Tag Archives: Real Estate

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!

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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: http://www.dos.ny.gov/forms/licensing/0036-a.pdf

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.)

Why I Want to Work in the Rental Market and Why Other Realtors® Should Too!

First, by “rental market” I am referring to representing parties who are searching to lease an apartment or searching to lease their property. These parties are often referred to as tenants or landlords.

From the perspective of a real estate agent, transactions in the rental market may often require the same or more work to complete (or “close” as the lingo goes) as it would a residential or commercial transaction. I think we may all agree that given the option of working 40 accumulated hours for either a $1,000 or $100 paycheck, we would choose the former. Certainly, the results are much more varied than I have described. A real estate agent may spend 60 hours attempting to sell a home and walk away with nothing when it fails to sell. In a strong rental market, a real estate agent may spend 5 hours closing half a dozen high-end rental agreements and walk away with more than you and I make in a month. Still, the generality that a real estate agent is better off with a business plan that focuses on assisting clients buy and sell residential or commercial property is true in our community.

Why then would I want to spend any amount of time working in the rental market?

In a word: Advocacy.

The greatest thing a Realtor®, like myself, brings to a transaction is a voice. A voice of professionalism. A voice of knowledge and experience. A voice of understanding. A Realtor® should wield their voice to properly negotiate on behalf of their clients. There is a tremendous amount of work that goes into negotiating and yielding the best possible results. The secret: it’s not magic. The skill to effectively advocate on our own or someone else’s behalf can be taught and learned.

I think we may all agree there is significant value in being able to articulate our beliefs, needs, feelings, and thoughts. Doing so effectively is a necessary life skill. Unfortunately, there are many among us whose life’s circumstances have them situated where they may not be learning how to speak out for themselves and others. However, regardless of our circumstances, we all have the same critical need: a home. As a Realtor®, I recognize that puts my profession in a unique position.

Why wait until someone is ready to buy a home to take the time to explain how they can better position themselves for success by organizing their thoughts and preparing the proper information? If committing to a stronger presence in the rental market can reap the benefits of a more knowledgeable and better prepared adult population, I say let’s give it a try.

Preamble to the Realtor® Code of Ethics

Preamble
Under all is the land. Upon its wise utilization and widely allocated ownership
depend the survival and growth of free institutions and of our civilization.
Realtors® should recognize that the interests of the nation and its citizens
require the highest and best use of the land and the widest distribution of
land ownership. They require the creation of adequate housing, the building
of functioning cities, the development of productive industries and farms,
and the preservation of a healthful environment.
Such interests impose obligations beyond those of ordinary commerce.
They impose grave social responsibility and a patriotic duty to which
Realtors® should dedicate themselves, and for which they should be
diligent in preparing themselves. Realtors®, therefore, are zealous to
maintain and improve the standards of their calling and share with their
fellow Realtors® a common responsibility for its integrity and honor.
In recognition and appreciation of their obligations to clients, customers,
the public, and each other, Realtors® continuously strive to become and
remain informed on issues affecting real estate and, as knowledgeable
professionals, they willingly share the fruit of their experience and study with
others. They identify and take steps, through enforcement of this Code of
Ethics and by assisting appropriate regulatory bodies, to eliminate practices
which may damage the public or which might discredit or bring dishonor to
the real estate profession. Realtors® having direct personal knowledge of
conduct that may violate the Code of Ethics involving misappropriation of
client or customer funds or property, willful discrimination, or fraud resulting
in substantial economic harm, bring such matters to the attention of the
appropriate Board or Association of Realtors®. (Amended 1/00)
Realizing that cooperation with other real estate professionals promotes the
best interests of those who utilize their services, Realtors® urge exclusive
representation of clients; do not attempt to gain any unfair advantage over
their competitors; and they refrain from making unsolicited comments about
other practitioners. In instances where their opinion is sought, or where
Realtors® believe that comment is necessary, their opinion is offered in an
objective, professional manner, uninfluenced by any personal motivation or
potential advantage or gain.
The term Realtor® has come to connote competency, fairness, and high
integrity resulting from adherence to a lofty ideal of moral conduct in
business relations. No inducement of profit and no instruction from clients
ever can justify departure from this ideal.
In the interpretation of this obligation, Realtors® can take no safer guide
than that which has been handed down through the centuries, embodied
in the Golden Rule, “Whatsoever ye would that others should do to you,
do ye even so to them.”

I chose real estate.

Before I chose to seek a real estate license, I have to admit, real estate agents never struck me as stand-up, community building individuals. When one watches or hears about real estate professionals making millions flipping properties or selling high-end listings, it’s hard not to think they are only out to make money. Even when you accept most real estate agents are normal, hard-working professionals, it is still difficult to believe they have your best interests in mind. So why would I choose to get my license and become a Realtor®?

For the last three years, I have worked part-time for the City of Rochester. This has not been my only experience in the City. In fact, my heart has always been with the City. I have spent my entire life here. What changed was my knowledge and understanding of how the City, its residents, businesses and other organizations relate and operate.

One thing I concluded is that real estate, in its varying states, functions and uses, is a vital indicator of the health of a community. I have seen first hand what investment of time and resources can do to improve the quality of life for residents and business owners.

I began to consider, how can I contribute to my community? How could I become involved in real estate in a way that would allow me to utilize my skills and abilities to build up my community while simultaneously be challenged and fulfilled? I finally decided upon serving my community as a real estate salesperson.