Types of services that a broker can provide
The types of services, the ability to negotiate, the time spent working and the amount of time a real estate professional has been in the business will determine the answer to “how much do real estate agents make”.
- Comparative Market Analysis (CMA) — an estimate of the home’s value compared with others. This differs from an appraisal in that property currently for sale may be taken into consideration. (competition for the subject property)
- Total Market Overview — an objective method for determining a home’s value, where a CMA is subjective.
- Broker’s Price Opinion — estimate of a property’s value or potential selling price
- Real estate appraisal — in most states, only if the broker is also licensed as an appraiser.
- Exposure — Marketing the real property to prospective buyers.
- Facilitating a Purchase — guiding a buyer through the process.
- Facilitating a Sale — guiding a seller through the selling process.
- FSBO document preparation — preparing necessary paperwork for “For Sale By Owner” sellers.
- Home Selling Kits — guides advising how to market and sell a property.
- Hourly Consulting for a fee, based on the client’s needs.
- Leasing for a fee or percentage of the gross lease value.
- Property Management
- Exchanging property.
- Auctioning property.
- Preparing contracts and leases. (not in all states)
These services are also changing as a variety of real estate trends transform the industry.
Real estate brokers and sellers
Services provided to seller as client
Upon signing a listing contract with the seller wishing to sell the real estate, the brokerage attempts to earn a commission by finding a buyer and writing an offer, a legal document, for the sellers’ property for the highest possible price on the best terms for the seller. In Canada and the United States, most laws require the real estate agent to forward all written offers to the seller for consideration or review.
To help accomplish the goal of finding buyers, a real estate agency commonly does the following:
- Lists the property for sale to the public, often on an MLS, in addition to any other methods.
- Provides the seller with a real property condition disclosure (if required by law) and other necessary forms.
- Keeps the client abreast of the rapid changes in the real estate industry, swings in market conditions, and the availability and demand for property inventory in the area.
- Prepares paperwork describing the property for advertising, pamphlets, open houses, etc.
- Places a “For Sale” sign on the property indicating how to contact the real estate office and agent.
- advertises the property, which may include social media and digital marketing in addition to paper advertising.
- Holds an open house to show the property.
- Serves as a contact available to answer any questions about the property and schedule showing appointments.
- Ensures that buyers are pre-screened and financially qualified to buy the property. (Sellers should be aware that the underwriter for any real estate mortgage loan is the final say.)
- Negotiates price on behalf of the sellers.
- Prepares legal documentation or a “purchase and sale agreement” on how the transaction will proceed.
- Acts as a fiduciary for the seller, which may include preparing a standard real estate purchase contract.
- Holds an earnest payment cheque in escrow from the buyer(s) until the closing if necessary. In many states, the closing is the meeting between the buyer and seller where the property is transferred and the title is conveyed by a deed. In other states, especially those in the West, closings take place during a defined escrow period when buyers and sellers each sign the appropriate papers transferring title, but do not meet each other.
Negotiates on their client’s behalf when a property inspection is complete. Often times having to get estimates for repairs.
- Guards the client’s legal interests (along with the attorney) when facing tough negotiations or confusing contracts.
The listing contract
Several types of listing contracts exist between broker and seller. These may be defined as:
- Exclusive right to sell
The broker is given the exclusive right to market the property and represents the seller exclusively. This is referred to as seller agency. However, the brokerage also offers to cooperate with other brokers and agrees to allow them to show the property to prospective buyers and offers a share of the total real estate commission.
- Exclusive agency
Exclusive agency allows only the broker the right to sell the property, and no offer of compensation is ever made to another broker. In this case, the property will never be entered into an MLS. Naturally, this limits the exposure of the property to only one agency.
- Open listing
The property is available for sale by any real estate professional who can advertise, show, or negotiate the sale. The broker/agent who first brings an acceptable offer would receive compensation. Real estate companies will typically require that a written agreement for an open listing be signed by the seller to ensure payment of a commission if a sale takes place.
Although there can be other ways of doing business, a real estate brokerage usually earns its commission after the real estate broker and a seller enter into a listing contract and fulfill agreed-upon terms specified within that contract. The seller’s real estate is then listed for sale.
In most of North America, a listing agreement or contract between broker and seller must include the following:
- starting and ending dates of the agreement;
- the price at which the property will be offered for sale;
- the amount of compensation due to the broker;
- how much, if any, of the compensation will be offered to a cooperating broker who may bring a buyer (required for MLS listings).
Net listings: Property listings at an agreed-upon net price that the seller wishes to receive with any excess going to the broker as commission. In many states including Georgia, New Jersey and Virginia [18 VAC §135-20-280(5)] net listings are illegal, other states such as California and Texas state authorities discourage the practice and have laws to try and avoid manipulation and unfair transactions [22 TAC §535(b)] and (c).
In consideration of the brokerage successfully finding a buyer for the property, a broker anticipates receiving a commission for the services the brokerage has provided. Usually the payment of a commission to the brokerage is contingent upon finding a buyer for the real estate, the successful negotiation of a purchase contract between the buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller. The median real estate commission charged to the seller by the listing (seller’s) agent is 6% of the purchase price. Typically, this commission is split evenly between the seller’s and buyer’s agents, with the buyer’s agent generally receiving a commission of 3% of the purchase price of the home sold.
In North America, commissions on real estate transactions are negotiable and new services in real estate trends have created ways to negotiate rates. Local real estate sales activity usually dictates the amount of agreed commission. Real estate commission is typically paid by the seller at the closing of the transaction as detailed in the listing agreement.
Real estate brokers who work with lenders may not receive any compensation from the lender for referring a residential client to a specific lender. To do so would be a violation of a United States federal law known as the Real Estate Settlement Procedures Act (RESPA). Commercial transactions are exempt from RESPA. All lender compensation to a broker must be disclosed to all parties. A commission may also be paid during negotiation of contract base on seller and agent.
If any buyer’s broker or his agents brings the buyer for the property, the buyer’s broker would typically be compensated with a co-op commission coming from the total offered to the listing broker, often about half of the full commission from the seller. If an agent or salesperson working for the buyer’s broker brings the buyer for the property, then the buyer’s broker would commonly compensate his agent with a fraction of the co-op commission, again as determined in a separate agreement. A discount brokerage may offer a reduced commission if no other brokerage firm is involved and no co-op commission paid out.
If there is no co-commission to pay to another brokerage, the listing brokerage receives the full amount of the commission minus any other types of expenses.
Services provided to buyers
Buyers as clients
With the increase in the practice of buyer brokerages in the United States, agents (acting under their brokers) have been able to represent buyers in the transaction with a written “Buyer Agency Agreement” not unlike the “Listing Agreement” for sellers referred to above. In this case, buyers are clients of the brokerage.
Some brokerages represent buyers only and are known as exclusive buyer agents (EBAs). Consumer Reports states, “You can find a true buyer’s agent only at a firm that does not accept listings.” The advantages of using an Exclusive Buyer Agent is that they avoid conflicts of interest by working in the best interests of the buyer and not the seller, avoid homes and neighborhoods likely to fare poorly in the marketplace, ensure the buyer does not unknowingly overpay for a property, fully inform the buyer of adverse conditions, encourage the buyer to make offers based on true value instead of list price, and work to save the buyer money. A buyer agency firm commissioned a study that found EBA purchased homes were 17 times less likely to go into foreclosure.
A real estate brokerage attempts to do the following for the buyers of real estate only when they represent the buyers with some form of written buyer-brokerage agreement:
- Find real estate in accordance with the buyers needs, specifications, and cost.
- Take buyers to and shows them properties available for sale.
- Pre-screen buyers to ensure they are financially qualified to buy the properties shown (or use a mortgage professional, such a bank’s mortgage specialist or alternatively a Mortgage broker, to do that task).
- Negotiate price and terms on behalf of the buyers.
- Prepare standard real estate purchase contract.
- Act as a fiduciary for the buyer.
- Find real estate in accordance with the buyers’ needs, specifications, and affordability.
- Assist the buyer in making an offer for the property.
Buyers as customers
In most states until the 1990s, buyers who worked with an agent of a real estate broker in finding a house were customers of the brokerage since the broker represented only sellers.
Today, state laws differ. Buyers and/or sellers may be represented. Typically, a written “Buyer Brokerage” agreement is required for the buyer to have representation (regardless of which party is paying the commission), although by his/her actions, an agent can create representation.