Whether you're planning to buy a home or sell your current one with the help of a real estate agent, it is important for you to understand what commissions are and who pays for them.
A real estate commission is a fee typically paid by the seller for the services of both the listing agent (also known as the seller's agent) and the agent that represented him (known as the buyer’s agent). This commission is usually 6% of the paying price and is given once the deal has been closed and the payment, whether they be in full or partial, has been given by the buyer. It’s not directly given to the agents but instead passes through the brokers they work for.
Listed below are certain factors that influence how much a real estate commission is:
Experience - agents who have only been in the real estate industry for a short while will get lower rates than those who have been in it for long. Meanwhile, top agents may get 100% of the commission fee and just give their broker a desk fee.
Locality - the real estate market may either be moving slowly or fast-paced in different states or localities, and the agent's commission sways with the state of the market. Another thing is that it’s common for the listing agent to be paid more than the buyer’s agents in some states. Buyers should acquaint themselves with local co-brokerage fees so that they would know if the agent working for them is paid less than the local custom.
Agreement between parties - the percentage of the split in commission is based on the discretion of the real estate agent parties. There are also instances when the seller or the agent will negotiate on the percentage of the commission.
1. Familiarize yourself with the different people you will have to transact with - Whether you're a buyer or a seller, real estate agents are the ones who you would most likely interact with the most during the process because they act as your representative to the other part. it’s good to know each person and their specific role during the sale of the property. Here is a brief description of each type:
Broker - Brokers rank higher than agents in that they take an exam for licensure with stricter requirements such as completion of eight-level and at least two years of real estate experience. They can choose to either operate on their own or hire agents and they are responsible for the actions of the agents they hire.
Agent - Agents are also licensed by the state, but unlike brokers, they cannot work independently and must be employed by a broker. There are agents which work exclusively for each party in the transaction -- listing agent for the seller, and buyer’s agent for the buyer. It’s important to note that it is not legal in the 50 states for a dual agent, or an agent who represents both the buyer and the seller, to operate.
2. Know the local rates - As what’s stated beforehand, there are several factors that affect commission. But just to arm yourself with more knowledge, it’s best to acquaint yourself with the standard rate of the area where you wish to buy or sell your home.
3. Know what a buyer’s agency agreement is - This is an agreement between a buyer and a licensed brokerage firm or a real estate agent that stipulates both of the parties’ commitment to the sale and to assure the agent or the firm that they will be duly paid after closing. Standard forms of agreement vary per market and brokerage firms.
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Counseling Session Activities
- Prepare the buyer for executing a buyer representation agreement
- Explain agency relationships to the buyer and get state required legal consent to represent, if needed
- Inform the buyer of working relationship based on state law, the REALTORS® Code of Ethics, and the broker’s business policies
Building a Relationship
- Learn the buyer’s wants and non-negotiable needs
- Understand the buyer’s budget and what will be needed financially
- Help the buyer understand what property their chosen budget will buy
- Consider having the buyer fill out a homebuyer’s checklist
- Assist the buyer in examining how much they can afford to spend
- Provide quality lender resources
- Partner with the buyer to locate suitable properties for consideration
- Match the buyer’s needs with available property
- Constantly re-evaluate buyer’s needs and refocus property showings to fit those needs
- After ensuring the buyer understands what is done for them, how it is done,and the benefit to them, obtain signatures on the buyer representation agreement
- Explain how compensation is paid, who pays it, and what the buyer’s options are for paying it
Educating the Buyer
- Communicate the working relationship based on state law, the REALTORS® Code of Ethics, and the broker’s business policies
- Explain Federal and State Fair Housing laws
- Explain what to look for in applicable property disclosures
- Reassure the buyer that their personal information will remain confidential
- Inform the buyer that you will always disclose all known material defects
- In accordance with state law, provide information on checking the sex-offender registry and crime statistics for the neighborhood
- Discuss available resources that the buyer can check to learn more about prospective neighborhoods
Preparing the Buyer
- Explain the timeline for house hunting, mortgage approval, and closing
- Explain the local market and how it impacts the buyer
- Show statistics on what percentage of list price sellers in the area are currentlyreceiving
- Inform the buyer on what home features are popular
- Identify current average days on market
- Share the dangers of using the price per square foot to figure home values
- Explain the concept of absorption rate and how it impacts the buying process
- Indicate current listing months of market inventory
- Share estimated potential out-of-pocket costs to complete the transaction
- Assist the buyer in analyzing the loan estimates
- Qualify the buyer for financial ability to purchase
- Help the buyer account for the complete costs of homeownership
- Prepare lender for listing agent calls
- Assist in comparing different financing options
- Help the buyer select for viewing only those homes that fit their needs
- Proceed in showing homes that fit the buyer’s must-haves
- Caution the buyer on posting information to social media
- Review the sample sales contract so the buyer is prepared when it comes time to make an offer
Showing Properties
- Schedule showings and provide access to all listed properties as soon as they become available in their local MLS broker marketplaces
- Educate the buyer on the immediacy of new listings appearing in their local MLS broker marketplaces and the lag time for them to appear on some websites
- Collaborate with the buyer on properties they may have learned about through their sphere contacts
- Research and assist on all unlisted properties the buyer wishes to see
- Preview properties prior to showing if needed
- Network with other agents to source properties not yet in their local MLS broker marketplaces
- Contact homeowners in focus areas to see if they are considering selling
- Set up an automated email alert system through their local MLS broker marketplaces that immediately notifies the buyer of properties that fit discussed requirements
- Arrange a tour of areas, schools, and key points of interest
- Provide resources containing neighborhood information on municipal services,schools, etc.
- Inform the buyer of negative aspects like nearby venues or operations that may result in issues that could impact value
- Collect and share any other vital information on available homes, remembering to follow all fair housing laws at all times
- Check applicable zoning and building restrictions
- Help the buyer decipher public property and tax information
- Collect and share pertinent data on values, taxes, utility costs, etc.
- Compare each property shown to the buyer’s wants and needs list and remind them of what they were looking for
- Help the buyer narrow the search until the buyer identifies top choices
Negotiating Offers
- Assist the buyer in getting the best property at the best price
- Suggest that the buyer learn more about the neighborhood prior to makingan offer
- Prepare a comparative market analysis (CMA) in advance of making an offer
- Prepare the buyer to have the most attractive offer in the current marketplace
- Explain common contract contingencies and include approved protective clauses in the purchase offer
- Ensure that the buyer receives and understands all state and federally-required disclosure forms
- Prioritize contract negotiation goals with the buyer
- Help create a negotiating strategy
- Use strategies such as an escalation clause to maintain a competitive offer
- Prepare the buyer for a multiple offer situation and develop negotiation strategies
- Write an offer that has a reasonable chance of being accepted
- Recommend optional contingencies and explain the pros and cons of using them
- Provide information on purchasing incentives that may be available
- Discuss financing alternatives
- Negotiate the buyer’s offers to arrive at the best price and terms
- Utilize hyperlocal expertise and strong communication skills to assist the buyer in being the successful offer
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