DEAR BOB: I look forward to your excellent articles. But you have never addressed my question. Why are real estate sales commissions a percentage of the home’s sales price? It seems to me the sales effort by a real estate agent is about the same for a $100,000 house as a $500,000 house. But why should the listing agent receive a sales commission five times higher for the $500,000 house than the $100,000 house? – Mohsen S.
DEAR MOHSEN: As long as I can remember (I am a “newbie” who has only had my real estate broker’s license for 37 years), real estate sales commissions have always been a percentage of the property sales price.
Purchase Bob Bruss reports online.
My first home I purchased for $28,000 gave the listing agent a fantastic 6 percent sales commission of $1,680. Of course, that was many years ago. But the sales commission percentage rate has remained virtually unchanged as home values increased.
However, today in many cities you will find so-called discount realty agents who charge flat fees rather than full-service percentage rates.
To illustrate, Assist2Sell franchise offices charge flat fees, depending on the services the home seller needs. As a home seller, you probably want your listing in the local multiple listing service, on the Internet Web site www.realtor.com for prospective out-of-town buyers, included in weekend open houses, assisted with contract preparation, and maybe additional services. Each extra service adds to your cost.
DON’T REFINANCE UNTIL YOU HAVE SUBSTANTIAL EQUITY
DEAR BOB: My wife and I bought our home for $405,000 in December 2003. A neighbor’s smaller house recently sold for $433,000. Since we have first and second mortgages for $385,000 total, should we refinance now? Fred B.
DEAR FRED: You are not yet ready to refinance. With only $48,000 equity of less than 10 percent, you need to build up at least 20 percent equity before refinancing.
Home equity is the difference between your home’s market value minus the amount you owe.
ARE VACATION HOMES GOOD INVESTMENTS?
DEAR BOB: A few months ago we spent a wonderful two-week winter ski holiday in Colorado. While we were there, we talked with several local Realtors about buying a condo. Those agents have kept in touch and are now urging us to buy during the summer “off season.” Are vacation homes a good investment? – Rick R.
DEAR RICK: No. Although the ski area you visited was probably wonderful and you were impressed with its great winter atmosphere, vacation homes are extremely cyclical in market value.
Summer is the obvious best time to buy at the lowest price in a winter resort area.
If you purchase, please use money you will never need to see again. A vacation home is not a sound investment. It is a high-risk purchase, which might turn out well. But if the demand from other buyers at the destination declines, you could lose substantially.
The new Robert Bruss special report, “Pros and Cons of Earning Big Profits from Foreclosures and Bargain Distress Properties,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.Bobbruss.com. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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