First things first. Don’t sell property if you can avoid it! But, if you must sell, use a broker.
Choosing a broker and figuring out how to work with him* successfully is the most important part of any sale process. (*Note I’m using “he” and “him” here, but many of the best brokers are female. Just a thought.)
Here is how to get it right:
1. Meet with the 2-3 brokers who are most active for your property type in your area.
Brokers who sell a lot in your area have lists of agents and buyers who are looking for local properties. As frequent market participants, they also have a good sense for true market values, whether loans are available for buyers of your kind of property, and how long deals are taking to close.
Drive around your neighborhood and look at the for-sale signs. Keep notes. If you do this for a few days when you’re on random trips out to the store, etc., you’ll have a pretty good sense for who is selling a lot. Make a list of the most active brokers. Narrow it down to the top 5.
But, you don’t need to meet all of them. You’re only going to hire one, so any information you leak to the others you don’t hire is just going to reach the ears of potential buyers. Just choose the 2-3 brokers who seem most active and meet them.
2. Never tell any broker what you’re hoping to get for the property.
At the meeting, called a “listing presentation”, the broker will ask you what you think your property is worth. This is a dangerous question.
If your number is below the broker’s estimate of the market value, then the broker is just going to agree with you, knowing that it will be an easy sale (which is good for him but bad for you). If your number is above the broker’s estimate of the market value, he’s also going to agree with you, because he knows you’re unlikely to hire someone who tells you your property is less valuable than you think it is. It takes an VERY confident broker to tell you your price is too high; these are rare birds.
So, when the broker asks you what you think your place is worth, just turn the question around and ask him what he thinks. Do this with a few brokers and you’ll get a pretty good sense for the actual market value. Then you can decide whether you’re a seller at that price.
Even when you’ve chosen a broker, don’t give him your real bottom line number! Take whatever you think your bottom line is and add 3-5%. Your listing broker will hustle to try to get whatever number you tell him (as long as it’s reasonable), so you might as well be a bit high so there’s room to come down if necessary.
3. Don’t let anyone buy the deal
“Buying the deal” is broker-speak for coming in and telling a client a high value for their property, hoping to get the listing by appealing to the client’s greed. The broker who does this knows that the property won’t sell at the price he’s quoting. But he’s hoping that you’ll get some low-ball offers and agree to lower the price. Then he’ll get his commission.
I once let a broker buy a deal from me. She told me my duplex in a somewhat crappy part of Silver Lake was worth $100k more than the other brokers quoted. I liked the other brokers more, but I went with her because I was greedy. The property sat on the market for weeks with no action. Finally, I called her to tell her to cut the price. She suggested cutting it by $50k. I cut it by $100k, to the price the other guys had suggested. We got a bunch of offers, bid them back up by around $50k and it sold. I can tell you I was not very happy to pay her a commission on the deal, because I was the one whose strategy sold the property! I’d never use her again.
Understand that the real price will probably end up somewhere in the range between the highest price a broker quotes you and the lowest.
4. Check references
Ask each of the brokers with whom you meet for contact info for some recent clients. Actually call them and listen to what they say about their experience with the brokers. Eliminate anyone whose references aren’t stellar. After all, you let them choose the references; if they can’t find good ones, there probably aren’t any!
5. Select the broker you actually like most
You’re going to be spending a lot of time with whomever you choose. There will be high pressure moments. You may disagree about tactics. The broker will be your sole conduit for information to / from the buyers. All of this is much easier if you fundamentally like and trust the person who represents you. So let your gut guide you to the right broker from among the remaining candidates. But…
6. Commissions are negotiable
So don’t tell him you’re hiring him, yet. Have the commission negotiation first! Tell your chosen broker you’re considering hiring him but you want to talk commissions, first. Then ask him what he wants to charge.
If it’s LA, he’ll probably quote the standard rate, which is 6%. For a smaller property, say one worth less than $300k, I wouldn’t push on this number. You want the listing agent and the buyers’ agents to smell enough commission money to make it worth their while to show your property. Going too low will cause them to move along.
For larger properties, you can negotiate, to a point. Here’s what I like to do: I like to offer the listing broker 5% if they have to split the commission with an agent for the buyer or 4% if they represent both buyer and seller. This way, if they have to split the commission, they’re still doing pretty well. And if they double-end it (that’s what it’s called when they represent both parties to a deal), they make a lot of money anyway and you get a slightly better deal.
7. Remember that the broker is there to close the deal, not get you the absolute best price.
The commission for a broker selling a $500,000 house and splitting the 5% with a buyer’s broker is $12,5000. I can guarantee you he does not care that much about a $10,000 price move in either direction, since it’s only worth $250 to him. So, when the buyers start to haggle and the broker pushes you to lower the price for them, remember that he’s not particularly incentivized to fight for every last penny for you.
This is not necessarily a bad thing. It’s possible to blow a deal over a relatively small amount of money and that’s usually a dumb thing to do. The broker’s job is to be the advocate for getting a deal done. You need to remember to be the advocate for getting the highest price. How you and your broker manage this tension will go a long way to determining whether you are satisfied with the outcome of your sale.