...If you’ve never bought or sold a house before or it’s been awhile, and you can’t remember how it goes– This is the article for YOU!
When I bought my first house, I didn’t know anything about real estate or Realtors. Nothing.
So, I did what folks in those days did when they needed to know something: I bought a book on the subject. This, little children, was in the days before Google.
Despite some significant research on home-buying, there were holes in my knowledge. Significant holes.
Nowadays, it is startlingly easy to know a thing or two about homebuying just by taking a spin around the internet and reading one of the literally thousands of blog posts and articles on the subject. Even so, the majority of first-time homebuyers know about as much as I did way back when and may need some Real Estate 101.
So, it seems prudent to explain it.
There are two kinds of agents: A listing agent and a buyer’s agent. In Oregon, the words “agent” and “broker” are interchangeable. The listing agent represents the seller and the buyer’s agent represents the buyer in the transaction.
A listing agent is paid by the seller for marketing the property, engaging in negotiations on the seller’s behalf, driving the transaction through escrow and inspection/repairs, coordinating with title/escrow officers, appraiser and the buyer’s lender, and then closing the transaction on a particular day. Payment for the listing agent is a percentage of the sales price at closing. Every agent is different and charges a different amount. The amount is predicated on the particular agent’s preferred business model, experience, level of service, and the property involved. A commission might be as low as 1 percent for a limited services broker or as high as 8 percent. The national average last year was 4.99 percent.
A buyer’s agent represents the buyer in a transaction by providing information and detail on houses for sale that suit the buyer’s needs, physically showing the homes to the buyer, analyzing the actual market value of the home, negotiating price on behalf of the buyer, arranging for inspection, negotiating repairs, coordinating with the buyer’s lender and title and escrow personnel and bringing the buyer through the closing process.
The buyer’s agent is paid a percentage of the sale price or a flat fee by the listing agent at closing. The buyer’s agent never has contact with a seller, nor is the seller bound to any agreement with the buyer’s agent. A buyer’s agent’s commission ranges between 1 percent and 3 percent. Occasionally, a buyer’s agent will earn a flat fee of $1000.
Both agents make use of a local Multiple Listing Service (MLS), which is a marketplace of properties for sale that is owned and developed by local Realtors. The MLS brings listing agents and buyers agents together, forming a contract between the two participating agents if a buyer chooses a listing that is included in the MLS.
A listing agent uses this marketplace to display properties for sale, set up showings, communicate details about the property and showing preferences for buyers’ agents who are shopping for their buyers. The listing agent also communicates a proposed commission percentage or fee that the listing agent will pay to the buyer’s agent who eventually closes the transaction.
The MLS is not only a marketplace, but also a compendium of known information about all properties in a geographic area, whether for sale or not, including tax and assessment records, maps, aerial photographs, flood zone designations, zoning, past sales and representation history, photographic history, school boundaries, improvements over time, square footages of lot and additional structures, room complement, build date and style, trim/materials detail, sewer/septic/well data.
Statistics used to calculate property value, market, showing and closing time trends are also part of the MLS.
A small amount of Realtors’ MLS data is released to third parties such as Zillow or Trulia, which also publish for-sale listings that are not included in an MLS.
There are 500-some MLSes in the US currently.
There are many other marketplaces where properties are sold – some are Realtor-centric and some involve no Realtors at all.
It’s important to note that property owners can choose to sell their properties without the aid of a Realtor or an MLS and many do. Also, many buyers buy homes without the aid of a Realtor. It is a personal choice.
In cases where sellers choose to market their own homes and not hire a listing agent, there is no source of payment for a buyer agent’s work. The buyer’s agent then can be paid by the buyer or, if the buyer has no cash and the seller agrees, the seller can pay the buyer’s agent for bringing the buyer and shepherding the transaction through escrow for both parties.
In cases where buyers are unrepresented by Realtors, they can negotiate a transaction themselves directly with a seller who is also not represented or, if the seller is represented, negotiate a sales contract through the seller’s listing agent.
Some sellers and buyers choose to use a real estate attorney to represent either one side or both in a transaction.
