Dec

2

Long Island Home Prices: How Real Estate Offices Are Being Affected

Filed Under Sellers |

Long Island home prices are hurting. What you’re thinking right now is, “Gee thanks for the insight there Tom!” While many people talk about homes sales and focus on the values of real estate, one thing many people don’t talk about is the business of real estate.

Since 2006, over 220 offices throughout Long Island have closed. They’re either large companies “restructuring” to become more centralized, or they’re small offices that are just no longer in business any longer.

Many offices and their agents have dropped commissions to “compete” with low-cost real estate companies. This has been a trend for the past 30 months or so. But oddly enough, what has happened is these offices have closed down. The “flat-fee” brokerages charging $3500 (plus a commission pay out for cooperating brokerages) are mostly shut down.

Without boring anyone, I’ll talk briefly about how business works. It’s simple really. The equation is:

Revenues - Expenses = PROFIT

Now let’s look at the retail world of clothing. If a clothing company like The Gap decreases their prices, they are inadvertantly decreasing their revenues. They need to sell more in order to make a profit or, they need to eliminate expenses. Now fortune 500 companies usually will cut costs by firing people. It’s that simple.

In the real estate business, in order for a brokerage charging a flat-fee or charging a 4% commission (split 50/50 with another brokerage - the other brokerage brings the buyer and each office splits the commission), to make a profit, the must either sell more houses - faster and not hold onto them or they must decrease expenses.

In the real estate business, decreasing expenses includes less advertising, less auxilary staff to run the office, less open houses, less signs - basically less marketing all around. This is a fact, or the office will close like the over 220 offices that have gone that route since 2006.

Now think about prices of homes and add this into the mix. If a brokerage is letting their agents take 4% listings and the homes selling in their market have come down in price over 20%, assuming a standard and healthy commission is 6%, and their charging 4%, that’s a 49% drop in revenue.

Now prices across the board have come down. We all know this as you astutely thought to yourself at the beginning of this article about my insight. So ask yourself this question next time you’re sitting with a real estate agent who will accept a 4% or flat-fee commission:

“How can this agent and their office market my property when their revenues are down 50%?”

Ask yourself this question next:

“If this agent and their office is taking a 4% commission now, how well are they going to negotiate a price for me in the future?” (because they’re bottom-feeding right from the get-go).

If you could buy something now, that will definitely do what you bought it to do, or spend a little less and buy something that could very likely turn out to not be able to do what you’re buying it to do - which do you think you should buy?

The reason for this article is push back a little against the trend that is putting real estate businesses out of business and putting homeowners in situations where their equity is flying out the window each and every month their home doesn’t sell.

Price is king in this market, but effective marketing helps make any listing pop off the long list of homes for sale (over 30,000) on Long Island.

Call me now to talk about actually selling your home and how I use my fee for service to help sell your property faster and for more money than my competition.

1-877-765-3123, Ext. 51

(c) Copyright, 2008 www.tommcgiveron.com


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