What Americans Have Spent So Far This Year In Commissions:

All Posts by Jim Thornton

How To Save Money When You Sell Your Home

Sellers are Doing all the Work

Many sellers agree to pay a 6% commission to real estate agents who are aware that 80 to 90% of buyers are performing their own internet home searches online and are very successful finding homes that they want to make appointments to see.

When buyers purchase a home for $900,000, the seller pays the real estate agent around $54,000 for the research that the buyer has performed during their internet home searches that lead to the steps required to purchase the home. Other buyers are working with buyer agents who usually receive half of the commission or 3% of the purchase price, then each of the agents involved in the transaction are paid $27,000 each for completing the transaction.

Sometimes the more desirable homes sell in less than a month. In the end, the seller pays $54,000 of their hard earned equity to the real estate agent or agents. The buyers have access to many real estate websites that show all the homes listed in the mls and the homes that are being sold as for sale by owners. Everyone has access to the sales information since it is easily accessible online.

There are other options!

Today, sellers have the choice to work with a 6% commission agent, or a flat fee agent which can cost as little as a few hundred to a few thousand dollars to place their home for sale in the mls. Most sellers offer 2.5% to 3% commission to any realtor who provides a ready, willing and able buyer.

There are real estate marketing programs that will offer full service to sellers for the 6% commission, the home is listed in the mls and will also allow the seller to participate in the marketing of the home and if the seller finds the buyer then and only then the commission drops to a total of 2% commission to reward the seller for their successful personal marketing efforts.

2% Commission

There is also one of the newer real estate marketing programs that is a non-mls listing that costs a total of 2% commission for realtor assistance and support to a seller who is a for sale by owner. The seller performs many of the sales functions while the realtor mentors the seller throughout the transaction by performing many of the full service actions required for marketing, contract preparation, contract negotiation, support to the buyer regarding title insurance, home inspections, attending settlement and resolving issues that arise during the time between contract execution and settlement.

These revolutionary marketing programs allow the seller to keep at least two-thirds of the old fashioned 6% commission for their family not the agents family. There are hundreds of newer companies offering their own versions of discounting and Do it Yourself marketing programs that can save home sellers more of the equity in their home.

Save your money!

If you want to save large amounts of money when you sell a home you owe it to yourself to explore the many alternative ways to sell your home and potentially save thousands to tens of thousands of dollars.

For a free list of some of the more interesting and unique real estate marketing companies that are offering discounts to sellers contact us today!

List Your Home and Save in Commissions

Real Estate Commissions – the Old Way

Many real estate companies throughout the country charge between 5% and 6% to sell residential real estate. The average commission is dropping but many real estate companies hold onto the old commission fees with a clenched fist.

How The Business is Changing

However, the work a realtor once did is done for them. Approximately 80% to 90% of all buyers begin their search on the internet. Much of the work that was performed exclusively by realtors in the past is now performed by buyers and sellers. Most of the information that a buyer or seller needs to research is available on the internet. The internet, artificial intelligence, digital marketing, search engine optimization and correct pricing are the marketing methods that sell homes.

The Burdensome Overhead to Buy and Sell

Many consumers feel that high commissions coupled with transfer taxes take too much of a bite out of the final net amount that sellers realize at settlement. One of the newer real estate companies that is active in the Pennsylvania and New Jersey real estate markets was founded by a person who was a real estate investor who would sell multiple homes each year but could not earn well deserved profits because the real estate companies charged 6% and the City of Philadelphia charged transfer tax of 2% each time you buy or sell.

On a $500,000 sale price, the seller was charged 8% or $40,000 to sell the home. Add to that the 2% when the investor first purchased the home before renovation and you can easily have another $2,000 to $4,000 in fees bringing the buying and selling costs for the investor between $42,000 to $44,000 for one $500,000 sale plus the cost of renovation. It is hard to make a profit when the fixed overhead is so high to buy and sell.

How I Save You Thousands

Since I like to save consumers money, I have come up with marketing and commission programs that can save sellers 50% to 66% of seller commission fees. These marketing programs require some marketing participation from the seller and one marketing program is a combination of for sale by owner coupled with a limited service listing agreement that can cost the seller as little as 2% plus $675 and at most 3% plus $675 payable only if the home sells and payable at settlement not upfront like some other companies charge. There are other real estate companies in different parts of the country that offer similar or near similar marketing programs that can save you commission dollars. Contact me with your name, full address phone and email address and I can let you know if these programs are offered in your state through different real estate companies.

Consumers can pay 5% to 6% or they can perform some of the marketing work themselves and save.

A $500,000 sale at 6% is a $30,000 real estate commission.

A $500,000 sale at 2% plus $675 is a $10,675 real estate commission.

A $500,000 sale at 3% plus $675 is a $15,675 real estate commission.

Which program works best for you?

What to Look for in a New Agent

Good Training and Education in Real Estate

Proper training of new agents pays off but we never really do it. When a new agent joins a company, they are thrown into the fire and expected to learn as they go. Maybe they get some help with their first few contracts or are paired with a more experienced agent on their first few transactions.

The value of a real estate agent comes through in their knowledge of the market and wider principles of real estate that normally comes with experience. A good agent cares about their clients and if they are new, they leverage their relationships in real estate to best serve their clients.

If a new agent is coming into real estate with few relationships that they can rely on to properly guide their clients, and they don’t have a background in real estate, it’s a bit of a red flag unless they’ve done a ton of research that shows through.

How I Tried to do this with My Kids

When all three of my children were young, I would force them to stop and look at properties that I was previewing for clients on the way home from school, bribe them with Wawa treats, and make them listen to real estate tapes on wide-ranging real estate topics.

My daughter is one of the hardest working new agents that I know. Laura got interested in real estate and took the classes when she turned 18. After working at the University of Pennsylvania and operating a non-profit focused on giving away fruits and vegetables from a community garden she founded, she decided to give real estate a try. She took and passed the real estate exam in 2016.

Other Characteristics to Look for in a new agent

Understanding Smart Investing

Laura and her older brother put together a family investment with everyone kicking in $5,000 plus closing costs to purchase a home in South Philly for $26,000. She was able to resell the property a few months later with no improvements for around $46,000. All five investors earned a profit of approximately $3,300 to $3,500 from the investment.

Within a few weeks of entering the real estate business Laura and her boyfriend Chris went out and purchased a well located home in a great school district in Lower Merion Township. She was a tough negotiator and did not win the home on the first go round; she was outbid by a seasoned investor. Everyone was aware the home needed major work. The investor was unable to get the price lowered enough following inspections so they withdrew their offer. The listing agent called Laura and told her the home was coming back on the market. Laura purchased the home and she and Chris got an FHA 203K rehab loan from the bank and are currently completely renovating the home.

Big Wins

Laura has since started working hard with renters, buyers and home sellers. In her third real estate sale transaction she helped a family friend purchase a lovely home in an over 55 development and saved the buyer over $100,000 from the original list price. The negotiations seemed endless but she negotiated an $85,000 price reduction and approximately $15,000 in improvements and repairs completed before settlement. Laura worked tirelessly to help her client get a wonderful move-in ready home with a two-car garage, large basement, and scenic lot for a great price. She admits that being forced to listen to marketing and negotiating information in her youth coupled with a great work ethic while working for her clients has helped Laura to become a highly desirable real estate negotiator for her buyers, sellers and renters.

Laura presently has a $350,000 condo for sale on the water near Penn’s Landing, a home priced at $1,350,000 in Gladwyne, a warehouse in Philadelphia listed for $1,450,000 and she has multiple renters looking for real estate renting from $1,800 a month to $3,500 a month. We work as a team and she has overnight become a major asset.

Attention to Detail

I sold my sister and her husband a condo on the bay in Ocean City, NJ a few weeks ago. Laura helped with all the paperwork, prepared contracts with DocuSign and helped make the process go ever so smoothly. She is a gifted marketing person, home stager, and most competent with the overwhelming paperwork required for real estate transactions. Competence, caring, and great negotiating skills, that is Laura.

Smart Real Estate Investing Tips

Pro Tip: You can’t make money overpaying for real estate. Your goal should be to pay less than market value or don’t buy at all.

Even if you require 100% financing to purchase commercial real estate, as long as the price is significantly below market value, the banks will be easier to work with. Let’s say you find a piece of commercial real estate for 80 cents on the dollar, and you want to finance the entire purchase. The bank will think it’s helping you finance 80% when really they are financing the entire purchase. Some banks will only lend 65% of the market value, some less and some will lend more.

I needed a low priced warehouse to store materials for my construction company. I was paying roughly $900 a month to rent about 3,000 square feet at a secure and well-located property. I hated renting.

I began my search for a warehouse that was in the 10,000 to 15,000 square foot range within the City Of Philadelphia. I bid on many buildings with no luck. Although there was a lot of inventory, many of the warehouses were being bid on by condo developers who were willing to pay much more than I was.

I found a rare 13,000 square foot building near 59th & Market street in West Philadelphia. The neighborhood was a blighted area. Crime was very high and the area had been devastated by the Septa construction of the Market Street Elevated Train that went from a three year proposed project to about 16 years. Market Street was torn up for years. Protective fencing blocked the doors and stopped locals from buying at the neighborhood stores. The sidewalks and streets looked like a war zone. Piles of concrete, trash and blacktop were piled everywhere. The asking price for the warehouse started at $300,000 and three years later was down to $150,000. I offered $30,000 and settled for closer to $40,000. I believed that the eventual completion of construction of the train would bring transit-oriented development and other developers who would all help to improve the market value of properties in the neighborhood.

Since I was buying the warehouse for less than 50% of its market value, a local lender gave me 100% financing on a five-year amortization plus my closing costs. The payment was equal to the rent at the old warehouse I had rented.

After storing all my construction materials, scaffolding, and tools for about 17 years, I hired an architect to lay out potential floor plans for the warehouse and surrounding site. He came up with a plan for 24 residential units and one retail unit. I am presently exploring the feasibility of attempting to change the zoning to a six-story structure which would allow me by right to build 48 to 68 units plus one retail space.

Across the street, the City took an acre and a half of homes, lots, parking lots, and a cab company site through eminent domain. The Planning Commission has had concept drawings prepared by an architectural firm for a six-story structure that will probably cost in the $30,000,000 price range. As soon as a developer is chosen and work begins, my building should further increase in value. Presently, the warehouse and contiguous building lots are for sale in the $1,450,000 price range.

Since the building was paid off during the first five years of ownership and has no mortgage, I could sell the building and take back a large mortgage. That mortgage would act like a retirement annuity. For example, an $800,000 mortgage for 30 year amortization at 6% interest would be a $4,796 payment each month times 360 or total payments over thirty years of $1,726,560. Although it is rare for people to pay down a total 30 year loan, you understand the potential math.

I am still not sure if it makes more economic sense to sell or develop. We are about two miles to Penn and Drexel. Our local City Council person is pro economic development. I will probably continue to market the property for sale while I press on to seek better zoning which will positively affect the property value.

Later this week I will be meeting with a local hedge fund operator who I have helped with two of his families real estate transactions to explore starting up a real estate fund that would be set up to fund well-priced or underpriced real estate that would be held as rentals, rehabs and resales or to immediately wholesale. We may also explore setting up a real estate fund to build the 48 to 68 units if the zoning is approved. It would create instant financing for the project.

My next blog will discuss the decision to purchase a shore home in Ocean City, NJ that needed almost total renovation as a way to save for three college tuitions when our children were 3, 4 and 5. It took 40 written offers to get a great deal. If you purchase a very affordable investment property in an area that appears to be in the path of future development when your child is three years old, you purchase wisely, use sweat to build equity, rent out the home for 15 years, sell when the child is 18 for college tuition you can save for college easily. Sure and slow. Three kids may require three houses. This was the reason we purchased our shore home. Thanks for visiting our website.

Doubling Your Home Size

My wife and I returned from Denver with our two babies and a third on the way. Our home in Philadelphia had been rented while we were away. We wanted to renovate and add on more space for our growing family. I also wanted to develop a workspace where I could work from home that would be separate from the family space.

I called my old friend Bob Thomas, who was one of the two founders of Campbell Thomas & Company in Philadelphia. Bob was an environmentalist who rode his bike everywhere in all kinds of weather, He had been a Peace Corps volunteer in Micronesia who did not believe in wasting and was a hardcore recycle advocate. He and his partner developed most of the Fairmount Bike paths in Philadelphia as volunteers when they first opened up their architectural firm. They started their humble firm and gradually grew it to a nice sized company that is still going strong today.

Unforeseeable Issues

Bob designed plans that my wife and I both liked. We went to our banker and applied for a construction loan. Our tenant moved out the day we began demolition. We soon ran into many unforeseeable issues like carpenter ants in some of the walls and part of the roof. A structural wall that held up the house and carport was in early failure. We hit rock when excavating for the rear addition. We were forced to remove all the first floor exterior walls and temporarily support the entire roof structure. All could be repaired or replaced but not within our original budget.

We headed back to the bank to increase the size of the loan. Due to unforeseen issues and other changes, our original $150,000 construction budget was now almost $300,000. As work progressed, we decided to replace 90% of the plumbing, 100% of the electrical, and the large heating system was now redesigned and replaced with three heating and cooling zones so we could shut down the parts of the house that were not in use. Construction was booming back in the late eighties and getting good construction labor was tough. We hired two of the guys who worked for us in Denver, flew them here and they lived in the last room of the house that we had not yet gutted.

The job took about a year. We had to visit the bank for another bite at the construction financing apple and we were approved but the lender said don’t come back. This is the last increase that they would allow. We finished the construction and moved in. The home was purchased in 1980 for $130,000. We put in another $450,000 and had a home worth about $780,000. I earned about $200,000 in equity for the year since I did not draw down a paycheck. My wife was working full time and we were able to live off her income. If I took the $200,000 as salary we would have lost about $90,000 to federal, state and social security taxes because the taxed owed would have been at the highest tax bracket. By not taking a salary and leaving the equity in the house we would have $200,000 in new equity to borrow against if we came up with another healthy real estate investment. Talk to your accountant if that does not make any sense to you or to understand. You don’t pay income tax on borrowed money, only earned money.

Financial Benefits

Each of my children required an educational environment not offered in our public school system. The equity built up from renovating our home paid for many years of private school, uninsured medical issues, and other real estate investments. As the years went by and our home kept growing in value, we applied for a $250,000 line of credit for our children’s education and as a slush fund for investments. It also funded a construction company, roofing company, and a 13,000 square foot warehouse for storage for the construction company.

Pro Tip: If you purchase large or small real estate investments and you are able to perform some of the work, even part time, you end up with equity, or what I like to call forced savings.

These forced savings do not require you to pay income tax until you sell the property. For example, if you purchase a rental for $100,000, you put in $50,000 in improvements and you put in sweat equity by performing all the demolition, insulation, some of the drywall, all the painting and landscaping, and you save an additional $25,000 in labor, then if an appraisal shows that the new market value of the home is $225,000 and you only owe $150,000 in debt, your equity is $75,000. Most banks will allow you to borrow up to 90% of the market value of your home if you have acceptable credit. If you needed the $25,000 to live on, you would pay federal and state taxes at your rate and social security tax of around 7% of the $25,000 which would be around $8,500. You would take home about $16,500 net. If instead you borrowed against that same $25,000 equity and the bank said we will give you a 90% mortgage against your $25,000 equity they would lend you $22,500 for your next investment. It is kind of like borrowing your way to wealth.

Investing in Denver Real Estate

In 1983, the economy in Denver, Colorado was in great shape. By 1987 the only people making money was UHaul. Everyone was leaving. The economy had tanked.

Investing in Denver

In 1984 we went to the Municipal Credit Union and opened an account because my wife was a city employee at Denver General Hospital. They had a unique program where you could borrow $125,000 minimum for a home purchase. We found a home that needed work, was well located, and could be purchased for around $100,000. We purchased the home with our 12% interest mortgage and immediately started looking for another investment property to spend the balance of the $125,000 mortgage.

We found two homes that were moved by a developer to two lots he had purchased. He got the homes for next to nothing because they had to be moved immediately from a site where another developer was building new homes. Back then you could buy an FHA financed home and assume the mortgage for only $45. My wife and I purchased two homes, next door to each other for $58,000 each plus closing costs. We only needed an approximate total of $2,800 to purchase both homes and assume the two existing mortgages. These were non-recourse loans. That means if we walked away from the homes, stopped payments and left the country, all the lender could do was foreclose and if there was a shortfall the original borrower, not us, may or may not have had to come up with the difference owed the bank.

I started a new construction company and within one week I had my first contract. My wife and I would walk at night in one of the wealthiest neighborhoods, Cherry Creek, place attractive flyers in mailboxes, and the phone started to ring. We were both working full-time and investing in real estate.

We now had three homes in Denver and it was time to look for another project. I found an abandoned looking building at the corner of 34th and Williams, in Denver. After months of negotiating with the minister who owned the building, we agreed on an $85,000 purchase price. It had 28 units. We were able to get an FHA 221 D4 mortgage which is an FHA insured mortgage for buildings with more than four units and we were able to borrow an additional $85,000 from the City of Denver for zero percent interest, no payments for 10 years, and an $80,000 mortgage at 2% interest with no payments for three years. We also received an $8,500 grant for new concrete paving. The City required us to build only two bedroom units in return for the low interest and creative financing we were offered.

To purchase the building, the United Bank of Denver wanted a co-signor. I was still new to Denver without much of a local track record so I went out and found another investor. It cost me half the ownership but made doing the development possible. My new partner and his wife, along with myself and my wife all had to be on the deed and on all the loans. The bank and City now had four co-signors.

We closed on the building, and went through the very tedious mortgage application process with the lender and the City. We began demolition and removed about thirty dumpsters of material from the building including the demolition of about 10 garages. We were told that the police and fireman would no longer go into the building if it had interior hallways, because it was too dangerous. They required every unit to have its’ own exterior entrance door. Police and fireman had previously been hurt inside the building going after drug dealers, putting out fires and lawbreakers in the building. We had to put an iron grate above the stairway that led to the basement laundry so that tenants could look down and make sure no one was lurking before they went down the steps to the laundry. The stairwell had to have a shatterproof light that was hard to destroy. We had to build a second floor rear deck with ingress and egress steps for the second floor tenants. In return we were promised section 8 certificates for all the tenants the first year only. We agreed to the terms. The architect completed the drawings, the City accepted them and with a very tight budget we began to rebuild the building.

The loans required the City, the architect, and an FHA inspector to approve each of the draws to be reimbursed after each segment of the work was completed. The City and FHA inspector was easy to deal with but our architect was always fighting us on the amount of work completed. He was paid about $28,000 over the course of the design and project phase of the contract and became one of the biggest problems to overcome on the project.

From an economic point of view, developers were entitled to depreciate the entire construction cost over a five-year period for affordable housing during the time we developed this building. For example, if the construction cost of improvements to the property was $1,000,000, you could deduct a tax write off of $200,000 each year for five years. Since I had a partner, we could each write off $100,000 each year for five years. If you had a total of $100,000 in income and you had a $100,000 write off then you owed zero taxes that year. There are many other factors but in its most simple form that is how the accelerated depreciation worked.

Issues on Site

About one-third of the way through the job, we started having petty burglaries on the site. Twice the office was broken into and twice the burglar stole battery-powered drills but both times left the batteries and chargers. They don’t work very well without batteries. Then we decided to add security dogs to the site. The second night we had the dogs, a neighbor walked over to the site and said those dogs would run away if he jumped over the fence. My foreman wagered his truck that the dogs would attack the man if he jumped over the fence as he waggled his keys at the neighbor. The neighbor agreed to the wager, leapt over the fence and the two dogs ran away. The man comes back asking for the truck keys. The neighbor was a security dog trainer who knew that until the dogs marked the site and were delivered to the site enough times to become habituated to the site that they would not protect the site.

About two weeks later someone went over the fence and was attacked by one or both of the dogs and left a trail of blood. Just another day at the site. Each morning the dog service removed the dogs from the site. Two dog security companies bid on the contract, one was $10 a day for two dogs and the second company was $20 a day. I asked why the big difference? The $10 an hour company said that they have no insurance and no assets. If someone gets hurt by the dogs after breaking in and sues, the first thing the lawyer wants to know is who the insurance carrier is? If no insurance most lawyers are not interested in the law suit unless the client can pay up front. Most burglars don’t have the money to fund a lawsuit. We were on a budget. We went with the $10 guy.

FHA Requirements

When you have an FHA mortgage and you borrow public funds from the city, state, or federal government, you are required to develop a plan to have a minimum amount of minority and female participation employees and contractors. My philosophy has always been to hire locals on a job site when they are available because I believe local neighbors should benefit from projects in their own communities. I have also been a proponent of hiring ex-offenders who have served their time, need a break and tend to be hard working individuals when hired. We had two laborers I hired who were two of the biggest guys you could ever find. One served nine years for murder and the second served time for unknown crimes. I had a subcontractor who was third degree black belt in one of the martial arts who had just returned from Vietnam. I had a young woman who was a carpenter who lived in the neighborhood all her life. We had almost 65% minority and female owned company participation on the job.

The job took about two months longer than I figured. The inspections were not always easy to schedule. I was able to rent out all ten units quickly. The federal government always sent the section 8 checks on time. My wife took a new job back in Philadelphia and wanted me home. Workers tend to slow down a bit when a job ends and unemployment is near. I was about $20,000 over original budget but still within the 15% required in the mortgage for contingencies. All went well for the first year.

After final inspections are complete, you receive your certificate of occupancy from the city, tenants move in, and the rents begin to arrive. You can finally begin to relax. For the first year, the building thrived.

The Denver economy was crashing. The oil industry was in turmoil. Companies were walking away from their wells and their equipment. Many were moving away from Denver. Tenants could go to the most beautiful buildings in town and get cheap rent. Section 8 tenants were moving to the expensive sections of town because building owners who never accepted section 8 were now accepting the certificates. Many of the small developers like us who were located in the higher crime areas of Denver were unable to rent their units. The population was dropping rapidly. It was a mistake to move forward with only one year of section 8 certificate guarantees for such a large project. We should have held out for at least three years or walked away from the project, but no one has a crystal ball.