Section 28: Pricing and Commission Calculations

To convert a decimal to a percentage, move the decimal point .....

right two places and add a percent sign to get the percentage equivalent of the fraction.

Simi is a buyer's agent, and she'll receive a split of the commission paid from the sale of Tanner's listing. The property sold for $425,000. The total commission paid from the sale is 6% split evenly between the buyer's and seller's brokerages. Simi has an agreement to give her broker that 20% of the commission she receives. How much will Simi be paid from this sale?

$10,200 The total commission paid is $25,500 ($425,000 × .06). Half of this is paid to Simi's brokerage ($12,750). Of that, Simi gets 80% ($10,200).

What a Payne! Mr. Payne rejected the offer of $115,000. Now he tells Ada that he needs to net $110,500 after paying her 6% commission (It would've been nice to know that earlier, she thinks to herself). If the house is listed at $119,000, which offer would meet his criteria?

$118,000 Assume that Mr. Payne's minimum net is 94% of the desired sales price (since Ada's commission is the other 6%). $110,500 ÷ 0.94 = $117,553, which means that Mr. Payne needs to sell the home for at least that much.

You're negotiating an offer with your client on a home that has sat on the market for a while, listed at $149,000. The seller accepts an offer for $145,000. After paying a 5% commission, how much will the seller net from the sale?

$137,750

Bonnie is a licensee with Top Hat Realty. She sells a house for $599,990. Her broker receives half of the 7.5% commission on the sales price, with the other half going to the cooperating broker who brought the buyer. Bonnie receives 65% of the amount that goes to her broker. How much is Bonnie paid for this sale?

$14,624.76 $599,990 x 0.075 = 44,999.25 / 2 = 22,499.625 x 0.65

Licensee Rolo has a 60/40 split with his broker. He's thrilled to have finally sold a home that's been listed for a long time in a neighborhood that's not so desirable anymore. The home sold for $267,000 and the seller paid a 4% commission to Rolo's brokerage firm. The buyer wasn't represented, so the commission wasn't shared with a cooperating broker. What's Rolo's share from the sale?

$14,680 $267,000 x 0.04 = $10,680. Then, find 60% of this amount: $10,680 x .60.

You need to adjust a comparable property price by 15% to match the home you're trying to list. If the sales price for the home was $185,000, what's the adjusted price?

$157,250 To find 15% of the sales price, the equation is: $185,000 × 0.15 = $27,750. Subtract this amount from the sales price to get the adjusted price: $185,000 - $27,750 = $157,250.

Mabel has found the last comparable for her CMA. This property is the same size as her listing, but has no central air conditioning or garage and just sold for $155,000. She has decided to make an adjustment of $3,000 for lacking central air, and $5,500 for lacking a garage. She also needs to adjust the original price down by 0.8% to account for it's being more accessible to public transportation than her subject property. What will be the final adjusted price be for this property?

$162,260 $155,000 x .008 = $1,240. Deduct that from our original price: $155,000 - $1,240 = $153,760. Now let's add some value to our comparable by adding the central air and garage factors: $153,760 + $3,000 + $5,500 = $162,260 (adjusted price).

An agent acting for both the buyer and the seller sells a home for $799,995 at a commission rate of 4%. If the agent has a 60/40 split with the broker, how much does he net from this sale?

$19,199.88 First, find the total amount for the commission: $799,995 x 0.04 = $31,999.80. Then find 60% of the total commission amount: $31,999.80 x 0.60 = $19,199.88

You and your seller client disagree on the listing price. The market has dropped since he bought his house, but he insists on listing it at least within 8% of his purchase price. If he bought his home for $215,000 what is the minimum list price he'd like?

$197,800

Maria's clients net $205,000 on the sale of their home. This is after Maria's 5% commission. What was the home's sales price?

$215,789

Beau's seller client says she's willing to pay a 6% commission as long as she nets $230,000 on the sale of the house. Which of these listing prices would meet that need?

$230,000 We know that the seller needs to make at least $230,000, plus the 6% commission, in order to break even. That means $230,000 is 94% of what she needs to sell the property for. $230,000 ÷ 0.94 = $244,680. 100%-6%= 94%

Your clients sold their property for $500,000. Your commission rate is 5%. What's your commission (before splits or sharing with the cooperating agent)?

$25,000

Another Top Hat licensee, Braxton, is having a good week: The property he'd listed sold for more than the list price! The commission the seller paid is $18,720. If the commission rate is 6%, how much was the selling price for this home?

$312,000 $18,720 ÷ 0.06 = $312,000.

If you sell a home for $143,000, and your commission rate is 5%, what is your commission on the sale of this home?

$7,150

If a home's sales price is $329,995 and the brokerage's commission is 6%, how much will the buyer's broker receive if the listing agreement stipulates a 50/50 split with the cooperating broker?

$9,899.85

The CMA is valuable to you and to your clients in a number of ways. Can you identify how it provides value?

-Allows you to suggest a listing price range that's based on market data. -Gives the customer/client assurance that you've researched the subject property and how it compares to properties that have already sold. -Helps the licensee obtain the listing. -Helps the licensee understand the local market.

How to Approach Negotiations

-Don't Get Caught in a Power Struggle -Keep Your Eye on the Prize -Put Pen to Paper -When you have an offer accepted quickly, don't emphasize that it was easy. -When you hit an impasse, settle everything else first and return to it. As you present the offer to the seller and you reach an item that they don't accept, make a note to come back to it and get agreement on everything else first. Then, once you're through the offer completely, you will have isolated all the items that require negotiation. -Set a cooperative tone. Licensees make these statements consistently when trying to convince the seller to take a low offer. However, this kind of statement doesn't help build rapport. And without good rapport you risk not only losing out on a single transaction, you could be causing long-term damage to your professional reputation. -Figure out the parties' mindsets. Really listen to everything they say. They have "telling tension." Give them the opportunity to talk to ease this tension. Ask your clients about their concerns. For example, you may be concerned about the offer being 3% below list while the seller is stressed about the closing date and what may be discovered during the inspection.

You meet with a seller to give him the great news: There's an offer at full asking price after just a week on the market. You think he'll be thrilled and are a little disappointed when he says the house must have been under-priced just to get a quick sale. How do you respond? Choose the best two answers.

-I think this shows that based on the property and market conditions, we priced this property exactly right. -Early on in this process we discussed an appropriate price range for the home. It sold at the price at which you ultimately decided. This is exactly what you're asking for.

Preparing for Your Listing Presentation

-Kicking Off the Presentation Always start with a small introduction, then present the comparative market analysis while telling the sellers everything you'll do to market the property. -Come Prepared Things you should typically bring to the listing presentation include the CMA, MLS listing sheets for comparable properties, your marketing plan for the property, and listing contracts. -Discussing List Price Sometimes, sellers will be looking for the highest-possible price and that's fine, but it's also important to figure out the probable selling price of the property. Pricing it in that range will often bring the sellers more money in the long run. The longer an overpriced property stays on the market, the more desperate the sellers can become for an offer, and the more lowball offers could be thrown at them. Sometimes, the first offer is the best offer. -Importance of the CMA If you do a thorough and professional job in preparing and presenting the CMA, demonstrating your knowledge of the local market in the process, the job of selling yourself as the listing agent will be half done. And if it is priced right, the property itself will be half sold. If the sellers offer no resistance to the price range you arrive at in your CMA, you can then discuss plans to market the property.

Why Proper Pricing Matters

-Overpriced properties languish on the market. -At any given time, there is a backload of buyers waiting to buy at a given price. -Speculators smell desperation and begin making low-ball offers. -The first several weeks are crucial because they're the best chance for the property to sell. If this crucial initial time is missed, in effect, the property has missed the market. This reduces the chances that the property will sell at all

Win-Win when Negotiating for a Buyer

-Paying cash -Closing quickly (easy to do if the client is paying cash) -Buying as-is, even if it's not offered that way (you can still reserve the right to do an inspection, and pull out if there are serious repair issues beyond your client's comfort level) -Shortening the inspection period (in some cases, such as a major rehab, the inspection is moot, anyway) -Waiving the appraisal (this takes one fear away from the seller: that the property won't appraise, and they'll have to start all over with another buyer) -If the seller has small children, allowing them to rent back for a period of time after closing, or offering to allow them to remain rent-free for a number of days to make it easier for them to move the children, all of their belongings, etc. You can also offer to allow them to remain in the home until the end of the school year or another natural break.

You've been negotiating an offer with your client, and a fairly good one at that. The buyer is within $1,000 of the list price, but is asking that the seller repair a screen door. The repair should be between $100 to $200. The seller is fine with the price but doesn't want to make the repair. No other offers have been within $10,000 of the list price. How do you respond to your seller? Select all that apply.

-This offer is the best one we've seen by a long shot. The buyer's request isn't unreasonable. -What are you willing to do to get this deal done? -Right now, you're letting $100 to $200 stand in the way of you moving on to the next chapter.

Common Issues When Representing Sellers

-Trying to Talk You Down on Your Commission -Pricing a Home Competitively for the Current Market -Selling a Property Too Quickly or Too Slowly -Stonewalling

Basic Influencing Skills

-Using Pacing Techniques (ex. If your clients' body language indicates that they are stressed or tense, and you would like to lead them into a relaxed state, you first need to establish rapport and then gradually relax your breathing, relax your posture, slow your movements, and use a calm tone of voice.) -Practice Makes Perfect The art of influencing usually takes practice to become proficient and consciously competent. To pace and lead successfully, continuously go back to: -Outcome -Acuity -Flexibility -Be an Interested Listener -Matching Emotions -Changing the Mood -Future Pacing Example If clients aren't certain a piece of property is suitable for their purposes, you can ask them to imagine how it would look, sound, and feel if they had already purchased it. Be sure they are imagining as if they were really there-associated rather than disassociated. This will help them to determine whether the property is suitable for their needs.

Trying to Talk You Down on Your Commission Imagine when discussing your commission rate with the seller, his response is a whistle followed by, "That's kind of steep, don't you think?" How would you respond?

-You get what you pay for. -My commission rate aligns with the services I provide. Here's what I'll do for this rate.

A buyer has made a $95,000 offer on one of your clients' homes that's listed for $110,000. The seller isn't happy because the offer is very low. What percentage under the list price is this offer?

13.6% The offer is 86.4% of the list price ($95,000 ÷ $110,000 = .8636), which makes it 13.6% under the list price (100% - 86.4%).

Tilly made $6,015 this month in commissions from her home sales which totaled $182,272.73. What was the commission rate if Tilly has a 60/40 split with her broker?

5.5%

A seller pays a commission of $17,830 to her broker. Her home sold for $249,000, a price that is 10% more than what the home sold for only three years ago. What was the commission rate for this sale?

7.2%

Beau is another licensee with Top Hat Realty. His seller paid a total commission of $12,000 on a property he sold recently for $160,000. What was the commission rate?

7.5% $12,000/$160,000

A comparable property price is adjusted to $315,500 from the original selling price of $345,000. What percentage is the adjusted price compared to the original selling price?

91%

Ada is so excited! An interested buyer has made an offer of $115,000 for Mr. Payne's home, which she listed at $119,000. What percentage of the asking price is the offer?

96.6% Divide the offer price by the listing price to arrive at the percentage. Don't forget to move that decimal point two places to the right!

You're producing a CMA for a five-bedroom, five-bath home with solar panels that produce the majority of the home's electricity. None of the comparable properties you find have solar panels. The value of this feature in the area is $14,000. What adjustment will you make?

Add $14,000 to each comparable property

The house Mabel is listing has two bedrooms, one-and-a-half baths, 1,500 square feet of living space, a detached one-car garage, and central air conditioning. She's using a comparable that has similar features, but is 1,650 square feet and lacks central air ($2,900). If the average cost per square foot is $105, how much should Mabel adjust the comparable's price?

Adjust the price $12,850 down. add the value of having central air conditioning, and deduct the value of the extra square footage.

Mabel has found another listing that looks like it'll serve as a great comparable for her 1,500-square-foot subject home. The comparable's previous listing showed it as 1,380 square feet, but the owners have since added on a sunroom that measures 10 feet by eight feet. If the average cost per square foot is $105.00 for this neighborhood, how should she adjust the comparable value?

Adjust the price up $4,200. 1,380 x 80= 1,460 1460 x 105.00 = 153,300 1,500 x 105.00 = 157,500 153,300-157,500 = $4,200 The new sunroom added 80 square feet to the property's existing 1,380, bringing the total square footage to 1,460. That's 40 square feet less than our subject property. We need to adjust the comparable's price up by 40 x $105, or $4,200, to make it more similar to our subject property.

Alison is representing buyer Kathleen. To assist Kathleen in imagining an outcome and determining whether a particular home is right for her, Alison should use future pacing, which involves ________.

Asking her client to imagine how it would look, sound, and feel if she purchased the home

If, after seeing your carefully prepared comparative market analysis, a seller doesn't agree with the price range you prepared in your listing presentation, your best practice would be to ______.

Decline the listing if the seller's price and your price analysis are too far apart

Alison's seller received an offer in which the buyer wants the roof replaced. The sellers told Allison already that they're not willing to replace it, because they think it would be a hassle and too expensive. To keep the negotiations moving, Allison should ________.

Encourage the seller to look at the rest of the offer before making any decisions

An agent has a seller who wants to list the property at $550,000. The market has taken a downturn, and the fair market value is estimated at $495,000. What is the best approach for this listing?

Explain the benefits in the long run of entering the market at a fair price.

What strategy can a licensee use when a seller client is presented with reasonable offers, but refuses to budge on price or terms?

Help the seller remember the goal of a closed transaction.

Mr. Payne is pushing back on Ada's 6% commission rate. He thinks her commission is too high and doesn't want to pay anything over 5%. How should Ada respond to the client?

I base my commission on my services. The services I provide include: photographing, staging, marketing, negotiating, and defending your needs. Which ones would you like to forego?

Ada was able to work with Mr. Payne to help him see the value of a fair rate and a fair home price. He accepted the commission rate offer, but now he's digging his heels in on the listing price. He insists the home has a great "energy," which is worth at least an extra $5,000. Ada is trying to explain to Mr. Payne that if the home sits on the market longer, it will cost him more than the amount by which he wants to increase the list price. Which explanation is the best approach?

I understand and appreciate your perspective on your home. It's great that you feel this positive energy, but it isn't likely that a buyer would overlook an above-market price for that.

A home enters the market priced above fair market value. Within the same time frame, three additional homes enter the market listed between 5% and 10% less than the first home, at a fair market price. What is likely to happen with the first home?

If a property is overpriced from the beginning, buyers will move on and likely make a purchasing decision before the price is corrected on the overpriced home.

Your seller client is pushing back on your commission rate, claiming it's too high. "You're going to make $20,000 for putting a sign in my yard? That's crazy." If the house is listed for $175,000 and your commission rate is 6%, is he right?

No, he is not correct. The commission is $10,500.

Your seller client is going back and forth with a buyer on an offer. The discussions have become heated and personal. What should you do?

Open communication and identify what each side shares. Try to make the situation about the transaction, and not personal.

A property has been listed on the market for four months with no offers. Finally, a buyer makes an offer that is 18% less than the list price. How was this property likely priced when it first hit the market?

Overpriced

Which three of these six properties are most similar to the subject property and will work best as the comparables for your CMA? Remember, the Desoto's property is 18 years old, in average condition, 2,500 square feet on a 0.2 acre lot, 4 bed/3 bath, has an average kitchen, a two-car garage, and has central air and forced gas heat. It also has a fully fenced-in yard that is well landscaped.

Property B: 2,200 sq ft, 0.22 acre, 22 years old, 4 bed/2.5 bath Property D: 2,700 sq ft, 0.28 acre, 15 years old, 4 bed/3 bath Property F: 2,500 sq ft, 0.28 acre, 22 years old, 3 bed/2 bath

How to calculate percentage comission

Take total commission received and divide by sales price Example: So, if you received a $10,500 commission check on a transaction with a sales price of $150,000, simply divide $10,500 by $150,000, which gives you .07. If we multiply that decimal by 100 and add our percent sign, we see that the transaction paid 7% in commission.

Win-Win when Negotiating for a Seller

Sellers who must hold firm on price can create a win-win situation by offering other favorable terms to the buyer. These may include: -Early possession -Help with closing costs -Seller financing -Personal possessions such as furnishings and freestanding appliances

How to calculate comparables

Subtract the value of features the comparable has that the subject property lacks, and add the value of features the comparable lacks that the subject property has.

An agent found a comparable property and adjusted the price to account for her subject property's lack of central air conditioning ($2,900), smaller size (200 square feet less at $99 per square foot), and lack of a deck ($4,500). The comparable's selling price was $158,000. What was the adjusted price, and what percentage is the adjusted price compared to the comparable's original selling price?

The adjusted price is $130,800 and the percentage is 82.8%. ($2,900) + ($4,500) + (19,800=200x99) = $27,200 - $158,00 = $130,800 To get the % simply divide $130,800 by $158,000

A real estate licensee can use a CMA to determine a suitable listing price range for a subject property. The data that supports that range includes the sales prices of comparable properties after they've been appropriately adjusted, along with the licensee's experience with the local market. Which of the following is a data source that can also be used to narrow the licensee's opinion of value?

The prices of expired listings for similar properties

Negotiating Through Rough Patches

There are four consequences of manipulation: -Remorse -Resentment -Recrimination -Revenge If a negotiation can be framed as allies coming together to solve a common problem, then the problem is already partly solved.

Clear Communication

To promote clear communication, do the following: -Ask questions if you're not sure what the other party's saying. Don't let a fear of appearing ignorant lead to a misunderstanding. -Paraphrase what the other party says to you to ensure that you understand correctly. -Make it clear when you make a judgment or an inference that you are not stating facts. -If an important point is stated verbally, put it in writing and share it with the appropriate parties. -Avoid jargon when talking to clients. Define terms they may not understand to avoid confusion. If you're uncomfortable asking for clarification, your client is likely even more nervous. As the skilled professional in the situation, it's your job to make sure your client understands all relevant details.

Win-Win vs. Winner-Take-All

Win-Win -Fair offers, give-and-take negotiation -Be honest about requests, provide reasons for them, and remain flexibility is possible -Where possible, always have options -Respectful communication -Honest communication (one lie or exaggeration can erode trust) Winner-Take-All -Outrageous demands, lowball offers, few concessions -Establishing hard lines that aren't real: "My client can't do X" -Take-it-or-leave it offers and counter-offers -Personal insults, accusations -Bluffing, puffing, exaggerating

Ada's been approached by another buyer's agent whose client is willing to offer, but only if the seller's deck is repaired. Mr. Payne refuses to spend anything more than $500 in repairs (big surprise). If the repair estimate is $12 per square foot, and the damaged area is five feet by eight feet, will the seller be willing to make this repair?

Yes, because the estimate for the repair is $480. 5 x 8= 40 x $12 = $480

Negotiation is communicating to reach a ...

joint decision, agreeable to both sides. The key is to fit all outcomes together so everyone involved gets what they want.

In order to successfully negotiate a win-win agreement, it's important to ....

plan ahead, understand the primary needs of both parties, know what your client is willing to offer, and be aware of which, if any, points are non-negotiable.

To convert a percentage to a decimal number, move the decimal point ......

two places to the left and remove the percent sign.