But for the record, I truly enjoy hearing both sides. One thing we can probably all agree on is that there are exceptions to just about every rule. I'm unplugging for the weekend. Have a good one!

Posted by: Michael Novia at March 30, 2007 7:34 PM

To all the professional buyer's that have purchased new homes in San Francisco and throughout the USA from developers, without any professional advice - Good Luck.

I suppose none of you purchased at The Metropolitan, The Brannan, The Watermark, The Beacon, or any other new project in SF. If you did, what notice did the developer give you as to what was going to happen to your view? The view you paid $200K to $1M for.

How many of those units are about to have their views blocked by new developments. The Met is going to be surrounded by 40, 50, 60 story buildings and taller.

The Watermark is about to have the parking lots controlled by the Port, be re-zoned to allow additional housing (at what height)

Will those new buildings affect The Brannan's M$ views?

What is going to happen to the parking lot south of AT&T Park? How many new residential units will be built there and how tall? Whose views will be modified next?

How many of the buyers at 1 Rincon Hill or the Infinity have any idea of what is planned to the properties across the street or just two blocks away. Is there a disclosure in the doc's the developer gave you?

No go ahead, bet the farm that you know it all!!

Realtors are all stupid and have no idea what they are doing.

If you are so smart that you saved the 2.5%, why are there so many listings for sale at The Infinity? After 9 months, still 40% available!!

According to Socketsite, 4,000 more units to be available soon!!

If you look at the rest of SF, multiple offers are now back. No inventory, just buyers in need of homes. Not one of those buyers is making offers, representing themselves. It's because they want a professional to guide them to have a chance.

When was the last time any of you attended a planning dept. meeting to see what the City has in store for your views, not to mention additional traffic?

I am sure all of you professional buyers were able to negotiate a contract that protected you and not the Seller!!

How many of you were able to find out what discounts the Seller was giving to other buyers in his project?

How many of you got the most attractive loan, points, by downs and other credits that aggressive lenders provide?

How many of the buyers that have purchased homes in new projects in SF in the past 10 years have seen a disclosure on the registration form they sign, when they first visit a project, that they can not seek professional advice from a real estate broker, attorney, contractor, etc? None.

But that is what happens when you visit a project for the first time and do not suggest that you may want to seek a professionals opinion in regards to this small economic decision.

Don't mention you are represented and anyone that you retain is going to be paid by you and not the developer.

Ask any real broker in the USA, if they have ever seen a real estate purchase contract, used by developers, that attempts to protect the buyer.

It's Buyer Beware!!

Again, maybe the best advice is to have all the future buyers consult with the present owners of new product that represented themselves. They in effect are their own brokers.

Frederick

Posted by: Frederick at March 30, 2007 9:26 PM

“I suppose none of you purchased at The Metropolitan, The Brannan, The Watermark, The Beacon, or any other new project in SF. If you did, what notice did the developer give you as to what was going to happen to your view? The view you paid $200K to $1M for.”

“How many of the buyers at 1 Rincon Hill or the Infinity have any idea of what is planned to the properties across the street or just two blocks away. Is there a disclosure in the doc's the developer gave you?”

Is it fair to assume that the vast majority of those who purchased in these developments were represented by a realtor? Wonder how much additional notice and disclosure those buyers received. Perhaps you’re right about “buyer beware” even with a realtor in tow. Unless of course your realtor reads Socketsite. :)

Posted by: Anna at March 30, 2007 10:22 PM

To Frederick: great rant. I agree that buyers need information. How about $1000 per hour for a 2 hour session (writing the offer and making a phone call to the seller). That seems fair enough. A few ten thousand $SS just seems a bit excessive, doesn't it?

I can not remember my agent ever negotiating with the seller. Why would they? It could put the deal in jeopardy.

Posted by: anonymous at March 30, 2007 10:27 PM

Frederick asked some excellent questions and I mean it. But let’s close the textbook and take a look at the less pretty side of reality. I would like to know what percentage of buyers who bought at the Brannan, Met, and Watermark in the last a few years were represented by agents. It sounds like you are suggesting that majority of them were, which I’m sure is the case. Then my next question for all the realtors is how come so many still bought at such high prices after their agents spending hours and hours advising them on all the things that were about to happen: views being blocked, market cooling, sq.ft off, etc? Let me guess, it’s because “none of us has a crystal ball”. Right? Or is it that “most of them were international buyers” and therefore they don’t care at what prices they paid? How many of you realtors expected or at least felt what was coming and never mentioned a word to your clients?

Wouldn't it be great if we lived in that perfect world where all the agents or at least most of them were completely honest and did all the things that Frederick listed for every one of their clients? Yes, a “seasoned” agent who “might” know a lot more than you do “may” get you a good deal. But that’s ONLY if you find one. All buyers should take a look at the process of acquiring a real estate license. You’ll be surprised by how easy it is. Just because someone holds a license with a fancy website that has whole bunch of “sold” signs doesn’t mean you are in good hands.

With or without an agent, buyers themselves are the ones who need to do most of the research and thinking because the information you are basing probably your biggest investment decision on are mostly just WORDS, which can very well be false. Example: I’ve heard 3 different sales numbers of the Infinity from 3 different agents within this week, (and now 4 if Fredrick is a realtor). I think it’s fair to say that 3 out of 4 are not in touch with the truth. And just to clarify, I am not anti agents. I am anti bad and unqualified agents, and the percentage of them is way over any reasonable amount.

Posted by: anti bad agents at March 31, 2007 12:55 AM

Guess we really hit a nerve in Frederick!

I've had some VERY bad experiences with agents, so perhaps I'm prejudiced. But looking at it rationally, I see no reason why a real estate agent should make more per hour than, say, a lawyer. Lawyers have lots of specialized knowledge and experience.

So how much time does an agent spend to sell a property? How much does that work out to per hour? I'll bet it's a lot more than a typical hourly rate for a lawyer. Of course, what buyers and sellers are paying for is all the busted deals the agents spend their time on. But why should we pay for that?

I'd like to see us at least move to a system where each party pays for their own agent (the buyers pay their agent, the seller pays their agent). In such a system, I think you'd start seeing some real downward pressure on agent commissions.

Posted by: Mike at March 31, 2007 8:10 AM

I recently entered the real estate market and had many of the same questions about getting an agent as others who have posted here. I had no idea how to find a "good" one, so I just randomly talked to a couple and found one that I thought seemed good. After working with her for a month, (and loosing out on a property I really wanted!), I found that in every case I had far more information about properties than she was able to get me. I went to the planning office to figure out the zoning restrictions on new projects that could block my views. I figured out the latest 'scoop' on new releases and incentives for some of the new properties. After awhile I started to feel stupid for working so hard at getting the information necessary to make an informed decision and have my agent reap all the benefits. Eventually, I decided to stop working with her and bought at a new development that agreed to give me the agents commission. After all, I did more work than my agent ever did, so I feel like I earned it.

That being said, I do know some great agents as well who are well worth their money. It can just be tough to find them. Perhaps someone should create a section on "Yelp" for agents?

Posted by: Peter B at March 31, 2007 8:23 AM

The great thing about the United States is that the market is efficient. If you do not honor your fiduciary responsibilities to your clients you won't be in business for very long. If you do a good job people will naturally tell stories about what a terrific deal they got and you will get referrals. If you do a bad job, they will also tell stories about you and you will not get referrals. It seems like a lot of plugged in people have had bad experiences with agents, and I would like to express my regret if you have run into any unethical or incompetent people in the industry. There are intelligent, good and honest people working as realtors that will help you achieve your financial and lifestyle goals as they pertain to real estate. Life is good and not everyone is evil.

Posted by: Paul Hwang at March 31, 2007 8:33 AM

Dear Anti Bad Agents,

"I would like to know what percentage of buyers who bought at the Brannan, Met, and Watermark in the last a few years were represented by agents. It sounds like you are suggesting that majority of them were, which I’m sure is the case."

Developers, across the USA, do not encourage real estate agents to represent buyers in new subdivisions or projects. It is an economic decision for several reasons.

The first is that most real estate agents are paid 2.5% to 3% to represent buyers (in SF $750K selling price = $18,750.) which costs the developer (100 units) $1,875,000. If the developer retains his own staff and it requires 2 on site agents and one support staff, the annual cost could be as low as $200K, if it takes 2 years, $400K. This is a significant savings for the developer.

The 2nd reason is that the developer's agents are not allowed to refer possible buyers to other agents or other projects. Therefore those on site agents know they have only one project to sell to that buyer when they come in the door.

A normal real estate agent could and probably does educate their client as to all the new projects, those in the pipeline, those that sold last year and any other property that is offered on the local MLS or may be a private listing within their office or with other agents that they cooperate with.

This probably gives the buyer 100+ more properties to consider in their price range.

Also, the developer may have 50, 100 or more units in his project that are not in contract or sold, but only tell you about 5 or 10 units that they want to sell to you on that visit. Try asking the developer how many units are really in a binding contract. They do not even know themselves, as until the sale closes, the buyer can change their mind.

Up until 2006, most developers paid a 1% commission to the buyer's agent in San Francisco. Only if the buyer registered upon, their first visit, that they were represented by a broker or attorney that the developer would normally pay a real estate commission to. If the buyer did not register that they were represented, the developer would not pay any commission.

How many brain surgeons or paper boys work for free?

The other reason developers do not encourage the real estate community to represent their buyers is that, in a pre-sale transaction, the buyer may have to wait up to 2+ years to close the escrow and occupy the property. That is when the real estate agent gets paid their commission. Until then, the agent is still working for their client.

If the agent happens to discover an attractive opportunity for their client, they usually will advise the client, which may result in the client purchasing a different property.

Now, for all of you buyers that say "I would not walk away from my 3% to 5% deposits", I would advise you to consult with a legal professional as to the strength of the liquidated damages clause in your contract.

In the regular real estate market, California State law requires the seller to prove damages to retain 3% of the agreed upon purchase price as liquidated damages. This normally would require the seller to actually sell the property to another buyer for 3% less and to prove it to a court.

When you visit your legal professional, ask them what a liz pendence is.

My guess is in the past 6 years, only 20% or less of the buyers of new projects were represented by real estate agents.

Since last year, the developers in San Francisco have started to pay a 2.5% commission and sometimes a 3% commission to the buyer’s agents.

Market conditions have forced the developers to invite the 5,000+ agents in SF and another 5,000+ agents from throughout the Bay Area, that have clients that are interested in SF property, to consider their projects. Now, more buyers are actually seeking professional advice.

As to Watermark owners, the next meeting of the SF Port, to discuss the re-zoning of the parking lots that surround the Watermark and the seawall lot across from AT&T park is on April 18th at the Port's Office at Pier 1.

http://www.sfport.com/site/port_page.asp?id=56101

So Buyer Beware!!

Frederick


Posted by: Frederick at March 31, 2007 9:15 AM

"The other reason developers do not encourage the real estate community to represent their buyers is that, in a pre-sale transaction, the buyer may have to wait up to 2+ years to close the escrow and occupy the property. That is when the real estate agent gets paid their commission. Until then, the agent is still working for their client."

Word on the street is that One Rincon has already started paying out partial commissions to agents/brokers. Does that mean those agents/brokers are now working for the developer?

Posted by: Michael at March 31, 2007 10:56 AM

Having purchased twice in new developments, once without and once with an agent, I recommend the latter. On-site sales reps, no matter what they tell you, represent the developer first, the on-site design center (for upgrades), second and then you. And, beyond just having someone on your side to help negotiate a price, your own agent will help you make sure all documentation and contracts are in order. I have found the on-site agents to be sloppy, oftentimes to the advantage of the developer (a coincidence?).

Posted by: SeeHsee at March 31, 2007 10:59 AM

"The Watermark is about to have the parking lots controlled by the Port, be re-zoned to allow additional housing (at what height)"

I'm not sure what point you're trying to make here. The Watermark disclosed right form the start that buildings of unknown height were likely to be built on that parking lot. And it hardly needed the advice of a realtor to deduce that the Cruise Terminal project might very well not come to fruition.

Posted by: Amen Corner at March 31, 2007 11:20 PM

Its my understanding that the city has approved two buildings for the remainder of the parking lot where the Watermark now sits. One building has a maximum of 11 stories and would be to the south of the Watermark and the other has a maximum of 8 stories and be situated to the east of the Watermark.

Of course I also saw a proposal for the same remaining section of the parking lot within the last month where that proposal was for residential buildings to have a height no greater the 45 feet.

Posted by: Can't think of cool name at April 1, 2007 6:27 PM

Let me clarify my last immediate post. I was told that while the city have approved the maximum heights for the two buildings, its uncertain if they will ever be built, and if so, how tall they will actually be; they could shorter than the currently allowed maximum heights.

Of course a betting person would say that the parking lot would be developed sooner rather than later...

Posted by: Can't think of cool name at April 1, 2007 6:40 PM

Frederick--a legal professional is likely to have no idea what a "liz pendence" is because there is no such thing. The term is "lis pendens" -- a notice that alerts a potential purchaser that the property’s title is in question. (It is pronounced roughly as you misspelled it).

Bottom line is that the writing is on the wall -- the real estate agent is going the way of the travel agent. There will still be a few in the future, but only those that are highly skilled and offer real value rather than the multitudes who have little more to offer than that they passed the extremely unchallenging licensing exam. With the internet, the publicly available MLS, numerous sites offering comps, and the opportunity for any buyer willing to invest a little time to become very self-educated on the local market, most buyers (and a high number of sellers) simply will not benefit from an agent. I must give Realtors credit -- they have done a good job of keeping themselves in the process with the way they get clients to structure the fees (although I have many friends who have recently wrung thousands of dollars of concessions from their agent, so that is starting to crumble as well).

Posted by: Anon at April 2, 2007 11:51 AM

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