Madison Flat Fee MLS

Since the sub-prime mortgage market triggered the global financial crisis in 2008, the Federal Reserve and Treasury Department have taken extraordinary and unprecedented steps to support the housing market in the United States.

They seized the massive GSE’s (Government Sponsored Entities) of Fannie Mae and Freddie Mac, they became a player in the bond market by actively purchasing a trillion dollars of US bonds in an effort to reduce interest rates in the open market, they then spent 1.25 trillion dollars buying MBS (mortgage backed security) paper from anyone and everyone to further keep rates at extreme and artificially low levels. On top of all this, Congress implemented the home buyer tax credit and then expanded and extended the program to further prop up the very frail housing market.

The result of all this stimulus was a fairly robust real estate market in the second half of 2009 and the 1st quarter of 2010.

The enormous program to buy MBS paper ends on March 31st and the popular home buyer tax credit will end April 30th.
Now that the stimulus is coming to an end, we will all be looking at the housing market like a nervous parent watching their child trying to ride a two wheel bike for the first time.

Interest rates during the month of March have begun to reflect the pullback of the federal money in the mortgage market and have risen dramatically. The 30 year US Treasury Bond went from 3.56% on March 1st to 3.88% on March 30th.

As we watch the housing market try to balance itself without the federal training wheels, the question will be whether it just falls over in the grass or if it steadies itself and gains confidence as it heads down the sidewalk.

The pending home sale index rose for a record 7th straight month in September signaling a return to stability within the overall housing market.

Historically low prices, very low interest rates, and the $8000 first time home buyer credit proved to be a very powerful combination of incentives for those buyers with good credit and who were comfortable with their employment prospects. The wave of homes which came into the market under various forms of distress (short sale, foreclosure, threat of foreclosure, job loss, reduced income, etc.) have worked their way through the cycle and we are left today with a much more balanced market.

Sellers played a large role in the recovery in terms of coming to grip with the new reality of their homes value. For a long time it seemed like there was a significant amount of denial among sellers that the value of their home was actually declining. Over time it became more and more clear that this was in fact the case and that if they were serious about selling they would need to price their property according to the prevailing local market conditions.

As the end of the tax credit approaches at the end of November it is time to say farewell to this buyers market and hopefully look forward to a sustainable and more balanced real estate market.

As we approach the end of the first quarter of 2009 we have confirmation of what many of us have already concluded - home sales and market activity are increasing at a dramatic pace.

The National Association of Realtors issued a report showing a 5.1% increase in sales in the month of February. The NAR estimates that half of these sales were from first time home buyers taking advantage of the $8,000 federal tax credit as well as low home prices and a low interest rate environment.

Click here for some market number comparisons for Dane county between the first quarter of 2008 and the first quarter (so far) of 2009.

Some interesting things to note are the much lower inventory numbers in 2009 in almost all property categories. The sold price ratio (ratio of sold price to list price) has widened slightly so far in 2009 to 95.48% compared to 96.34% in 2008. (The 10 year South Central Wisconsin MLS average sold price ratio is 97.07%, while the Homefront LLC 10 year average is slightly higher at 97.24%)

The numbers also indicate fewer days on market (DOM) so far in 2009 in all categories as well as a lower percentage of listings that expire unsold. These factors I believe indicates that sellers have been more proactive in pricing and more willing to negotiate to get a sale.

One surprising (at least to me) statistic is the weakness in the condo market comparison between Q1 2008 and Q1 2009.

Many home sellers have a vague sense of how commissions work within the Realtor and MLS structure. If you utilize the services of a broker to list your property you agree to pay that broker a commission in the event they procure a buyer that leads to a sale.

The listing contract is between the seller and the broker. The listing broker will then in turn offer a co-broke commission to all MLS participants in order to induce them to use their efforts to effect a sale by presenting the listed property to their buyer clients. The listing broker is acting as a contractual bridge between the seller and the entire realtor community. The listing agreement is a bilateral contract in which the seller agrees to pay a commission and the listing broker agrees to perform certain marketing functions. The offer of the commission in MLS represents a unilateral offer from the listing broker to all MLS participating brokers. A participating broker may form a contract with the listing broker by performing the terms of the unilateral offer, i.e. by finding a buyer ready, willing, and able to buy according to the sellers criteria.

As a seller, it is important to have information regarding local market commission trends to understand what represents a competitive co-broke commission rate. In Dane county and metro Madison, 3% is, by far, the most common co-broke commission rate offered within MLS. The chart below demonstrates the popularity of the 3% co-broke. 88% of the active single family home listings in Dane county as of 03/01/09 contained a co-broke commission of 3%. There were a few below and a few above the 3% rate.

Active Single Family Home Listings in Dane County as of 03/01/09

The realtor code of ethics contains a relatively new requirement that brokers inform their seller client what they will offer in MLS as cooperative compensation. If you had a listing contract with a broker charging a 6% commission, the broker could offer, say, 2% in MLS. This could put your listing at a disadvantage on a commission basis. Also, if you listed your home with a broker who was charging only 5% but was offering 3% in MLS, you would not be at a disadvantage in terms of the MLS offer of compensation.

With our $295 flat fee MLS service we will offer the co-broke commission that our sellers want but we advise that 3% is the most common and is most likely to provide a competitive level of incentive for a broker working with a buyer.

With lower prices and less buying activity recently, many home sellers have been struggling with their decision and tactics in how to best market their property.  In the Madison WI area, we are fortunate to have a wide range of choices and options for sellers.  They all have advantages and disadvantages that are worth considering so lets go through them one by one.

FSBO

“For Sale By Owner” is a marketing method, which, as you may have guessed, involves marketing and selling on your own without the assistance of a real estate agent.  The main advantage of this type of marketing is the potential for huge commission savings. In Dane county it is very common for a traditional broker to charge a 6% commission for a successful sale.  On a $300,000 sale that would equal $18,000.

The main disadvantage of FSBO marketing is the potential lost opportunity of selling to a qualified and motivated buyer who is working with a realtor.  The FSBO “buyer pool” is relatively small compared to the overall buyer pool which includes the majority of buyers who have an agent working on their behalf.  As the vast majority of home buyers have an agent, those buyers tend to search the websites where MLS listings are displayed, most likely starting with the brokerage website of their agent, or other MLS affiliated websites like Realtor.com.  For many, if not most, buyers, the FSBO properties are off their radar screen.   In my experience the FSBO market works best in the middle range of home prices. Buyers who are comfortable with the process of buying a home and who are savvy and knowledgeable about the potential cost savings of buying a FSBO, tend to have some degree of experience in the market.  The first time buyer as well as the upper end buyer have a strong tendency to use a realtor in the home buying process.  For more info on the “for sale by owner” option see this article in U.S. News.

Tradtional Broker

A traditional brokerage listing is still the most common marketing method used by home sellers. In this type of relationship the home seller signs a listing contract with a broker for a typical listing term of 6 months and a commission which is often 6% in south central Wisconsin. The commission is generally payable regardless of how the buyer is “procured”. The main component of the marketing plan usually consists of listing the property in MLS.  There may be other bells and whistles, brochures, open houses, etc.

One of the most important parts of any MLS listing is the offer of compensation to other MLS participants. This is sometimes called the “split” or “co-broke” commission. This is the commission earned by the broker who brings the buyer. In the Madison area this offer of compensation is very (and I mean very) commonly 3%. The term “split” is a misnomer because the broker is free to offer whatever they want in terms of a co-broke commission.  The offer of the commission in MLS is a unilateral offer from the listing broker to all MLS participating brokers. It is worth noting that it is not between the home seller and the MLS participants.

A relatively new addition to the realtor code of ethics is the requirement that brokers inform their seller client what they will offer in MLS as cooperative compensation.  If you had a listing contract with a broker charging a 6% commission, the broker could offer, say, 2% in MLS.  This could put your listing at a disadvantage on a commission basis. Also, if you listed your home with a broker who was charging only 5% but was offering 3% in MLS,  you would not be at a disadvantage in terms of the MLS offer of compensation.  The two points to remember are that you first need to know what the competitive cooperative commission is in your area. This can vary substantially from region to region.  In Madison (South Central Wisconsin MLS) the offer is commonly 3%, while in metro Milwaukee it is typically 2.4%, in Chicago 2.5%, and in Rockford 3.5%.
Secondly, make sure your broker is offering the locally competitve commission rate and that it is noted in the listing contract.

In a traditional brokerage relationship, the agent will take all calls from other agents regarding showings,  will negotiate and follow through on all offers & counter-offers, hold earnest money in their trust account, and arrange the title work and closing.  The advantage of this type of marketing method are that it is essentially  a “hands free” service to the seller. They do not need to talk to other agents or potential buyers, they allow their agent to represent them and handle enitrely the marketing and sale process.  The disadvantage is the cost and typical lack of options or choices available to the seller.  In a slow or declining market, a 6% commission can cause an exponential dent in homeowner equity or create a situation where the homeowner is pricing the property out of the current market to compensate for the commission.

Flat Fee MLS

Flat fee MLS services come in a variety of packages with different options, features, and experience levels of the brokers providing the service. For the purposes of this article I will stick to the service that we offer at Homefront LLC and which is detailed on our home page.

Our flat fee MLS service is a hybrid service that offers the potential huge commission savings of a FSBO along with all the exposure
of MLS to the many buyers who utilize an agent to assist them in their home purchase. For a flat fee of $295 we list our clients property in the south central Wisconsin MLS for a 6 month term (free to cancel at anytime) and offer a “co-broke” commission of their choosing. We recommend a 3% commission for Dane and the surrounding counties but we will offer another amount if our client so chooses. It is also worth noting that the commisison amount offered in MLS can be changed during the listing term. In addition to the MLS, our service features a post yard sign which is customized to display the owners phone number, as well as up to 25 photos to use with the listing. We also offer the option to add additional services at anytime they are needed. Homefront LLC will negotiate on the sellers behalf, review offers with the seller and prepare counter-offers, hold earnest money, and order title work, for a commission of 0.5%. If our client sells to a buyer procured by them without realtor involvement then there would be no co-broke commission payable. If sold by a realtor then the only commssion payable would be the 3% co-broke, unless, of course the client wishes to use our additional representation service for the additional 0.5%.

The advantages of this type of service are the unique combination of the benefits of a FSBO along with all the marketing exposure of MLS, commission savings, and options. The disadvantage is that the flat fee is an upfront payment. For this reason you want to minimize the amount of the flat fee you are charged and maximize the marketing tools and exposure you receive.

Summary

I first started offering our flat fee MLS service in Madison in 1999. Since that time I have added other MLS regions including metro Milwaukee and all of northern Illinois. The Madison area remains (by far) the most progressive and tolerant community in terms of embracing new business models. It seems that there is a general feeling that there is enough opportunity for everyone to serve the unique needs of both buyers and sellers. There are many businesses and people here offering FSBO marketing, traditional brokerage, and flat fee mls services who are both competent and ethical.

Here at Homefront LLC the standard term for our flat fee mls service is 6 months. An MLS listing is not akin to fine wine or scotch. It does not get better with age. There is no “botox” treatment we can give to a listing that is more than 6 months old to make it more appealing. Changing the price, commission, and or description can be helpful but there may remain a certain amount of negativity associated with a listing that has been on the market a long time. Like the “Pig-Pen” character in Peanuts, the listing may have a dark cloud following it wherever it goes.

Newer listings tend to get all the attention from realtors as well as buyers. Realtors can enter their buyer clients criteria into the MLS system and create a buyer profile. When new listings come into MLS that hit on the buyers criteria the listing can be emailed automatically to that buyer. A new listing is an unknown to the marketplace and will generate immediate attention as realtors and buyers try to discern if the listing is offering a lot of value of if it is destined to sit quietly in MLS gathering dust.

When buyers and realtors see a listing which they know has been on the market a long time, the underlying assumption, in my opinion, is that if the listing represented such a great value, it would have sold within a reasonable period of time. Even if the seller has cut the price substantially you may still have a buyer who thinks “I wonder what’s wrong with it” when they see from the MLS number or the “market time” field in MLS that the listing has been around for a long time.

For our clients who are unable to sell within the 6 month listing period, we advise letting the listing expire and then relisting with a new MLS number. I think a break from the market of 2 or 3 weeks before relisting may also be helpful. There are some seasonal considerations at play in this strategy that I can discuss with you if it comes time for a relisting.
We do relistings for a substantially reduced fee.

This is a very relevant question when it comes time to sell your home.  Homeowners often forget that they were once prospective home buyers.
Smart, rational, buyers who had plenty of options available when they were searching for a home. Why did you choose the home you are currently selling?  Did the things that appealed to you still exist and would they hold the same appeal to todays buyers?  Are there new features to the property or neighborhood that make the home even more  appealing than when you bought it?  - or, (yikes) less appealing?

When you are finished reminiscing about the time you fell in love with your house,  you can shift gears and imagine yourself as a buyer in todays market.   This kind of mental exercise is very valuable and does not require sitting in an uncomfortable position or listening to new age music.

Simply get online and start searching MLS listings in your area as if you were a buyer with basic criteria that would coincide with your home, - for example,  3 bedrooms, 2 bath, 2 story home in your zip code.  (You may have guessed this assumes that you have a 3 bedroom, 2 bath, 2 story home)  In south central Wisconsin you can search all MLS listings on WisconsinHomes.com or the ever popular Realtor.com. 

In the last couple of years the number of photos allowed within MLS and websites like Realtor.com has expanded dramatically and most listings will have many photos posted to give you a good idea of the interior and exterior of the homes.  If you get back more than 100 properties on your initial search you will need to tighten up the search criteria, check to make sure only one property class is included in the search.  If you are searching for a single family homes, exclude condos and vacant land from the criteria.  If you have too few results (less than 10) try adding some adjacent neighborhoods or zip codes. Once you have a reasonable number of properties in your search results sort them by price from lowest to highest.  Make note of the price range,  -how much is the lowest priced home and how much is the highest priced home? It is likely that the asking price of your home will fall within this range.  Go back to the lowest price home and start your way up in price until you see something that even remotely, by appearance in the thumbnail, may be comparable to your home. Make a note of the properties location in the search results and then continue on up the price list until you come across a listing that is clearly (if this is possible) superior to your home. Again make a note of location of this one as well. 

Now you are ready to delve into the details of each listing in between these two as if you were an objective buyer with decent taste and an eye for value.  The point of this exercise is to see where your home lines up with the existing competiton in the marketplace.  I think too much attention is paid to previous sales in an area.  To me, if its not currently for sale, then I am not competing with the house down the street. Whether it sold for substantially more or less than my house, may or may not provide useful information about the market as it is today.
Remember that the “market” consists of properties that are currently for sale.

OK, back to your imaginary state as an objective buyer.  Go through the detailed listing page for each of the properties that may be in competition with your home.  Take a look at all the pictures and details and make a mental note of the price. Continue on up the list until you reach the one that was clearly superior to your property. Do this a couple of times, looking at the same houses, and it is likely that you will develop a sense of where your home would fall in this list. The most important thing to remember is to look objectively at these listings as well as at your own home (no, the orange shag carpet in your family room does not have a charming “retro” quality). Also, when looking objectively at your list of competitors be sure to keep any preconceived prices you had in your noggin tucked away safely somewhere.

If you are looking for more details than are available on the public websites, you can always send me an email with a MLS number or street address and I will email you the full listing direct from the MLS system.