Real estate commissions are up

coinsReal estate commissions have risen has been in the news lately.  According to a RealTrends article published April 2023:

“Over the past three years, the average commission rate has been creeping up from an all-time low of 4.94% in 2020 to 5.32% in 2022, which is the highest it’s been since 2013.”

Home prices have also gone up quite a bit since 2013. I would argue that agents are getting paid more without raising the percentage charged. In other words, a 5% commission on a house sold in 2013 was less than a 5% commission on a house sold in 2022.

I would think commissions would go down due to the fact that there is less work for more agents this year.  On the other hand if agents have less business they may need to charge more in order to make enough money to stay in business.

Often clients tell me that there is a “going rate” and they “know” what that rate is. They almost always quote a rate that is higher than 5.32%. Those homeowners probably end up paying more.

It is important to understand that commissions are always negotiable. When agents won’t negotiate it might be because they lack negotiation skills and that might mean that they won’t know how to negotiate with buyers or buyers agents when an offer comes in.

Heck some of them just say “highest and best” offer rather than negotiating at all but that is the subject for another time.

Agents who are new to real estate tend to charge about the same amount as experienced agents charge. I am here to tell you that experience matters. In fact, it is all that matters.

If you are looking to sell a house and to use the services of a real estate agent choose one with experience and don’t be afraid to negotiate a commission and fees that you are comfortable with.

Home sales down – real estate agents up

house with a mansard roof

The number of real estate agents peaked last year, or maybe not it is hard to tell. The number of home sales started to decline last year and has continued on a downward trajectory.

There have been a lot of layoffs in real estate companies and in real estate technology companies.  I know several people who are looking for work. It is possible that there was a little over-hiring based on projected growth.

Our economic system is based on continuous growth, which isn’t sustainable for any industry.

Some real estate agents have gotten jobs in corporate or government real estate departments, and others have found jobs outside of real estate.

You might say there is a recession or a depression in real estate workers, reminding me of the housing market crash and the great recession.  Some real estate agents retired early and others found jobs while the rest of us slogged through a down market. As home prices went down so did commissions which are often based upon the sale price of a house.

I had a couple of side hustles that helped pay the bills.

This is a good time for consumers to negotiate the best rates when working with real estate agents. When choosing an agent choose one with experience. New agents tend to charge as much as experienced agents charge. Always ask if they have ever sold a house before or how many houses they have sold or how many buyers they have represented.

Often new agents don’t know what it is they don’t know and do not ask for help. As independent contractors agents do not get a lot of supervision.

It is true we all need to start somewhere and most new agents will get experience from working with friends and relatives and maybe a neighbor or two.

According to the National Association of Realtors, 87% of real estate agents fail within the first five years. Often the agents who fail do not make enough money to pay their personal bills and business expenses. Most real estate agents work on a 100% commission basis and only get paid after a successful closing.

Spring home sales – 2023

spring green
View from Mounds Blvd in St. Paul

Sometimes when I meet with home sellers they tell me about the housing market. Their information is often based on national news. Reporting has gotten better but it usually lags by weeks or months.

Real estate is local. It is good to know what is going on in the housing market which is higher interest rates and fewer people interested in putting their house on the market. That is a national trend caused by the Federal Reserve raising interest rates.

Home prices are falling in some parts of the country while in other parts of the country, they are rising. Falling prices tend to make the news more often than rising prices do.

The continued strong demand for housing in the Twin Cities has led to modest price increases. Multiple offers on homes for sale are fairly common this spring.

Yes, we have a strong spring home buying and selling season in St. Paul. In order to know if right now is the best time to sell a house in 2023 I would have to be able to see the future.

Generally speaking, spring is usually a better time to sell a house but they are bought and sold every month of the year.

The truth about tax deductions

First a disclaimer. I can not give tax advice and this isn’t tax advice. These are observations.

Just because something is tax deductible does not mean that you will get a tax deduction. Many people get a larger deduction by taking the standard deduction rather than itemizing.

The interest paid on a home mortgage could be a deduction but might not be. It would depend upon the income of the borrower and if they have enough deductions so that they come out ahead of itemizing. There is also now a limit on how much mortgage interest can be deducted.

When you drop off a donation at a Goodwill or some of the other non-profit thrift stores the person who receives your donation may ask if you would like a receipt so that you can take advantage of the tax deduction. It is true that charitable contributions are tax deductible but there is a minimum amount and a person would have to itemize to get the deduction.

In 2022 a married couple filing jointly may able to a standard deduction of 25,900 to 27,300. It might not make sense to itemize if all of the allowable deductions add up to less than the standard deduction. A person could of course itemize anyway and pay more in taxes.

It is correct to say that the interest paid on the mortgage may be tax deductible.

There was great concern a few years ago that if the mortgage interest tax deduction went away people would stop buying houses.

Also, some Minnesota property taxpayers get money refunded back by the State of Minnesota. 

The deadline for filing 2022 taxes for most people is April 18,2023.

Your Ramsey County property taxes in 2023

property taxI don’t know how they do it but notices from the IRS and property tax notices always come to my house on a Friday or Saturday.

Anyhow our property tax statement came on Friday. Taxes went up. I did the math and if I was paying the taxes monthly instead of twice a year I would be paying $37.50 more each month.  Since I pay the taxes once or twice a year I really notice the $225 to $450 dollar increase.

OUCH!

There are some property tax refunds available through the State of Minnesota. I mention this because some folks do not seem to be aware of it. Homeowners can file it free online by August 15th.

There is also a program for seniors that allows them to defer tax payments. It is actually a loan to be paid back with interest.

As a person who is self-employed, I am used to setting money aside for income taxes and for property taxes.

It is safe to assume that property taxes will be even higher in 2024, this year ours went up 12%.  They do occasionally stay about the same from one year to the next. They rarely go down.

Minnesota home sales in February 2023

This just in from the Minnesota state Realtors association. The number of homes for sale in Minnesota is up from last year but there is only a 1.3-month supply of houses.  The low supply is the reason for the 3.4% increase in the median home sale price.  Interest rates also went up and may go up again.

The higher rates make both buying and selling less attractive. New listings also declined, dropping 23% year over year as just under 4,600 homes came on the market.

In St Paul, the median home sale price was $255,000 and the average days on market was about 50.

 

February Home sales in Minnesota
February Home Sales Minnesota