What if it was less expensive to sell and buy a home? Would you find it easier to do more, travel more, experience more, or make much-needed upgrades in your life? Would you have bought your first home sooner? Would you feel better about your retirement? Have you wanted to move, but held off because you worry about losing a big chunk of your home equity in the sale?
Here at TRELORA, we know that for most Americans, the largest investment we have is in real estate — the equity value of our home. We all hope to add to it over time, hope that every move is a move up, and we count on the value of our home to hold steady and appreciate as a major contribution towards our wealth and a strong retirement.
But in a changing economy, Americans have to push harder and look further for rewarding careers, and have a greater need for self-reliance for a strong retirement. For renters, moving every few years is of little concern since it’s relatively painless to sign a new lease. But for homeowners, who rely on their home equity to count, the prospect of losing a portion of it in selling and buying a new home can lead to feeling stuck.
That brings us to the problem with the current state of the real estate industry. The typical commission of 2.8% of a home's sale value for the buyer’s agent and 2.8% for the seller’s agent means that we’re losing 5.6% of our equity on commissions every time we move.
How much does that add up to after selling and buying a home multiple times?
What Buying and Selling our Homes Actually Cost Us:
Here’s an example of what moving might cost a hypothetical household, close to the national median income for young families in their early 30's, who stays in a home for 5 years.
Even if this family has a smart savings strategy and excellent credit, earns $55,000 a year in pre-tax income, brings a 20% down payment, and uses a 30-year 4.5% annual interest loan worth $200,000 towards a home worth $250,000, each move costs about $14,000 for commissions.
Moving again after 5 years brings the family to $28,000 now spent on real estate commissions. That's more than 70 percent of one year’s take-home salary after taxes — or more than 80 percent of new home equity built up during those 5 years in the home.
And that’s not even factoring mortgage fees and other costs of moving.
Whether a home is worth $150,000, $250,000, or $500,000, the home equity lost on real estate commissions is the same percentage of the home's value, making it harder to build equity when life changes such as divorce, marriage, the birth of children, or job changes can come up in a lifetime and force us to sell or move.
Homeowners Need More Flexibility:
A real estate commission model created more than a century ago hasn't taken heed of a workforce and a culture that has been increasing, for generations, in mobility and self-reliance. The National Bureau of Labor Statistics reports that an average Baby Boomer born 1957-1964 has changed jobs more than ten times by age 46, and Millennials are changing employers twice as frequently as their parents did. Studies have shown that constructive job changes drive a significant share of an individual’s income growth and can be what it takes to gain higher incomes.
Homeownership shouldn't limit how far and how often we can look for new opportunities, or force homeowners to make a tough choice between a better job with a raise and preserving equity. Home ownership is supposed to be a stabilizing force that we rely on for strong retirement; nowadays more than ever, with most people retiring on their own savings and wealth rather than a pension. It’s no wonder so many Baby Boomers and Gen X’ers are feeling tied down, while many Millennials are now delaying home ownership, opting to forgo building equity until they’re in their 30's or beyond.
Whether you prefer to upgrade to a different home every few years, or to find a home you’d happily stay in for 20 years or more, TRELORA believes that you should be empowered to choose freely whether to move and how often to move without losing equity.
Redefining the Model for Buying and Selling Real Estate:
Does a real estate transaction really require 5.6% of a home’s value for agents' commissions? No.
The amount of work an agent does has little to do with the sale price of the home; we found that the typical buyer’s agent, for example, does about 28 hours of work on a transaction regardless of the home’s sale price. And while some bold homeowners might opt to do away with agents — especially given the conflicting incentives a percent-commission model has against the client’s interests — the vast majority of homeowners have stayed with agents because they want professional advice in making such a complex decision.
But what if hiring a real estate service cost much less, and provided full service with a flat fee? The TRELORA model does just that, and it’s already benefiting thousands of home buyers and sellers.
TRELORA offers first-rate, full service at a flat fee of $3,000 to sell a home, and $3,000 to a buyer’s agent, for a total cost of $6,000 toward real estate agents in any combined sale and purchase. For the hypothetical household in the example above, the homeowner saves more than 60% of the cost on agents.
Your Home Equity Belongs to You:
At TRELORA, we recognize that home equity comes from years of responsible financial decisions and hard work, and believe that homeowners should be able to do what they want with their equity — including move it to a new home — without paying a steep price for doing so.
We’d like to see young professionals become homeowners and begin to build equity sooner. We’d like to see established homeowners gain more buying power and options to move when they want or need to. We’d like to see people gain more ability to give their grown children a head start in buying a home, or to invest in rental properties more confidently. We’d like to see those who’ve worked hard, retire and enjoy spending their equity how they want.
We’d like to see the real estate industry recognize that the cost of commissions cuts too much against getting ahead — and that a first-rate, flat-fee market price for the service would increase every homeowner’s flexibility and options, bringing more business for transactions in the long run.
Finally, we’d like to see homeowners gain control and transparency over how much they're paying on commissions, save their money, have more freedom to be bold in their lives, and gain more confidence building their equity in an era when bringing your own wealth and savings into retirement is needed most.
The real estate industry is long overdue for a change, and we believe changing it is the right thing to do — we’re doing our part.