Sell Your House Yourself

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How Does A Realtor Get Paid?

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If you’re thinking about buying or selling a house you may wonder how does a Realtor get paid? The Realtor gets paid by the seller, in fact both real estate agents, the buyers agent and the listing agent, get paid by the seller.

A Realtor thanking the home seller for payment after selling theor home.
Paying the realtor

This post isn’t so much about how to sell your house yourself, but is intended to give you an understanding about how the real estate industry works, and why. With that information, it will be easier to make wise decisions. Decisions like should I hire a real estate agent or should I sell my house myself and save the commission?

How It Was

It used to be that all agents represented the seller. Before the internet the only way to get information about homes for sale like the details, last sold date and price you had to use a real estate broker. In that time all agents worked for sellers.

Back then it was very difficult, if not impossible, to sell a house without a real estate broker. A real estate agent works for a real estate broker. A real estate broker is a person or company that Brokers a real estate transaction or a real estate deal. Just like a stock broker brokers the sale of a stock. The middleman. The person that passes the money from one person, entity or company to another.

The only way to really advertise a house for sale was by using a broker. The Brokers had big books that they listed homes in. When someone wanted to buy a house they contacted a broker, sat down at the broker’s office and looked through the books for houses they wanted to view.

Of course now consumers, or potential home buyers, simply turn on a computer to browse for homes and find all the information they need for free. The National Association of Realtors, or NAR, estimates that 52% of homebuyers find their home on the internet.

How It Is, Buyer & Seller Representation

The new take on the industry since the internet, and to help keep the industry alive, is a representation model. Meaning that one agent represents the seller while the buyer has their own agent that represents them. Like if you were going to court and had a lawyer that represented you and your adversary had a lawyer to represent them.

In a courtroom each pays for their own attorney. During a real estate transaction, how does a Realtor get paid.

Both Realtors are paid for by the seller.

The seller pays the brokerage listing the house a percentage of the contract price agreed upon beforehand. The listing brokerage then pays the selling brokerage a part of those proceeds for bringing a buyer. When it’s all said and done the seller has paid for both real estate agents.

Sounds odd, and it is. You are basically paying your buyers real estate agent to negotiate against you. It’s the same if you are a For Sale By Owner and your buyer has an agent, they will ask you to pay for the agent.

An agent will tell you that’s the way it’s always been done. And believe it or not, sellers rarely question this arrangement.

In a typical transaction with 2 agents there is a listing agent and a buyers agent.

The Listing Agent

The listing agent is the Realtor that lists the house. Using the Multiple Listing service, or MLS, the agent enters all of the information about the house and the price. Internet real estate sites like Zillow.com, Trulia and Realtor.com then pick up the listing and display it on their sites.

During the initial listing appointment which lasts about an hour the agent will tour the home and give the seller suggestions how to better show it. This is actually a very important step in the home selling process, Getting the house ready for market. NAR says that 13% of home sellers have trouble getting their homes ready for market on their own.

The agent may suggest things like:

  • Removing all of the clutter from the home.
  • Take down pictures of family and friends.
  • Clean, clean and clean some more.
  • Paint where needed
  • Clean or replace flooring.
  • Fix anything broken.

Next is price. Pricing your home correctly is about the most important thing you can do when selling a house. Your listing agent will help you determine a realistic price to the make sure house sells without leaving any money on the table. Or you can do that yourself. Pricing a home for market takes a little bit of skill, some experience and having up to date data. 19% of For Sale By Owners think the most difficult task when selling a home is pricing it right according to NAR.

A listing agent will take care of all of the transactional details for you. They’ll fill out all the paperwork, which ironically takes a lot more when using a Realtor.

For a Realtor to get paid another thing they do for you is negotiate. What exactly is negotiating to a Real estate agent? Mostly agents simply pass information back and forth.

The Buyers Agent

A buyers agent works with the home buyer.

The buyers agent job is to:

  • Schedule viewings of homes for a buyer.
  • Write offers and negotiate contracts.
  • Assist the buyer through the inspections and appraisal process.
  • Take care of transactional details, (Paperwork).
  • Show up at closing and get paid.

A home buyer gets on a computer to look at homes for the first time on websites like Zillow or Realtor.com. Those websites will help the buyer find an agent. The agent pays the website owner for that opportunity.

A Realtor acting as a buyers agent will attempt to get a potential home buyer to sign an “agency agreement” which ties that buyer to the Realtor. The agreement says that if the seller doesn’t pay the buyers agent then the buyer agrees to.

This is the situation many For Sale By Owners find themselves in when an interested buyer has signed an agency agreement with a Realtor. The agent will want the FSBO to pay their fee even though the agreement is with the buyer. In those cases it’s OK to negotiate that fee if the FSBO decides to work with the buyer’s agent.

Does A Seller Need A Realtor

If you don’t like the hassle of mowing your lawn, as I don’t, you hire a lawn service. If you don’t want to deal with selling your house, it requires some work, then hire a Realtor. There is still work to do, like getting your house ready, but a Realtor will help, for a hefty fee, of course.

To save thousands of dollars sell your house yourself!

Joel

Why Low Housing Inventory Means More Money

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Graph showing rising real estate prices why low housing inventory means more money.

Why low housing inventory means more money for you, the For Sale By Owner.

My day job is helping people with their real estate needs.  That entails answering questions, consulting, helping folks find homes to buy and listing homes for people that want to sell.  

I also teach Ordinary People how to sell their homes themselves without having to hire a listing agent.

By ordinary people, I mean not real estate agents. 

Why would I want to show someone how to do my job themselves, without me? It’s because I can see the future. Every year more and more home sellers are deciding to go it alone, to sell their homes themselves. It would be a much larger number if people knew how to do it, how easy it can be. If they weren’t nervous about it. 

The number of For Sale By Owners is growing regardless.

It’s very profitable.

When I ask clients if they ever thought about selling their homes themselves the answers I get are I don’t know how or they think there’s a lot more to it than there is. Sometimes they don’t want to “deal” with it. Those are the homes I sell, and charge a lot to do so.

Not only do I teach strategies and tips for helping you to sell your house yourself, but occasionally I like to bring you information about market conditions.

Why Market Conditions Are Important

Market conditions are important to know because they dictate price and sell time, how long you can expect your house to be on the market before it sells. Price and sell time are the two biggest concerns for a home seller.

Knowing this information about the state of the real estate markets lets you know how long is too long for a house to be on the market for sale. This is very important information. That’s how you determine if your price is right or if it’s too high. If the house is sitting on the market for too long then it’s priced too high.

That’s important because time on the market can really affect price. The longer it sits the less it gets, but time on market is relative to market conditions.

For example:

Buyers Market

In a strong buyer’s market, meaning there is an oversupply of homes for sale, I expect a house to sit longer. If homes similar to yours are taking 3 months to sell, then you should expect yours to take around three months to sell.

Give it 3 months and if your home hasn’t sold you have to start thinking about a price reduction. If it sits too long, potential buyers will wonder what’s wrong with the house. When they do view it, they will look for problems to explain why it hasn’t sold.

That’s what I do for my buyer clients. When we look at a house that’s not selling I have to wonder why. Most of the time it’s simply because a house is overpriced but buyers don’t always understand price.

Sellers Market

Adversely in a seller’s market when there is not enough supply of homes to satisfy buyer demand then homes will sell fast and for more money. Simple supply and demand metrics. Not enough Supply to meet demand means higher prices.

Supply shortages cause bidding wars. When there is over one buyer making an offer on your home, that’s referred to as a bidding war. Bidding wars are good for sellers because it drives the price up. Buyers are competing against each other.

That’s why low housing inventory means more money. More people competing against fewer homes.

Market Conditions Summer of 2020

So finally let’s talk about this market. Right now, the summer of 2020, the country is in a very robust real estate market. It’s a seller’s market for sure. More so than your average seller’s market. There are some historical things happening in the real estate market right now despite the covid-19 recession, and because of it.

Let me explain.

This pandemic and the massive unemployment across the country caused by it has somehow not really affected real estate much. Most past recessions in the United States have caused home prices to drop, sometimes plummeting to historical lows. Not so with the covid-19 recession. 

In fact prices are rising at a rapid pace. That’s a direct result of low housing inventory and why it makes you money.

According to Attom Data Solutions home prices nationwide rose 6’2% in 2019. The first half of 2020 has seen an even more drastic increase. First quarter data provided by the National Association of Realtors shows real estate prices rose 7.7% more over the same time in 2019.  The second quarter shows no sign of slowing down.

Back in December of 2019 Zillow was writing articles about low housing inventory and it’s only gotten worse since.

Not Enough Supply

The very limited housing Supply across the country has been driving prices up at an alarming rate.  Good for you if you’re selling your house yourself, not so much if you’re buying a house.

“Supply is extremely limited and there are simply not as many homes for sale to meet the demand among potential buyers” says Lawerence Yun, NAR’s chief economist.

Short supply and increased demand means higher prices. It’s economics 101.

To Much Demand

And that brings us to the demand side. It seems to me, in Kansas anyway, there are more buyers looking for a home this year then in previous memory. I hear the same thing from my colleagues around the country.  It could be that there is a backlog of buyers building up because they can’t find homes to buy.

Another factor driving buyers out in droves is the massive rate cuts by the Federal Reserve. Mortgage interest rates are at historic lows, dipping below even the low rates during and shortly after the great financial recession of 2008-2009. last week I put a buyer client in contract on a 30 year fixed FHA loan at a 2.75% interest rate. 2.75%. Crazy.

Low Housing Inventory Causes Rising Home Prices

I’ve been helping people with real estate in Kansas for 11 years. I’ve seen nothing like this. Low Supply and high demand means more money for you as a for sale by owner. There literally has never been a better time to be a home seller.

Sometimes when real estate prices start Rising dramatically for no good reason appraisers will hold them back. That’s part of their job, but even the appraisers are justifying this current rapid rise in real estate prices because of the supply shortage.

This was exemplified on one of my recent appraisals.  The appraiser noted:

“There is a shortage of homes for sale. This in turn has caused fewer sales. As the sales indicate, there is a range in value. This is not considered unusual due to the limited number of homes for sale. A market condition adjustment was made to the sales. Recent data does not indicate an impact on values due to COVID 19. The market condition adjustment was based upon the most recent Federal Housing Finance Agency (FHFA) figures for the area.”

This Low Inventory Won’t Last Forever

This won’t last forever. It’s still to be seen how the Covid 19 recession will shake out. If the economy falters home prices will drop. As long as the Government is providing stimulus economists predict the economy will remain stable but more stimulus means more debt. It remains to be seen how much debt the country can stomach.

The short term good news is that low housing inventory means more money for you.

In conclusion, is it a good time to sell a house? That is a big fat yes. It’s a great time to be selling a house. Residential real estate prices are on the rise all across the country. Homes that are Priced right and properly prepared for market are selling at crazy high prices and they’re selling fast. Many times they’re selling with multiple offers in a day or two.

Is it a good time to buy a house? Not so much. With real estate prices on the rise you’re paying quite a bit more than you would have paid last year, six months ago or even last month in many cases.

If you are selling your house because you want to downsize, upsize or for whatever reason you’re buying it could get a little tricky. If you’re selling your house yourself and moving into a van, well, count your money.

Thank You

Thanks for reading and if you have questions ask Below in the comments. You can also take a look at my website, https://infinhomeservices.com/, for information, tips and strategies to help you sell your house yourself.

There’s also a member’s section, https://infinhomeservices.com/diy-real-estate-3/, with a step-by-step detailed guide to teach you everything you need to know to sell your house yourself fast and have a smooth transaction. It’s the same thing I teach new agents when they’re first time learning how to sell homes.

If you need state-specific real estate forms and disclosures there’s a link for that too.

Why It’s Easy To Sell A House

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House with a For sale By owner sign in the front yard
Sell your house yourself

I will tell you why it’s easy to sell a house in this real estate market. In a nutshell, it’s because there are not enough homes for sale to satisfy buyer demand. There are a lot more buyers than there are homes for sale, therefore buyers are battling over homes for.

How it Works To Sell A House

For example.

I listed a house last week, and it sold in 4 hours. The amazing part is I sold that house exactly one year and 4 months ago for $175,000 to this guy. We listed it for $190,000 and got an offer, a full price offer, in the first 4 hours. The guy made $14,000 in a year, minus the $10,800 he paid me and the other real estate agent to act as middlemen for him.

What does that tell you about this real estate market?

One thing it tells you is he could have easily sold that house himself and kept that $10,800. It’s easy to sell a house yourself.

Houses are getting listed on the internet sites like Zillow and Trulia and that’s where consumers are looking.

Consumers are finding those houses on their own. Then they call their realtor and asking to see it.

Step by Step

In this section I will lay it out for you step-by-step.

When you sell a house, the first reaction is to call a real estate agent. The agent comes and meets with you for 45 minutes. They fill out some paperwork and list your house on the multiple listing service for $320,000. The Multiple Listing Servise, or MLS, is the proprietary service where Realtors list homes for sale.

The MLS then distributes that listing to all the different internet real estate sites like Zillow, Trulia, Realtor.com and dozens of others.

There’s someone out there that has decided they want to buy a home. They open up the internet, search Zillow and see the house that your real estate agent listed, yours. They call their real estate agent who writes an offer for them and sends that offer to your agent.

Your agent calls and tells you about it. You either accept it or send a counter offer. Eventually you come to an agreement with the buyer. You both sign a contract. 30 days later you go to closing and the real estate agents collects $19,200.

Wow, $19,200 that you could have had to spend, or save. Think about what you could do with $19,200.

This Market is Different

A seller can sell their home themselves in any market it doesn’t matter if it’s a seller’s market or buyer’s market.

What’s particular about this current real estate market and why it’s easy to sell a house? I’ll tell you that this is the most active, fast-moving Market I’ve seen in my 11-year career. In fact, before I became a realtor I was a project manager for residential builders for 20-plus years. So in all my 30-plus Years Around real estate I have never seen a market like this. For instance even the great housing bubble of the early 2000s was not this crazy. 

All around the United States, the housing market is super low on inventory. Simple supply and demand metrics are driving prices up making homes sell fast.  As a result people are putting their houses on the market and if they’re priced right and presentable they’re selling in one, two or maybe three days.

Realtors are making thousands and thousands of dollars to sell a house that sells itself. Home sellers could easily keep that money.

I’m not complaining, I’m one of them, I’m a real estate agent, and the money is good. I like it. But it’s unnecessary for you to be spending that money.

Sell your house yourself. Keep your money. Put it to better use.

What Is Earnest Money and Why you Need It

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Handing over earnest money for a house he wants to buy.

When selling your house yourself you must understand what is earnest money and why you need it. Home sellers often overlook this in For Sale By Owner transactions. That is an enormous mistake and here’s why;

Bt providing money your buyer is showing that they are serious about buying your house. So how does that work?

What is Earnest Money

You put your house on the market with sites like Zillow for all potential buyers to see. Showings are scheduled and people view your home. When one of those people makes an offer, the two of you negotiate a contract. Once you’re in contract it’s important to understand the purchase is not yet complete. They have not paid you yet but your house in now off the market. It’s not showing up as for sale anymore.

That’s why you collect earnest money at the time of contract signing.

Earnest money is a good faith deposit your buyer puts down to hold the house in contract while they go through the closing process. The closing process can comprise:

  • Processing the buyers loan to get financing.
  • Doing a title search to clear the title.
  • The appraisal which will determine the value of the house.
  • Any inspections the buyer has done.

Having money on the line keeps the buyer from changing their mind. It keeps them in contract with you.

How Much Should You Get

How much earnest money to collect is determined by several factors like where in the country you live and the price of the house.

In Wichita KS where I work the sums are relatively small. Our average is $500 to $1000 which is not much of a deterrent.

In some parts of the country like California, for instance, earnest money demands are much higher. 1-3 percent of the contract price. With an average sales price of around $580,000 that can be an excellent reason to be sure about a contract before the buyer signs. They stand the possibility of losing $10,000 or more.

Every state is different, so you’ll want to do a little research to see what they expect where you live.

Provides Protection

Earnest money protects both you, as a For Sale By Owner, and your buyer.

You’re protected because now the buyer has skin in the game. They are less likely to walk away from the deal when they stand the chance of losing money. If they walk away, then you keep their earnest money.

There is nothing to prevent your buyer from continuing to look at homes for sale. Earnest money prevents the buyer from finding a new home and ditching your deal. If the buyer backs out for any other reason than contract contingencies, they give up the money to the seller.

Earnest money protects the buyer by showing you, the seller, that he is serious. In a multiple offer situation the amount of earnest money can be the difference between which offer is accepted.

If two offers are very similar, the one most likely to stick will have a better chance. The offer with the most earnest money at stake.

For example, if you list the house for $300,000 and one buyer is offering $500 and the other is offering $3000 the offer with $3000 at stake is more likely to close. They have more skin in the game.

What Happens With Earnest Money

Once the earnest money is collected from your buyer it’s deposited with the title company, real estate brokerage or law office. They hold the money in escrow until closing.

While not technically a deposit, they will apply the money towards the buyers down payment or closing costs.

The contract you and your buyer use will most likely have contingencies written in that concern earnest money. Those contingencies are there to protect the buyer.

Contingencies

Financing

When you’re looking at offers one thing you look for is a pre-approval letter from a reputable lender. This tells you your buyer can get the financing needed to buy your house. If your buyer’s financing should fall through for whatever reason it kills the real estate deal, You will then be obligated to return the earnest money and put your house back on the market.

That’s why when looking at offers financing is an important consideration. Your buyer’s financing matters.

Reasons the financing can fall through are;

  • Loss of job. If your buyer loses his job, the bank will not lend the money needed to buy your house.
  • Surprise medical expenses. If something serious medically happens costing a substantial amount of money, it could cause the financing to fall apart. Anything that changes the buyer’s debt to income ratio can affect their ability to get financing. Which brings me to the nest point.
  • Major purchases. If your buyer goes out and buys a car, or anything that requires a loan, it could kill the deal by canceling his pre-approval. A good lender will warn the client not to make any major purchases, take out any credit, deposit or withdraw sizeable amounts of money or do anything financially out of the ordinary. You should also reiterate this to your buyer. I personally have had more than one deal fall apart because a buyer did something that affected the ability to get a loan.

Most home sales are financed so your buyer’s financing is a very important part of the real estate transaction.

Inspections

A buyer has the option to preform any inspections they want to. That may include;

  • A general home inspection from by a home inspection company. This is an overall visual inspection of the property. Most home inspectors aren’t experts in any particular component like plumbing, electrical, roof ect. but have a basic limited knowledge of overall home construction.
  • A Radon test is a popular inspection as we know more and more about radon and its health consequences.
  • My favorite inspection on older homes is a sewer scope. I have a good idea of what’s a good investment and what is not, but I can’t see the sewer. A sewer scope can see inside the sewer. Sewer repairs or replacement is a major expense, so it’s important to know that the sewer is in excellent working condition.
  • Getting a roofing company to come out and inspect the roof. To have the roof replaced is another major expense. I don’t solely rely on a home inspector’s opinion about the age and condition of a roof.

What does all this mean to you? If an inspection turns up potential problems, the buyer can ask you to have those problems fixed. While it does not require you to do so the buyer may back out of the contract and get his earnest money back if you can’t come to an agreement.

Repair negotiations have a lot to do with market conditions. In a seller’s market, where there is limited supply and strong demand, you have the upper hand. In fact, in this seller’s market of the Summer of 2020 many sellers are putting their homes on the market as-is.

A preinspection prior to listing is always a good idea so you can solve these problems before you go into contract.

The Appraisal

The appraisal is the most anxious and important part of the transaction in any market. The bank will only loan as much money as the house is worth and that’s what the appraisal determines. If you have done the work and priced your house right you should be ok.

If the house appraises for at or more than the contract price, congratulations, you’re almost to the closing table. You did a good job of pricing your house, hopefully not leaving any money on the table.

If the house doesn’t appraise you and your buyer will need to renegotiate the contract. That means either you lower the price down to the appraised value or your buyer has to make up the difference in cash. If you can’t come to an agreement, the buyer can back out of the contract and get their earnest money back.

Time

Rarely a deal falls apart over time but that is a factor. There is a closing date on a contract and if the house doesn’t close by that date the buyer and seller must agree on an extension of the contract. If they can’t agree then the contract will expire and the earnest money will be returned to the buyer or retained by the seller depending on whose fault the delay was.

Change Of Heart

If you, as the seller, should change your mind and back out of the contract, the buyer will get their earnest money back.

Finally

Earnest money is a crucial component of the real estate transaction. While nobody wants to see a deal fall apart, having something to discourage it from happening is useful.

Selling a house by yourself without the help and expense of a real estate agent is possible and can be profitable. There’s a lot of moving parts to know and take care of. Knowing what to do is how to make it a profitable proposition.

I can show you how to have a successful and profitable home sale.

How Will Home Sellers Disrupt Real Estate

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Sell your home yourself and save thousands of dollars.

How will home sellers disrupt real estate? There is a change coming in the real estate industry. Where will it come from?

Not from an expensive Silicon Valley startup. It won’t be the Ibuyers and it won’t come from a change in Government regulations. Disruption in the real industry will happen as the public figures out how easy it is to sell their homes themselves and how much money they can save.

I’m seeing more and more For Sale By Owner signs and getting more calls from my real estate buyer clients about For Sale By Owners. I’m also seeing that For Sale By Owners spend more time on the market.

There really isn’t any need for that. Selling your house yourself is not that hard once you know the basics. All Real estate agents will tell you that spending to much time on the market is not good for your bottom line. There’s a saying amongst Realtors, “The longer it sits the less it gets”. I can show you how to sell your house, sell it fast and how to get the most money out of your sale.

I’ll show you the same way I teach new agents to sell homes. And believe me, if they can do it so can you. New agents don’t have any more experience or training than you do. In fact, the first home I sold in 2009 fresh out of “real estate school” I didn’t have a clue as to what I was doing and no one to guide me. By asking lots of questions and reading lots of material I managed to muddle my way through it. The client never noticed my inexperience.

Home Sellers

So how will home sellers disrupt real estate?

To start you can go to my website, https://infinhomeservices.com/. Scroll through the articles and you can learn pretty much everything you need to know. If your the ambitious type then jump right into my extensive training, https://infinhomeservices.com/diy-real-estate-3/. that will teach you everything you need to know to sell your house yourself and get the most money, more than an agent will get you plus you get to keep the massive commissions.

You have nothing to lose and a lot to be gained from trying it out.