This is all of the boring stuff that can get you sued if don’t pay attention to it.
This episode is going to be about commissions, the listing contract, and disclosures. This is all the important and really boring stuff. But you need to pay attention because if you do this part wrong, could come back to bite you later. So here we go.
This is selling Prescott, a project of PrescottRealEstate.com, I’m Conrad Walton.
First, I want to talk about the listing contract. The listing contract is going to be between you and the agent. It’s actually an agreement between the two of you over some terms, mostly about price and the commission. That’s a big thing we’ll talk about a minute.
You’re probably going to meet with, or talk to, your sellers agent. I would suggest you talk to three or four of them. You get a good feel for who you like, who you don’t like and you can, you can pick your agent, somebody that you feel comfortable with.
And regardless of how good they are, how many years they’ve been in business, how many deals, if you don’t like somebody, it’s not going to be a good situation. So find somebody that you like, somebody you feel like you can trust.
I was in a class one time. Real estate agents go to a lot of classes We do a lot of training. And we were talking about listing appointments, presentations. You know, trying to get that seller like you to sign on that bottom line, so I can get my commission.
And there was somebody else in the class. And they’re like, Well, you know, that selling appointment, your goal is to get the contract, you know. Get a signature on that contract. So get in, do whatever you have to do get that signature and get out.
And I thought, Man, it’s not all about the money. I mean, you’re gonna have to work with this seller. You’re gonna have to deal with them. I mean, from my point of view, as an agent, I want to work with people I like.
I had one deal once where there was a husband and a wife. The husband happened to be a real estate attorney, which should have been a red flag for me right there. But whatever.
The wife called me, did all the agreement, got all the signatures, talked to all the terms we you know, got along. I liked her. Everything was great. Started marketing the house, did the photography, all that stuff. Got in the MLS.
And about two weeks in, the husband, the lawyer, calls me up, and starts screaming at me about how I didn’t know what was important to him, and how can I market his house if I didn’t know?
And, I’m, okay, whatever. And I thought, you know, don’t really want to have a lawyer pissed off at me. Talked to my broker for advice. She said, normally, you know, if you’ve got problems with the deal, you work through the problems. Your clients are your clients. You do whatever you can, but in the face of possibly getting sued, maybe we should cancel this one.
So I went ahead and cancelled it. Gave it to another agent. Somebody else sold it. Good luck for them. I’m glad they got a commission out of it.
But you know, it can be a headache with buyers. And it could be a headache with your agents. So shop your agents. Find somebody that that you like.
Okay, I’m rambling too much. Let’s get back to the contract. One of the things in the contract, it sets the price. And we just talked about pricing strategies, and you could talk to your agent about what they think is the best pricing strategy, and what the exact number should be for your house.
But the contract sets a price. And some people get a little nervous about that. But that can be changed later. As long as I’ve got like an email or some notice that I can point to and say “Yeah, but you told me to change it” or lower it to 10 grand or whatever. You know, as long as I have a record, I can change the price anytime you want.
The other thing is the term of the contract. Normally I do a year. And not because I want the listing for a year. Hopefully we’ll sell it in the first month or two. But I want the seller, I want you, to be committed to this process as much as I’m committed to it.
When I get a listing contract, I’m going to pour my heart and soul into it. I’m going to put time, effort, and money into it. I’m going to pay for, you know, photography, for signs, for, you know, marketing, whatever.
And I don’t want somebody coming along going “Well… I’ll list it with you, but only for three months. And if you can’t sell it in three months, then I’m going to go give it to some other agent, and, and see if they can sell it.” It’s like “No. You either believe in me, and I believe in you, or we don’t, so if you want to do that, talk to another agent.
I personally don’t like that. I think it shows, you know, if you don’t think I’m a good enough agent to stick with, then then don’t sign me. That’s fair. You know.
Part of that is, what am I going to do as your your selling agent. I’m going to put it in the MLS. I’m going to put signs around, maybe down the road, maybe on your property and your front lawn, whatever. I’m going to answer calls, I’m going to answer questions. I need to know about your property. I’m going to look at this disclosures. I’m going to walk through with you. I’m going to find out all the details about it that I possibly can.
I’m going to pay for photography. I might build you a website. I just started doing virtual tours, the 3D panoramic things. They’re pretty cool. So I’m going to put time and effort into it. And I need to know your property. So you know, I’m making a bit of a commitment.
The big thing that I care about on that listing commission, is you’re promising to pay me a commission. If I bring you a seller, or if somebody brings you a seller, I’m going to pay them a commission. And you promise to pay me a commission for going through this process and, and having me represent you in it.
Commissions. These get a little interesting. I’m going to start out by saying “Negotiate everything”, “Everything’s negotiable.” Conventionally, the tradition is commission is 6% on a residence, and it’s 10% on vacant land. Residences usually sell quicker and easier than land.
Land kind of stays around for a while till somebody stumbles across it. So that that commission percentage is up higher because we put more time and effort into it.
Now, technically, the way the Commission’s work is, the seller pays the entire commission at the end of escrow. But it all comes out of the seller side. That agent, your sellers agent, they pay the buyer’s agent. Your sellers agent puts a commission in the MLS. So in the MLS, there’s a little “compensation” field, and it could be 3%, two and a half percent, $2,000 whatever it is, but that’s a legal binding commitment between me, as your selling agent, and all the other agents in the association.
So if somebody else brings me a buyer, and they’re ready, willing and able to buy your house, then we have to pay them a commission. That’s part of my responsibility, is putting it in the MLS. One of the rules we have.
So one of the problems with that process, that’s the way it’s traditionally been done for 100 years probably know, the National Association of Realtors, that’s their policy. They’re getting sued right now for price fixing.
Because the buyer’s agent. I mean, if they’re getting offered 3% in the MLS, they can’t negotiate that you’re getting 3% That’s it. They could negotiate with their buyer, and say, well, you’re gonna pay me $1,000 over whatever the MLS says. Or they can, they can negotiate whatever they want. And I, and again, I come back to “Everything is negotiable.”
So I don’t know why they’re getting sued for price fixing. If I offered to pay you X number of dollars to perform a service, that’s the offer, take it or leave it, but those buyer’s agents may or may not want to negotiate that. And so that could be an issue. Generally it isn’t. Most people take what they get, and it works fine. It’s been working fine.
The higher priced property, you might get lower commission rates, so maybe that 6% per house. If we get over $500,000, $600,000, I might lower that to five and a half percent. You get over a million, we could talk about 4%.
What that works out to is, you know, we’re talking about percentages, but that turns out to be dollars in the end. So from my point of view, how much am I going to have to work? What what effort do I have to put in, in order to make how many dollars.
So the issue with percentages and dollars is if you have $100,000 property, and we’re doing a 10% Commission, that means I get a 10%, $10,000 Commission, I get $5,000, the buyer’s agent gets $5,000 on that. If we have a house at 6%, but it’s a $500,000 house at 6%. That’s a $30,000 Commission. I get half, $15,000, and the buyer’s agent gets $5,000, so there’s a lot of factors involved.
All of this needs to be negotiated out. You’re gonna have to agree with your, with your agent. How much time and effort am I going to put into it? Another thing is, if you’re asking way too much for your house, it’s never gonna sell. Why should I put my time and effort into it? Because I know it’s never gonna sell. That’s, that’s an issue.
What type of a property? If you’ve got a, you know, a two bedroom, one bath, 1200 square foot suburban, you know, typical thing, I could sell that by Tuesday. That’s an easy sale.
If you’ve got a artistic, charming, (we use “charming” as a euphemism for “what the heck are they thinking” sometimes), if you have some unusual kind of a property, it’s going to be harder to sell. It’s going to take more, more effort.
And also, there’s, a little bit of it is, kind of how I get along with you. If I think you might be kind of a jerk, I may not be as quite as willing to drop my commission. But if I really like you, and we get along great and I love working with you, and we bond and all that, then maybe I’ll come down on my commission a little bit easier.
So that’s, that’s my schpeel on commissions. Bottom line that you’re always going to hear from me is “everything is negotiable.”
Another part of the listing contract are lockboxes. You’re going to give me permission to put a lockbox on your house. PAAR, which is the Prescott area Association of Realtors, we have lockboxes. Usually goes on your front door. There’s a phone app that all the agents have. When it gets shown, you log into your phone app. It communicates using Bluetooth to the, to the lockbox, which opens up, gives them the key, allows them to show your house.
When that happens, I get an email saying that this agent, at this time, at this lockbox, you know, opened it, and then later put the key back. So I have records of all that stuff. So if something turns up missing, I know who to go talk to about that. It’s not quite like you have random strangers walking through your house. There are, there are some records, and we can trace them.
Next thing is signs. You’re going to give me permission to to put a sign on your front lawn, or the edge of your property, or down the road, or someplace, as a real estate agent. I am supposed to have permission to put up a sign anywhere I do. I can get in trouble by the city or by the county, if I put up a sign in a throughway, on a sidewalk, or other places like that.
Generally, the reality is a real estate agent kind of puts up signs wherever we feel like it. Most people are cool. Most people are like, “Yeah, whatever.” They don’t care. But occasionally you might get that neighbor who’s not happy you’re selling your house and they could complain, and that could become an issue. But I do need to get permission to put signs on your property.
So that’s the whole listing contract. Once you sign that, you’ve got a deal with your agent. That agent is going to work for you. They’re going to be your ninja out there fighting for you, doing everything I can to sell your house and doing what what you want them to do.
The next piece to this are the disclosures, the “spuds”, the Affidavit of Disclosure. Well. If you have a well, there’s well disclosure. Lead based paint. If your house was built before 1978, you must have a lead based paint disclosure.
The “spuds”, SPDS, seller property disclosure statement. That is six page document with a bunch of questions. Basically, saying “Do you know anything about this?” “Describe that.” “What kind of water heater do you have?” “Have you ever had termite problems?” You know, “Are there noise issues?”, everything about your house that could be asked is in there.
And you need to disclose everything. If you know there’s anything wrong with your house, you need to put it in there. It’s for your protection. If they come back to sue you later because hey, you know, you didn’t tell me about the nuclear waste in the basement or something, you need to tell them now because you can say hey, I told you about it, you can’t sue me. So this is primarily for your protection.
Now, I know the the urge here is to like hide the stuff that may not be real apparent, because you don’t want to blow the sale. You don’t want to scare them off. But my strategy has always been overwhelm them with information. Think of everything you can possibly think of and fill that thing out. Put down everything you can ever think of because they’re going to read through it, they may not catch stuff, or they may just get overwhelmed and not care and whatever. But as long as you have it in there, then they can’t ever come back and sue you later.
So don’t ever hide anything, especially if you know something and you hide it, they will come back and and you will pay for it. It will bite you, so disclose everything. Don’t, don’t do that.
The Affidavit of Disclosure is a document that’s required by the county in unincorporated areas. So if you’re not in the city of Prescott, if you’re out outside the city limits, you’re in the county ,and you need to fill that disclosure out and it’s a little more technical. It has to do with access and roads and weird things.
That one has to be notarized and the original notary copy of it has to be given to your agent to be given to escrow, because the original document needs to be recorded with the county. There’re weird questions on that one. You should have your, well, you will have your agent, you know, to ask questions of. I will tell you right now, number 16 on the Affidavit of Disclosure is “does”. I know that you don’t know what ARS 11-831 refers to, but I do, and I trust me that the answer to that is “does.” There’s weird stuff, talk to your agent. You’ll be fine.
The well disclosure, if you’ve got a well. The key there is, you need to know your registration number. There’s a state well registration site, you can go looking for numbers on there. The well number starts with “55-“, and then there’s some digits after that. You probably will be able to find it on the state map.
I used to ask my escrow company if they could look it up for me and they would call, you know, Betty, down at some office, and they would look through it. And they would give me the number, until… They did that one time and somehow they got the wrong number on the paperwork. And they transferred the well registration, the wrong well registration, to the new buyer, and got sued for $25,000. So they don’t do that anymore. So you’ll have to go find out your own well registration number. Fill that out.
The lead based paint disclosure, pretty much, it asks you if you know if you have lead based paint or not. Nobody ever does. Nobody’s done tests. So it’s probably going to be “Yeah, I don’t know”, to all the answers on that one. And unless you have a test, and if you have a test, then you know, and you better disclose that.
If you have a septic tank, you’re outside the city, and you have septic, you need to have a septic inspection. That’s a state requirement. Usually you need to pump it to be able to inspect it, because they stick a camera down in and take pictures and see if there’s cracks or whatever. Usually costs 500-800 bucks. That inspection is good for six months.
The results on the septic inspection can be one of three things. Either it’s “functional”, or it’s “functional with concerns”, or it’s “not functional.” If it’s “not functional”, which means it’s broken and it doesn’t work, then 1% of the purchase price goes from the seller to the buyer to repair that. That’s part of a state requirement. That can be negotiated and agreed away. But if they don’t want to negotiate that, you owe 1% of the purchase price. “Not functional”, it’s fairly rare.
And you can have it repaired, you know. Generally the outlet pipe is not flowing really well. Have them do it. it’s 500 or 1,000 bucks, whatever. It’s usually not a lot of money to fix, and they can fix it. And then you get the “functional” inspection report from that.
“Functional with concerns” means that they flush the toilet inside, and the water goes into the septic tank. But it kind of, doesn’t go really quickly out the outlet pipe into the leach field. Usually because there’s roots growing in it and whatever. It just it’s slow. Basically, what that really means is you shouldn’t serve Mexican food at your next large social gathering.
After sitting down with my sellers and going through the listing contract, there’s some other documents that you have to sign, that mean stuff to realtors, but you shouldn’t really care about too much. I have you sign a whole bunch of stuff. And I hate to, at that point, immediately shove a whole bunch of disclosures in front of you saying, “Hey, go fill these out too.” So I usually wait a little while, you know, a week or so, to give you all the disclosures. But they’re going to they’re going to happen. Disclosures. It’s good to get them done early.
But if there’s a home inspection down the road, things might be disclosed to you in that inspection report that you had no idea about. But now you do. So now that you know something is wrong, you better go back and update that disclosure. Because if this falls out of escrow, and you have to go through the process again, and disclose to another buyer, you better have all that new information in there.
I just had a deal where I met with the seller, walk through his house, gorgeous house, relatively new house, everything was pristine, and went through like maybe a week later with the photographer. Been through the house a few times. And then a couple weeks go by.
We accept an offer, and we’re in escrow, and we we finally get to the home inspection. And on the home inspection report, it says there’s a stain in the ceiling that looks like there’s a leak. And that wasn’t there two weeks ago because I was there. I would have seen it and it wasn’t there. So things do pop up, and as you learn new things, you need to disclose them, just in case.
So we’ve gone through the listing contract. We’ve talked about commissions. We’ve talked about disclosures. Hopefully you’re not too bored at this point. Because at this point, now you’re ready to sell your house. You’re ready to put it on the market. You hand it over to your agent. Your agent is going to go wild with photos, and MLS, and all the stuff that real estate agents do. And it’s going to be on the market and the circus begins.
Thanks for listening. Please drop a review wherever you get your podcasts. If you have any questions or need any help with real estate in Prescott, please give me a call or text me at 928-925-4428. You can email me at Conrad at PrescottRealEstate.com. You can always contact me through the website, where you can also get show notes with information about this episode. That’s PrescottRealEstate.com.
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