realtor Archives

How A Realtor Gets Paid

So you’ve decided to sell your house. Generally, when people go to sell a house, the first thing that comes to mind is hiring a Realtor. Have you ever wondered how a Realtor gets paid? Who pays the Realtor and what they actually do for that paycheck? And how much does a Realtor actually make?

In this post I’m going to explain who pays the realtor, how a realtor gets paid and what they do for that money.

Mostly I write, and speak on my youtube channel, about For sale By Owners. The purpose is to give you tips and strategies to help you make more money and sell your house fast. I teach how to sell your house yourself. In this post I’m going to do something a little different. I’m going to give you some information that will help you make decisions. Decisions like, do I want to sell my house myself or do I want to hire a real estate agent to do it and pay them?

So I’ll get right to the point.

It’s The Seller That Pays The Realtors

It’s actually the seller that pays for all the Realtors. The seller pays for both Realtors. That’s right. They pay for the agent that list his house. And they also pay for the buyer’s agent, the person who’s buying his house. So essentially the seller is paying for the person that’s going to sell their house for them and they’re also paying for the real estate agent that’s going to be negotiating against them.

Now, you might not think that makes a lot of sense, and you’d be right. It really doesn’t. We’re going to go over how that came about and why it is the way that it is.

Look At It Like This.

Look at it like you’re going to court for some reason. Let’s say Somebody is suing you or you’re suing somebody for divorce, car accident, business deal gone wrong, whatever. When you go to court, you hire an attorney to represent you and your adversary, whether it be someone suing you, the state or whatever, they have their own attorney, an attorney that represents them.

Or maybe your involved in a business deal like a buyout or something. In that case, again, each side has it’s own attorneys representing them and their best interests.

And so you go to court, or you sit around a table, and you fight it out and the two parties with their separate representation come to an agreement or the judge after listening to both sides issues a judgment. It’s just like that in real estate only the seller pays for all of the representation. The seller pays for all the Realtors.

How It Was

Now, it used to be back in the day before the Internet real estate was a lot different. Everybody worked for the seller and that was normal. One brokerage listed the house in the big books and another agent from another brokerage could find a buyer for the seller. That’s how it was thought of. Find a buyer for the house, not find a house for the buyer as we think of it today with the new “representation” model of real estate. It was all the agents job to get the house sold and get paid.

When a seller wanted market a house, to list a house, you basically had to have a broker because instead of the Internet the broker had these big, thick books and in those books they put all the houses that were for sale.

If you wanted to buy a house, you got a hold of a brokerage and you went and you sat down and you looked through those books looking for houses that you wanted to view. Then an agent would take you around and look at those houses until you picked one. The real estate industry held all the information. Agents could pick and choose what they wanted to show you.

It was in everybody’s best interest to get that house sold for the seller. Nobody was really working for the buyer. Not directly. It was Normal for the person selling the House to pay the Realtor

How It Is

Nowadays with the internet it’s a lot different because buyers can go online, they can find out all the information that they need to be fully informed. Buyer’s can see all the homes that are for sale, they can find out when the home was last sold, find out how much the home is selling for and how much it sold for the last time it sold. All that information that used to be held close by the real estate industry is now available to the public. Free of charge.

How It Works For Realtors Now

So the real estate industry did a big shift. Instead of just marketing and selling your house for you, they invented a different model and they call it representation. Now the seller and buyer both have representation. Exclusive representation in fact. Brokers and their agents will still market and sell your house for you but the marketing has become, oh, how can put it, easy. Really easy. So easy in fact a home seller can easily do it themselves so hence the change in an attempt to remain relevant.

Now the person selling the House, they have representation. The Realtor or brokerage that is listing their house for them. And the person that’s buying the House, they have representation. Both parties each haver their own Realtor that represent them but the seller pays for both.

They even use words like fiduciary. How that works is you actually sign an agreement that says that you’re an exclusive listing agency or you’re an exclusive buyer’s agency and you have a fiduciary duty to your client.

When you’re a buyer’s agent and you have a buyer, you negotiate for that buyer and you do everything you can to get a better deal for that buyer. You’re actually negotiating against that seller’s agent . And the seller is paying that buyers agent.

What Real Estate Agents Do For You

So let’s go over a little bit about what each agent does. What those Realtors do for their pay.

Listing Agent

You hire a listing agent to sell your house for you. They come over meet with you. It generally takes about 45 minutes to an hour. The listing agent will go around your house and they show you what you need to do to get your house ready for market. They might go over some staging tips with you. It’s possible the agent might go over some cleaning tips with you, some ways to keep your house ready to show. They might suggest you take the pictures down off the wall. There’s a whole list of things that are helpful to do when you’re trying to sell your house to make a better presentation.

They’ll also help you price your house and they’ll do that by doing a comparative market analysis or a CMA, which means that they’ll pull comps from the area, houses that are similar to yours that have sold in the last six months. Then they’ll use those comps to help you to come up with a price for your house.

Agents will take care of pictures and writing descriptions.

A listing agent will take care of all the transactional details for you. Once you get an offer, they’ll take care of all the paperwork for you, which ironically, when you hire a real estate broker there’s a ton more paperwork a lot of which is to protect agents and brokerages. But they’ll take care of all that paperwork for you. There are contracts, state specific disclosures, sellers disclosures ect. ect, ect. .Just a lot of paperwork.

The agent will help you through the inspection process, the appraisal process and everything else associated with that real estate transaction all the way to the closing table.

And then they’ll go to closing and then the realtors get paid.

Buyers Agent

A buyer’s agent’s job is to help a buyer find a house. They have other duties to perform once they find that house but his main objective at first is to help that buyer find a house.

Once a house is found the agent will help the buyer to formulate an offer and negotiate a contract. Like a listing agent they will help the buyer with the appraisal and inspection process and all the transactional details and paperwork to get to the closing table.

According to the National Association of Realtors, 52 percent of buyers find their home themselves, the one they end up buying, on the Internet. According to that same source, 90 percent of buyers start their home search on the Internet. (Personally I think the number of buyers that find their house themselves is a lot higher. If I’m right and it is it doesn’t reflect well on the real estate industry. More and more tasks involved in a real estate transaction are being preformed by the buyer and seller making less need work for the agent.)

How A Realtor Stays Relevant

What that means is that most people don’t actually go out and look for a buyer’s agent to buy a house. They go directly to the Internet. Unless that buyer’s agent is referred by a family member or a friend most agents get hooked up with buyers through these Internet sites like Zillow and Trulia, realtor.com and and such.

A buyer will go directly to the Internet, to a site like Zillow to look at homes for sale. When they find homes they are interested in they click and can look at pictures, statistics, descriptions and find out everything they need to know about the house. If a potential home buyer wants even more “information” there is a button that can be clicked that puts you in contact with the “agent” This is where it’s gets tricky..

Most consumers think they’re contacting the listing agent, the person selling the house, but actually what you’re doing is you’re contacting an agent that pays to be on Zillow or such similar real estate portals. You put in your phone number and you click contact agent. One of these agents that the real estate site has sold your information to will contact you, not specifically to give you information, but to make you a client.

That agent will call you and then they’ll set up a showing for you and while they have you, they’ll try to get you to sign a buyer agency agreement. What that agreement does is it ties you to that agent. It says that if you buy a house, that agent is going to get paid one way or another. If the seller doesn’t pay them then you will have to. That’s a bad deal for FSBO’s or buyers looking at homes for sale by owner.

How The Seller Pays

When a home seller has a listing agreement with a brokerage the contract reads the seller has agreed to pay the broker. That fee is usually a percentage of the contract price and while it’s not legal to set fees it’s normally around 6%. Then that listing brokerage is going to split that fee with the buyer’s brokerage. And that is how the seller ends up paying for both Realtors.

For Sale By Owner

But what happens if that buyer finds a for sale by owner? Then that buyers agent will call that for sale by owner, schedule a showing, talk to that owner and try to get them to pay the Realtor. Which that for sale by owner probably doesn’t want to do because that’s why they’re doing a for sale by owner.

You see how that works? Because now if the for sale by owner doesn’t want to pay the realtor, then the buyer is stuck with that whether they need that agent or not. And it ain’t cheap. Again, it’s the agency agreement that determines the buyer will pay if the seller doesn’t.

So that’s why real estate agents will sometimes shy away from for sale by owners and try and keep the buyers away too.

Avoiding Real Estate Commissions

The trick is to make sure that your house is dazzling, make sure it’s stunning so those buyers just cannot resist. When you get them into your house, talk directly with the buyers. The agent will try to commandeer the conversation. Don’t let that happen.

Of course the best scenario is to get the buyer to call you directly bypassing any agent. You can do this up front in the description you write for the internet real estate sites like Zillow.com where you’ll market your home. Ask people to contact you directly for the best deal. If they have an agent and a signed agency you can raise the price to cover that expense if need be and there is no law that says you can not negotiate that agents commission. Find a way to make sure the buyer is included in all the negotiations. That the buyer knows all along the way what is happening. Often agents keep their buyers in the dark if it’s not favorable to them.

Protect Yourself As A FSBO

Pro tip: If you do raise the price to cover the agents commission write in the contract that the buyer agrees to make up the difference in cash between contract price and appraised value if any because of the Realtor pay. Make the buyer understand the price went up to pay their agent.

Finally

That is how the seller ends up paying for all the Realtor representation. It hardly seems fair but as my broker once told me, “if buyers had to pay for a real estate agent there would be no real estate agents.”

Go figure…

Joel

Should You Sell Your House Yourself?

by Joel Weihe

Handing over cash for house in front of beautiful new home.

When it comes time to sell your house you may wonder should you sell your house yourself? By selling your house yourself you’ll save having to pay a listing agent and possibly no agent at all. That could be a lot of money.

Sounds like an easy answer, huh. Not so fast.

Opportunity Cost

There’s a thing in economics called opportunity cost. Opportunity cost is the potential loss or gain you get from choosing one alternative over another. By doing one activity you’re giving up doing something else that you could be doing. You’re giving up an opportunity.

Specifically, the most highly valued opportunity or alternative forfeited when a choice is made therefore every time you make a choice you incur an opportunity cost.

Economists use it to figure out what activity is the most profitable. So what does the concept of opportunity cost mean to a home seller? It can help you decide should you sell your house yourself?

The average home price in America is $260,000. The average real estate commission is six percent of that, which would be $15,600. That sounds like a lot of money and to most people it is. To others it might not be. It’s all relative and depends on what one’s time is actually worth.

How To Decide If You Should

Selling your house yourself and not having to pay a real estate agent saves you money. If you only make $75,000 a year, it may be more profitable for you to sell your house yourself. $75,000 a year works out to $6,250 a month before taxes. If you own an average priced house selling your house yourself would be like earning a little more than 2 months of work. That’s substantial.

But say you make, like, three million dollars a year. That’s $250,000 a month. It might be more profitable for you to pay somebody to sell your house because you can use that time to make more money doing other things that are more profitable.

Of course, if you make 3 million dollars a year you may own a more expensive than average home but for comparison sake we’ll use that average number, $260,000. To get the point across.

What if you own your own business? And you make millions. Again, it would probably be more profitable for you to hire someone to sell your house for you because your time is worth more money than you would save.

When deciding if you should sell your house yourself you incur opportunity cost. Your giving up one thing to do another.

It all comes down to how much money you put in your pocket. For most of us average people? That’s selling your house yourself and saving thousands of dollars in real estate commissions.

Ibuyers vs Realtors

by Joel Weihe

When it’s time to sell a house most people automatically think of hiring a Realtor and have never heard of Ibuyers. There are other options even though they often aren’t considered. Choosing how to sell your house comes down to how much it costs and/or convenience. Check out this video to learn which is the best option for you? To sell it fast and hassle free, hire someone to sell it for you or sell it yourself and make the most money.

The most well known and popular way to sell a house is to hire a real estate agent. Hiring an agent can be expensive, often as much as 6 or 7 percent of the contract price. For a $320,000 house that could be more than $19,000. That’s a lot of money.

The most popular up and coming real estate disruptor are the Ibuyers. Ibuyers are companies that will buy your house directly from you at a fair market value or just slightly below fair market value price. Using an Ibuyer is definitely more convenient for a faster less stressful sale but can get expensive too.

Watch the video above to learn the specific advantages, disadvantages and costs associated with Realtors and Ibuyers.

For Sale By Owner

And of course you can always sell your home yourself and make the most money by not paying anyone. Using Ibuyers or Realtors can be expensive and really cut into your profits and future plans. The reason most people never even consider a For Sale By Owner is lack of knowledge, they simply think it would be too difficult. I’m not saying it doesn’t take some time and effort. Sometimes problems will come up. Buyers can be demanding. But when it’s all said and done the savings, the money you get to keep, makes it all worth it.

Sell your house yourself! Click here to learn how.

The Truth Behind the Success of FSBO’s

by Joel Weihe

I am a licensed real estate agent in the state of Kansas. Personally I believe a homeowner can easily sell their home themselves, or sell their home FSBO (For Sale By Owner). What do you think? The real estate industry would have you believe it’s damn near impossible. The stats for successful for sale by owners according to the real industry are around 8%. That seems low. What is the truth behind the success of FSBO’s.

First, way back in 1981, before we had the internet in our homes, the percentage of successful FSBO’s was 21%. That’s very believable and I would expect that the number in 2018 would be even higher. But it’s lower? That doesn’t make any sense. It’s so much easier to sell a house these days. In fact, if priced right and properly prepared for market, homes are selling themselves. Literally!

What I mean by that is with all the real estate sites that are available for public use FSBO’s should be easier than ever to market, right? Well, they are, trust me on this one.

Consumers get online these days to look for homes themselves on sites like Zillow, Trulia, and homes.com just to name a few. Home sellers can go directly to these sites and market their homes themselves. In fact a lot of Realtors do just that trying to avoid paying commissions to other agents, go figure.

Home buyers are often shopping before they approach a real estate agent for assitance. Many of my clients prefer to look at homes themselves and then send them to me. Yes, I know it sounds backwards but it’s what’s happening. Consumers are shopping online for homes on their own. Real estate agents are useful for unlocking doors and filling out paperwork.

So where do these numbers about successful FSBO’s come from.

It’s actually a very slick play on semantics, and not dishonest. The industry grabs the numbers by only counting homes that have been sold by owners with absolutely no help or involvement from a real estate agent.

What I mean is…

Some FSBO’s end up using a buyers agent because the buyer had a contract or “agency agreement” with a brokerage. (More on that in a future post, and it’s not nice) Those sellers still sold the house themselves. They attracted a buyer, the buyer viewed the property, liked it and wrote an offer. Those sellers still saved thousands of dollars in commissions but in fact ended up having someone to do all the contract and closing work for half the price.
Sellers sometimes want to get their listing on the Multiple Listing Service (MLS) and there are services now that will do that for a few hundred dollars. Yes, the same thing you may pay another agent several thousand dollars for. The industry does not consider those FSBO’s. But who cares about semantics right? We care about saving money and putting it to better use.
What if you used a Realtor to help you price your house? You know, interview a Realtor, or two, with the assumption that you might list with them so they give you a price analysis? Or what if you called up a Realtor and got some free advice? Would that be considered a true FSBO? Again, who cares. It’s still a For Sale By Owner and you still saved thousands of dollars.

Those low numbers are thrown out there without an explanation for a reason. To scare you. To make you think twice. To stop you.

Don’t be fooled. It’s really not that difficult to sell a house once you know how.

Joel

p.s. If you have questions about the process you can join the discussion at fb DIY Real Estate group

p.p.s. For an in depth complete guide to learning how to sell your home yourself and get the most possible money click here!

Why I Teach People to Sell Their Home Themselves and Avoid Paying Commissions

by Joel Weihe

People ask me all the time why I teach people to sell their home themselves. One reason is I work with a lot of military families helping them to find and purchase real estate. The first thing I want to know is does this make sense for you at this time. How long are you planning to be here? Can afford to pay real estate commissions if you have to move?

Military families move a lot. I know because I grew up in a military family and we were always moving, or so it seemed. We never spent more than a few years in any one place.

If someone is only going to be in a place for two years it doesn’t make sense to buy a house. They will likely have to pay to sell their home when the time comes to move. Yes, pay…to sell their home. Literally have to bring money to closing instead of leaving the closing table with a check. Imagine you just 2 years before bought your first home, paid your own closing costs of $4200, put in new floors for $3500 as soon as you moved in and now you have to sell.

You barely have built up any equity in the house and certainly not enough to pay $18,000 in real estate commissions. You have to make up the difference in real estate fees out of pocket.

Let me explain how that happens when you don’t or can’t live in one place long enough.

When you buy a house there is very little cost involved in the real estate transaction itself. When you go to sell your home that’s where the transaction fees (real estate commissions) get paid by the seller, you. It’s not legal to fix those transaction fees where I live but they are generally 6% of the contract price. That can get expensive. If one doesn’t have enough equity built up they will have to bring money to closing to sell their house.

So my client tells me the Air Force says they are keeping him here for 7 years. Great, that’s plenty of time to buy a house, make it a home and if the economy stays intact probably come out a little ahead when it’s time to sell. A year and a half later the same client calls me and says the Air Force changed its mind and they have orders to ship out. Can I please help them sell the house. One and half years is not enough time to build equity to pay those outrageous transaction fees. Especially with government backed loans like FHA or VA that require little or no down payment. Little or down payment equals little or no equity.

Please notice I call them transaction fees rather than what they are. Real estate commissions. Transaction fees comes off a lot softer. And yes, I get paid those outrageous fees when someone doesn’t know how or is scared to sell there house for sale by owner.

And it’s not just Military either. Sometimes bad things happen to good people and they get jammed up. People lose jobs, get sick, get job transfers or just are forced for whatever reason to give up their home through no fault of their own. If this family owns a $300,000 house the fees are going to be in excess of $18,000. That’s a lot of money.

That’s why I teach people to sell their home themselves.

You can easily sell your home yourself and keep your money.