Tag Archives: Realtor

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!

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

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.”