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

How to Pay 1/2 the Real Estate Commission Without Negotiating

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Real estate buyers agent shaking hands with seller.

Want to know how to pay 1/2 the real estate commission without negotiating? Easy. Sell your home yourself. Really.

Get your home ready to sell and price it right then list it yourself on internet sites like Zillow and Trulia. Then sit back and wait for a buyer that has an agent.

The worst scenario for the real estate industry is when the public, home sellers, figure out how easy it is to sell a home. Real estate agents should love, and probably do, internet sites like Zillow, Trulia and realtor.com because they do all the work. Sure, Realtors have the multiple listing service but consumers use the internet sites to search and gather information on their own.

Those real estate sites can also help you sell your home on your own, as a For Sale By Owner.

There is really no need for a “listing agent” anymore. Home sellers can easily perform all the tasks the agent does for you. The work of getting your home ready to sell (which you actually do anyway), pricing it right and marketing you do yourself. All of the tools needed are available for little or very little cost. And you’ll save thousands of dollars.

It’s happening more and more that people just like you are selling their homes themselves successfully. That’s not to say all are successful. It does take a certain amount of knowledge all of which is available outside of the real estate industry. There is some work involved but the rewards are substantial.

You can get an actual real estate agent to price your home for you or you can use the internet to find comparables and do it yourself.

So now that you know that get your house ready and get it listed For Sale By Owner. Market it all over the internet, to friends, neighbors and co-workers.

The Real Estate Commision

If you’ve done everything right getting ready for the sale you will get potential buyers wanting to see your home. It doesn’t matter if it’s a “sellers market” or a “buyers market” you’ll get traffic. How much relates to the type of market we’re in and the overall health of the economy.

Some of those buyers may have a signed buyers agency agreement with a real estate agent. An agency agreement is a contract between a real estate agent and a buyer that guarantees the agent will get paid. It is assumed, wrongly or rightly but we’re not debating that today, that the seller pays all real estate commissions.

If you accept an offer from one of these buyers their agent will do all the work. You’ll only be paying half the real estate commission. If you like the agent they may even be able to help you find your next home, at no cost to you.

Do not let the agent charge you more because they’re doing all the work. It’s actually easier for an agent to handle both sides of the deal. Remember, you have control. You’ve gotten your house ready, priced it right and it’s in demand. If the buyers agent won’t work with you then find another.

If your buyer doesn’t have a buyers agent you can ask them to get one or even suggest one you may know.

Remember, listing your house yourself on the internet is not difficult. If you’ve done everything right getting ready, attracting buyers will be a breeze.

Having a buyer with a real estate agent enables you to have all the paperwork done for you with only paying half the real estate commission.

Now go sell your house and save thousands of dollars.

Why You Should Negotiate Directly

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transaction coming to an agreement. The seller, a woman, is shaking hands with the buyer, a bearded man. Why you should negotiate directly.
Negotiate directly in a real estate transaction.

There are many good reasons why you should negotiate directly, among them you will know exactly what the other party is thinking. To be more clear when you negotiate directly you eliminate any chance of a middlemans interpretation not being what you meant.

In a normal expensive real estate transaction one of the services your real estate agent provides is negotiation.

What that means is the buyer goes through their agent and makes you an offer on your house. Your agent then tells you what that offer is and what his/her opinion of it is. Then you tell your agent that you either accept or you counter offer. And so on and so forth until you come to an agreement.

The agent is really just a middleman simply passing information back and forth. They may have some experience in negotiating but it isn’t anything you can’t easily learn yourself. Just google it! Seriously, there are many places online you can learn the basics. Dozens of entire books have been written on the subject. I’ll teach you specific real estate negotiation tactics in our Sell Your Home Yourself course.

A buyer without an agent is the ideal situation. You both then work out a deal. With no agent there are no commissions, you keep your money and the buyer gets a great house.

What If The Buyer Has An Agent

But sometimes a potential buyer interested in your house will have a real estate agent and they’ll have an agency agreement with that real estate agent. The real estate agent gets paid when they have an agency agreement. It doesn’t matter if the home is a For Sale Owner or listed on the Multiple Listing Service.

That doesn’t necessarily mean that you have to pay the agent. It’s simply the way it usually works. An agent is paid to sell a house by a seller then splits that commision with the other agent that brings a buyer. But in this case you are selling your home yourself? You are the “listing agent”.

Theoretically the buyer should pay their own agent since they signed the agreement. And that’s what the agreements say. The buyer shall pay the commision if the seller doesn’t.

But;

The buyer really has no need of an agent so won’t want to pay. You certainly don’t have need for an agent since your a For Sale By Owner. So what happens? The agent will try and steer the client away from you.

The benefit of having the agent is they will do all the paperwork for the transaction but you have to decide what that is worth to you, if anything.

If you decide that you will work with the buyers agent make sure your buyer is present during all and any negotiations. Insist on negotiating directly with the buyer. You may have to broach the subject when both buyer and agent are present.

Why?

Because the buyers agent is definitely not going to like that idea.

You want to know exactly what your buyer is thinking. Not what their agents interpretation of that is. The agent wants to be in control of the transaction and they won’t be if it’s a good ole fashion sit down and hash it out between a buyer and a seller.

How To Negotiate Directly

Since you have elected to work with an agent one on the things that can be negotiated is the agents pay. Say your buyer offers you less than what you want and you say OK but I’m only paying your agent this amount. Or you simply may not think the agent has earned a huge sum of money for doing paperwork.

After all you got the house ready for market. You marketed the house. You attracted the buyer. The buyer just brought an agent along that is costing you money. Does that make sense?

When you offer less of a commission the agent is not likely to bring that part of the negotiation up to the client if the client is not present. In this case the agent is more looking out for him/herself than the client. That’s one reason you want to negotiate directly with the buyer.

You can look them both in the eye and say, yep, it’s a really great house and I’ll accept that price but I’m only paying your agent 1.5%, or whatever.

Or you can figure out the agents commision before you even start on the house terms.

Most of all this is your house and your deal. You elected to go it alone to save money. You’ve studied, you’ve worked hard and you know what your doing. You should maintain control to make sure you get the best deal possible.

When you negotiate directly with your buyer you’ll be able to read the buyers facial expressions and body language. That can be huge. You’ll know the difference between “I’d take this house at this price” and “I love this house so much I just have to have it”.

Those are important things you’ll miss if you negotiate at a distance through a real estate agent.

Negotiate directly, make more money.

Joel