Guide to the Real Estate Industry


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This document will give you some insight on the real estate industry and how to speak to agents with the correct vanacular.

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Guide to the Real Estate Industry

  1. 1. What does a Real Estate Brokerage do? We help buyers and sellers of real property transact the sale of said property. o In short we bring buyers and sellers together A typical Real Estate transaction goes like this: o A family decides to sell their home o They decide to bring in an expert to help them since this is their most valuable asset o After speaking to several experts, they hire one to list, market and sell their home  To list a home means to list it for sale in the multiple listing service  This service displays all the homes listed for sale by other agents. We’ll talk more on it later o The clients sign an Exclusive Rights Agreement giving that agent the sole right to market that property o They agree that the agent will earn the typical 6% commission once the home sells. o The agent lists the home for sale on the MLS, and offers to pay any agent who brings a buyer to the property 3% or half of the commission. o The listing agent advertises the property in the news paper, in home sales publications, on the web, and other places he deems necessary.  He does this at his own expense o The agent puts up signs leading passersby into the neighborhood to view the home and places a sign and flyers in the yard  He does this at his own expense o The agent then holds an open house allowing potential buyers to freely view the home at a set time  He advertises this in multiple publications at his own expense o Finally Mary, a buyer’s agent, shows her client the house, and the client loves it. o Mary writes an offer on her client’s behalf and submits it to the listing agent. o The listing agent submits the offer to his clients who then reject the first offer, and then make a counter offer. o Finally, both sides agree to a price and “Ratify” the contract by signing.  The buyers also have to provide a “Consideration.” This is called an Earnest Money Deposit
  2. 2. o The agents and brokers help coordinate the lenders, attorneys, title companies, contractors, and other various players until the deal has closedWhat is a Real Estate Agent? How does one become an agent? o Take a 60 hour to 120 hour course called “Principles of Real Estate.”  Must pass an exam demonstrating they’ve learned national and local laws o They must take and pass the national and state board examinations o They must undergo national and state background checks o They must affiliate with a broker o The jargon used is “Hang my license.” A broker is an agent who o Completed more training o Has been in the business 3 years or more o Is able to demonstrate advanced knowledge and skills o Has completed and passed all legal requirements by the state in order to earn a broker’s license o Some agents have earned broker’s licenses but choose not to open their own business, but instead work under a managing or principle broker. Some brokers open their own firms or are hired by owners to manage a firm o A firm is simply the legal name for a real estate brokerage  Century 21  ZipRealty  Re/Max o The brokers are called “Principle Brokers.” o Every office is required by law to have a principle broker listed o Principle brokers take on the legal responsibilities of the agents who hang their licenses with that broker. o Agents do not have clients, brokers have clients  Once an agent signs her own mother, she become the broker’s client technically o Broker’s determine how commissions are split between she and the agent o By signing the broker agreement, and hanging his license with a broker, the agent agrees to the terms laid out in the compensation agreement portion of the buyer’s agreement
  3. 3. Agents generate clients for the broker o Sphere of influence o Advertising o Past clients o Word of mouth o Working open houses o Calling expired listings o Calling FSBOs o Maintaining a website o Purchasing clientsAgents List and market homes for sale o Agents have to know their markets o Agents have to know how to price homes competitively o Agents have to advertise listed homes on the web and in publications o Agents place listed homes in the MLS  Multiple Listing Service is an online database of all homes available for sale by other agents  Memberships also allows agents to have an access key to lockboxes where keys are storedMost all agents are members of the National Association of Realtors o This is a private company that advocates on behalf of Agents o Allows agents to trade with the Realtor® designation o Costs $1500 - $2000 up front, and continual dues several times per year.Agents help home buyers find homesAgents negotiate on behalf of their clientsAgents have 6 Legal Fiduciary Responsibilities to their clients o Obedience  Agents, while in an agreement with a client, must obey all LAWFUL instructions of the client Excluded are illegal request such as not to show the home to minorities o Loyalty  The duty obligates a real estate broker to act at all times, solely in the best interests of the principal, excluding all other interests, including that of the broker. o Disclosure
  4. 4.  The agent must disclose all pertinent information regarding that pertains to the relationship o Confidentiality  The agent is required to keep all LAWFUL confidences and secrets. Cannot keep secret that the home floods each time it rains Is required to keep secret that the home is being sold because the client is desperate for money. o Accounting  The agent is responsible for ensuring all funds are dispersed properly on behalf of his client o Reasonable Care and Diligence  In short, this is the responsibility to be knowledgeable in one’s field What is a customer o A customer is anyone who inquires upon an agent the request for information on real estate o An agent has NO DUTY toward a customer o An agent cannot get paid from customers What is a client o A client is a customer who has signed an agreement o Real estate is one of the only fields of law that an oral agreement is not honored o An agent has fiduciary responsibilities to a client, but none to a customer An agent is entitled to a commission when o She brings two ready, willing, and able parties together  It doesn’t matter if the transaction goes to escrow or closes  Although this is the law, it is very difficult to get paid on a transaction that doesn’t close Why would you want to hire a real estate agent (Exercise) o You need to sell your home, why would you hire an agent. Is there a time when you wouldn’t hire an agent?The Bottom Line is 1. Agents are the lifeblood of a real estate brokerage. They are valuable commodities.
  5. 5. 2. Agents generate clients for the brokerage3. Agents help facilitate the escrow process