Use caution when selecting vendors for your next real estate transaction. Mistakes like this can be costly!
Update: We were contacted by USAA’s General Counsel regarding the article below. They have requested that Williams Realty amend the language under the section “How It Works”. It is our intent to be accurate, so to that end, we are making the following clarification. The Realtor’s broker pays a commission to a 3rd party vendor and not directly to USAA.
Trust but Verify
It is important that you take special care in selecting the vendors and programs you use when buying or selling a home after all, it is one of the largest financial transactions of your life. Bearing in mind that when you are dealing with numbers as large as $400,000 to sell or buy a home, a small percentage like 1% ($4,000) can really make a difference. Too often people make assumptions that cost them thousands of dollars in the end.
Our Own Experience
Allow me to share how we discovered that simply trusting without verifying can be a costly mistake. We considered enrolling Williams Realty in the USAA Movers Advantage, a relocation program, several years ago because we are loyal USAA members and assumed that the program would be consistent with their other services that we had come to trust. We have been members for 30+ years and absolutely love the services they provide for banking and insurance.
We examined this relocation program to determine what if any benefit there would be to our clients and were saddened to discover that there was none. Regrettably, the program would have actually prevented us from providing the level of service our clients had become accustomed to. The moral of the story is that just because you trust one company or organization to provide you with some services that they perform very well, you can’t necessarily trust them to provide you with other services.
How It Works
USAA’s Movers Advantage program offers a “cash bonus,” “the right agent,” and “valuable real estate expertise,” which clearly indicates that you will get money and implies that the realtor to whom you are referred has met some criteria to qualify them to be in the program.
The criteria for the program are disappointing at best. The requirement for access to the program for a Realtor is their willingness to pay USAA 35% of the commission they earn, with no requirement for the Realtor to be a current or past USAA member themselves. The USAA member, who is listing their home for sale, will solely bear the burden of paying the Realtor’s fees. The resulting consequence is that the Realtors referred to them by USAA are virtually incapable of rebating cash to them at closing, not to mention offering a reduced commission on the listing agreement. The Realtor knows going in that more than one third of their commission is going to USAA, in effect tying their hands from easing the burden on the seller.
How “the Savings” Actually Work with Enrolled Brokers
To break that down for you, let’s go back to our example of a $400,000 property. If the Realtor lists your house offering a 6% commission, which is common but not required, the entire commission collected from you will be $24,000. The listing agent would usually get half and the buyer’s agent would get the other half, so $12,000 each. But because the listing agent is enrolled in USAA’s relocation program they must pay $4,200 to USAA, thereby reducing their commission to $7,800.
You are probably saying to yourself “$7,800 is still a lot of money” and you would be correct, but permit me to illustrate for you how it will cost you (the seller). Because the final commission is reduced, the listing agent is not in a position to charge you a reduced commission, of say 5%, which would reduce the cost to you by $4,000, or to offer you a rebate from the commission at closing that could be used to pay a buyers closing costs (which would allow the buyer to offer more for the property). In effect you are paying USAA the extra money.
Where You Can Benefit
As for the “cash bonus,” USAA is able to say that they provide one because when you are the buyer and you use their program, USAA pays the buyer $1,550 on a purchase of $400,000 and over (.388%) as indicated in the table shown on their web page. I think it is important to point out that this type of rebate is something that a buyer can negotiate with their Realtor directly and the amount could be far greater if the agent hadn’t already promised more than a third of their commission to USAA. They do offer this same “cash bonus” to a seller but only a fool would consider $1,550 a cash bonus when you are paying USAA $4,200 first. You would save much more just paying a reduced commission with a brokerage like “Williams Realty” who is willing to list for 5% (in fact we commonly offer 4.75% full service listings).
We have owned & operated Williams Realty since 2004. The reason we started our own brokerage was so that we would have the flexibility to put money back into the pockets of our clients.
I encourage you to take the time to learn about the service providers you use and refer people to, it can save you money and preserve your reputation. Like Benjamin Franklin said, “An ounce of prevention is worth a pound of cure.”
When you think of Northern Virginia Real Estate experts, think of Williams Realty.
Williams Realty can be reached at 703-980-4045 or SpikeandJulie@williamsrealty.us or http://www.WilliamsRealty.us we look forward to helping you assess your options and plan for your future.