Category Archives: Making Sense of Real Estate Series

Making Sense of Real Estate: Part 2

Making Sense of Real Estate: Part 2

How Do Buyers Agents Get Paid?

Have you ever wondered how real estate agents representing buyers are compensated? Or perhaps, you are in the market (or thinking about buying) and you haven’t chosen to be represented by a real estate agent because you are unsure how the process works. In this post I am going to address an often misunderstood topic in real estate transactions: how a buyers agent gets paid.

First, let’s address the basic concepts of compensation. Real estate agent’s may be compensated through any legal exchange of goods and services. Theoretically, this creates a wide range of potential forms of compensation. In practice, however, typical transactions will consist of money for services rendered.

I am certain most readers will understand without explanation why this is the most common exchange. Still, I find an explanation proves helpful in understanding compensation for real estate related services.

Money pays the bills. While it is feasible to compensate an agent with a pair of jet skis, jet skis don’t go very far in meeting ones financial obligations. It’s important to remember that the money an agent makes is used for putting food on their tables, paying their own mortgage and even covering expenses they incurred while helping their clients during the transaction. Still, it’s important for the consumer to understand that compensating an agent may go beyond an exchange of money.

Similarly, most real estate agents are not in business alone. Whether an agent is a Licensed Broker or a Licensed Salesperson, most have previously committed portions to a broker or support staff. For example, a Licensed Salesperson will generally agree to compensate their brokerage firm a portion of every transaction in exchange for a variety of services, such as marketing, administrative assistants or office space. A salesperson could not, therefore, accept a good or service that would not meet that commitment.

In a buyer-client relationship, the compensation is generally paid by the seller. It seems counter intuitive that anyone other than the buyer would pay the buyer’s agent and it may be a source of confusion or hesitancy for some buyers. The short explanation is that when a seller signs a listing contract they agree to pay a specific amount for the selling agents services. This compensation usually includes an offer for any buyer’s agent who brings a ready, able and willing client and works the transaction to closing. For example, a seller may agree to pay 6.5% of the sale to their agent and 3.25% may be designated for a buyer’s agent. While the types and amounts of compensation vary, the process is generally the same.

There are a few more points worth mentioning. It’s not uncommon for a buyer to be faced with a situation where the home they would like to buy does not include an offer of compensation to the buyer’s agent, or the compensation offered may be very low. This can happen with any transaction, but it is more likely to occur when a homeowner is selling their own home, or when the purchase price is low. In order to address this possible eventuality, I suggest including it in your initial conversations with a real estate agent. Also, addressing this issue in the beginning and expressing your desire that your agent be properly compensated will set the buyer-client relationship on a good foundation.

Questions? Comments? Let me know!

Making Sense of Real Estate: Part 1

Making Sense of Real Estate: Part 1

What’s the difference between a Broker, Associate Broker and a Salesperson?

If you are searching, or have ever searched, for a real estate agent, you may have wondered what Licensed Broker, Associate Broker and Salesperson mean. In this post I will explain the requirements, rights and responsibilities associated with each license and why it is relevant to anyone in the market.*

It is important to know that each type of license has an age requirement, mandatory State approved course work with subsequent testing and licensing fees.

An individual must be at least 18 years of age in order to apply for a Salesperson license. A Salesperson license requires no previous real estate experience. An applicant must complete the following to be issued a license:

  1. Complete 75-hour State approved Salesperson coursework and pass the course exam.
  2. Pass the State administered Salesperson exam.
  3. Find a Broker willing to supervise your work and hold your license.
  4. Pay a $50 licensing fee.

A real estate Salesperson, upon receiving their license, is recognized by the State as a real estate professional. They are expected to understand and comply with all New York regulations pertaining to their field of work. This means they may facilitate any and all real estate transactions in the State of New York. However, it also means they become wholly liable for their conduct.

An individual must be at least 20 years of age in order to apply for a Broker or Associate Broker license. A Broker and Associate Broker license have very similar requirements:

  1. Complete 120-hour State approved Broker coursework and pass the course exam
  2. Pass State administered Broker exam.
  3. Provide proof of experience through transaction documentation.
  4. Find a Broker willing to supervise your work and hold your license (Associate Broker only).
  5. Pay a $150 licensing fee.

Applying for a Broker or Associate Broker license is slightly more complicated because the Department of State requires an applicant have a minimum amount of experience. The DOS has assigned a point value to all possible real estate transactions and your experience is determined by an accumulation of points through completed transactions. A full list of transactions and the specific point values can be found here:

Once licensed, a Broker is different from a Salesperson in three major ways:

  1. A Broker is an unsupervised, independent operator of their own real estate business.
  2. A Broker may hold the license of a Salesperson or Associate Broker and take on supervisory responsibility.
  3. A Broker may choose to hold their license in many forms.  For example, a Broker may choose to hold their license in their own name, join with another Broker in a partnership, form a Limited Liability Company, form a corporation, and so on.

An Associate Broker, however, works under a Broker much like a Salesperson, with the exception that they are permitted to act as an “office manager” and share in the the duties of supervising the Licensed Salespeople.

Now, why does any of the above matter? Simply put, an educated consumer is more likely to receive the service they require. No two agents are the same. Each agent has a different personality, skill set, motivation, and knowledge base. When looking for an agent to best suit your needs, you must sift through the numerous agents who may be vying for your business. Understanding the above information, will allow you to deal with some of the false preconceptions innocently, and sometimes not so innocently, bantered around the market. For example, a real estate agent does not need a special license to deal in commercial real estate or any other transactions. All agents are licensed to deal in all transactions. This does not imply they are all equally capable in all transactions, but if you come across an agent who is attempting to sell you on a “commercial” license they have, you know better. Similarly, you now know that a Licensed Salesperson and Broker are both able to assist you in any type of transaction. You also know that, while a Broker License carries a certain amount of experience, it does not necessarily mean they are more capable than a Salesperson. A Broker is a business owner and manager and not everyone is interested in the work that entails. There are many Licensed Salespeople who have decades of experience and simply choose to work under a Broker in order to forgo that additional responsibility. Therefore, don’t count them out.

Be on the look out for more posts in the coming weeks and be sure to comment and share if this post was helpful to you.

Until next time!

*(Please keep in mind that this post, like all of my blog posts, is based upon my knowledge and understanding of the rules and regulations set forth by the New York Department of State. If you reside outside of New York, it is likely there are significant differences in your State’s licensing requirements and procedures.)