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Why It’s Important to Do the Math

Thursday, January 11, 2018   /   by Christine Andreasen

Why It’s Important to Do the Math

Today I’m excited to introduce the very first episode in a series called “Do the Math”, where we’ll be discussing the math problems that people don’t generally do before buying or selling a home.

Since a house is generally one of the biggest purchases someone will make in their lifetime, it’s important to “do the math” so you’re not leaving any money on the table.

Before we get to this week’s example, however, I strongly encourage you to check out my book “Shortchanged by Shortcuts? 44 Surprising Ways People Rip Themselves Off When Buying or Selling Their Home”. It is full of problems that you need to take into consideration before buying or selling a home.

Now, back to everyone's favorite subject. Math.

Let’s say two of my clients are out to buy a lovely house in Lynnwood. The house is being represented by an agent named Sally, who works for RedFin. RedFin, a discount brokerage, priced the house at $350,000. On a standard 3% commission, the seller would spend $10,500 in commission costs. At RedFin, that commission is reduced. I’m not privy to what that commission is exactly, so let’s assume it’s at 1.5%. On Redfin’s commission standard, the buyer would spend just $5,250. If you stop doing the math here, it seems like a good deal. Here’s why it’s not a good idea: if you only do that level of math, you lose money.

In the case of this particular house, my clients were not the only ones putting in offers. My clients put in a full priced offer, and did not receive the house. We weren’t offered an opportunity to bid for a higher price, but instead were given a flat “no”. If we got a rejection call, what do you think happened to the other buyers? I know that my clients would have undoubtedly offered more money for the property, had she called us. That means there is a high probability that the others would have offered a higher price as well.

Sure, the property was sold over asking price, but by not calling around, Sally left money on the table. Why doesn’t Sally know how to do a bidding war? First, Sally works for RedFin. If Sally could get 3% commission, she wouldn’t be working for half that. If she isn’t good at negotiating her own salary, she’s probably not good at negotiating price.

Second, of the 23 houses Sally sold, all sold at 102% of the asking price. That’s a good number! But, Christine and Company sold 35+ houses at 107% of the asking price. By using a discount agent, and doing the quickest math they could,  the sellers left money on the table.

That's why it's important to do the math.

If you have any questions, just give me a call or send me an email. I look forward to speaking with you!

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