Full Information About How A Real Estate Transaction Really Works?

Full Information About How A Real Estate Transaction Really Works?

I'm going to tell you about, how a real estate transaction works? In a typical real estate transaction, let's talk about who the players are? First off there is you and let's say that you have a house for sale that's $300,000. Saying that you find a buyer for your house, which on the surface sounds great, as you are in $300,000, but as we all know, there are a lot of other typical players in a real estate transaction. There is, of course, your agent as well. As the buyer's agent this can differ based on the area of the country that you live in.

Full Information About How A Real Estate Transaction Really Works?
How A Real Estate Transaction Really Works?

But I can tell you that it's typically not a 50/50 split on the Commission between the seller's real estate agent, the buyer's real estate agent commission. In the Quad Cities of where I live, it's a 60/40 split that is pretty standard. This is because there's some presumed to be a lot more work on the seller side that's the higher percentage. Commission percentage can vary based on where you live as well. But here in the Quad City 7% is usually pretty standard. Theirs is no laws or anything that govern the Commission percentage. It's really just more the market that dictates it. One market may be 6% whereas another is 10%.

What's a 60/40 Split Commission?

That equates to 4.2% for the seller's real estate agent? Which on your $300,000 house 4.2%=$12600 in commission and 2.8% from the buyer's real estate agent which on your $300,000 house 2.8%=$8400. You in turn net $279,000 because based on the $300,000 sale price had to pay $21000 in commissions. I know what you're thinking that is a lot of money if all the sellers’ agent in this case does is sell for $300,000 houses in a year he makes $50,000 for that year, but there are more players to the equation. The seller agent unless he happens to be an independent real estate broker probably works for a brokerage is basically just the real estate company. The seller’s real estate agent has to pay 50% of the Commission to his brokerage. He really is only netting $6300, unless the brokerage is netting $6300 as well.

How Much Do Real Estate Agents Make?

That 50/50 split between agent and broker is negotiable. And may vary by area, but in Quad Cities, it’s pretty standard for an agent starting. If an agent is selling millions of dollars’ worth of real estate a year, there's a lot more leverage to negotiate a better deal with his brokerage. You can tell them basically give me 75% or I'll just go work for a competing brokerage who will in most cases. If that agent is a real power player in the market, the brokerage is more than willing to get 25% of his or her commissions. Rather than 0%, they would get if the agent goes to another program. That same thing happens on the buyer's agent side. Who likely once was brokerage as well, likely has that same 50/50 split with their brokerage. In this case, she nets $4,200 and her brokerage nets $4,200 as well. 

Imagine, if you will both the selling and buying real estate agent work for the same broker. Which in most markets they're two to three big brokerages and a handful of smaller ones, it's actually quite common. In this case, the brokerages would make the brokerage would make $10500 which is the sum of the $6300 and $4200. The brokerage would make more than either of the agents that really did all the work. On top of that, the agent has to buy all their own signs and any other marketing materials. And if they have office space with the brokerage, they generally have to rent that space as well. They're also paid via 1099; they have self-employment taxes that are higher the average taxpayer. In my mind it really isn't the agents to make the real estate selling so expensive it's the brokerages.

Closing Costs

One other thing to keep in mind cost-wise is that there are closing costs that have to do with the loan. These cover things like, home inspection, appraisal, loan origination fees, title and abstract, recording and underwriting. In most cases the buyer pays these fees and it's wrapped up into their loan. They usually don't have to pay anything out of pocket, it's just wrapped up the lone on a $300,000 house might be to cover the closing costs.

Who Pays Closing Cost?

Though is negotiable, there will be some deals written where maybe the seller covers the percentage of the closing costs. $21,000 in commission is a lot of money to be leaving on the table and I do believe there is a better way. It's perfectly legal to sell your own home, which stands for sale by owner. Doing so means you essentially save all that commission. What an agent does essentially, one they market the property which for most real estate agents means they put it on the MLS the (Multiple Listing Service). They put a sign in the yard and maybe if you're lucky they put an ad in the newspaper.

The Agent Does Is Showing The Property?

I think most people out there are probably capable of doing themselves. The real estate agent does is handle negotiations. Most people are capable of doing themselves if you've ever sold a car you can probably sell a house as well.

How Would The Transaction Work?

You would advertise your house buyers interested in your house go directly to you and not your agent. The end result is you get $300,000 instead of $279 pretty simple. But what about buyers that have real estate agents that does their shopping for them? There's an option for that. The real estate agents Commission is still going to be 2.8%. Most buying real estate agents don't care if the house is listed online as long as they get their real estate commission and they find their customer house. If you list online I would expect to get calls from agents, saying they may have an interested buyer asking, if you're willing to pay a commission?

You can certainly tell them no or you can tell them that you're willing to pay the standard 2.8% by real estate agent commission. This option while you still pay some commission as you can see still net to more than selling what a real estate agent. In this case, you would net $291,600 as opposed to with an agent on the selling side. You only netted $279,000. I personally would not recommend you tell a buying real estate agent though you will pay a commission. Just because in that case they never even bring the buyer to the table. Maybe in the back of your mind, this just gives you a higher bottom-line price.

For example: If on your $300,000 house your bottom line of what you accept was $290,000. If there's a buyer real estate agent involved, you could have a bottom line be $295,000. And you still end up close to the same net amount in the end.

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