Real Estate Brokerage Guide

1. What's a Real Estate Brokerage?

Needles in a haystack are hard to find, especially if those needles are homes for sale and the haystacks are neighborhoods. That's where a real estate brokerage can come in handy.

  • If you're in the market for a home, a real estate broker can show you properties that meet your space and design needs and budget.
  • If you're selling a home, a broker can give you an estimated sale price, offer advice on fixing up your property to attract buyers, create ads and list your home on databases, promote the home to potential buyers, and offer you advice to close a deal.

Though brokerages work with both homebuyers and sellers, in truth most represent sellers, who pay a 6% commission on their home's sale price. A smaller number of brokerages represent buyers, who in turn owe them a commission.

There also are discount brokers who accept a flat fee or a commission lower than 6% simply to place your house on a multiple listing service (MLS) and negotiate with a buyer. However, you'll have to prepare your home for sale and show it yourself to potential buyers.

What's the difference between a real estate agent, a broker and a Realtor? A real estate agent must be licensed by the state in which they practice. An agent can take a test to become a real estate broker, allowing them to run their own brokerage. Some brokers are Realtors, which merely means they belong to the National Association of Realtors (NAR), a fee-based trade organization, and adhere to the NAR's code of ethics.

2. Should You Use a Real Estate Brokerage?

If you're selling a home, your need for a real estate brokerage will depend largely on the demand for homes in your area. For example, if homes similar to yours in size and price are selling fast, you may be able to attract a buyer with just an ad or a lawn sign and avoid the 6% brokerage fee.

A number of local and national sites such as HomesByOwner.com let you list your home in their online databases. If you plan to sell on your own, be aware of the fair-housing laws, which strictly prohibit discrimination in the sale, rental or financing of homes based on race, sex, familial status, disabilities and other factors. For more, see Hud.gov.

But there are risks to selling a home on your own. You will need to know how to fix up and position your property to get the maximum price, how to promote its attributes in ads and with potential buyers, and how to market with listings. While you'll avoid paying a commission, there's always the risk you could wind up selling your home at a price far below what you would have received due to inexperience.

If you're buying a home, you're almost always better off going to one or more brokerages, since they know which homes are available in your target market. If you do not find a home you like among the homes listed with a particular brokerage, many will reach out to other brokerages for additional properties and split the seller's commission when a sale is completed.

Remember, most brokers work for a home seller but are skilled at making buyers believe they work for them. They don't.

As a buyer, avoid telling a broker what your top price is for a house, how much you can afford for a down payment, or whether you're having difficulty with your job, marriage or current living arrangements. The broker is obligated to report this information to the seller, which in turn could undercut your negotiating position.

3. Choosing a Brokerage

Brokerages are only as good as the homes in their listings and their relationships with other brokerages. Whether you're buying or selling, ask friends and colleagues who have bought and sold similar sized homes in your area for the names of their brokers.

When you call the brokers, ask if they have access to a local multiple listing service (MLS). Also ask for three references. Call each one and ask, "If you could do it all over again, what would you do differently?" This question tends to draw out valuable information about a broker and the entire process.

If you're selling:

  • Look for brokers who have the best annual sales records and at least five years of experience.
  • Invite the top three brokers on your list to your house separately. Each will ask about your home and discuss the selling process. Ask them to bring along their listing agreement. Also ask which homes have sold best in your area and why.
  • Review the agreement. A listing agreement clarifies the commission, how the home will be marketed and how your home will be listed on the MLS.
  • Ask the best brokers back to your home. During the second visit, brokers usually provide you with a sense of how they plan to market your home, what types of ads they will run and where and how they will market your home to prospective buyers and other brokers.
  • Find out what price brokers believe they can get for your home. This information should be based on your home's condition and examples of comparable homes that have sold in your area.
  • Push back on the 6% commission if homes like yours are in high demand. Ask your broker to cut his or her commission by a percentage point or two to win your listing. If the market is soft, see if you can get a commission break by offering an "exclusive"-letting your broker show the home without putting it on the MLS.
  • Reserve the right to take your home off the market for any reason or switch brokers if you are unhappy with the brokerage's efforts. Brokerage agreements usually last 90 days while commissions are owed up to six months.

If you're buying:

  • Ask brokers about the quality of local public and private schools as well as property taxes and recent increases.
  • Clarify how much you have to spend. Many brokers are seasoned and assume you can come up with more if you find a more expensive home you love.
  • Establish a script and series of codes with a spouse or partner to avoid tipping your hand to the broker. Avoid on-site disagreements that can be reported back to the seller, and use signs like running a hand through your hair or adjusting your glasses when there are features you like or dislike.
  • Use multiple brokers to ensure the widest selection of properties.
  • Consider using a buyer's broker who represents you, not the seller. Look for one with an Accredited Buyer's Representative (ABR) designation from the Real Estate Buyers Agent Council. You can find buyer's brokers in your area with this credential at REBAC.net. Be sure to ask how you will be charged for the broker's services.

4. Grilling Guide: Questions to Ask a Real Estate Broker

If you're selling a home:

Which homes have you sold recently?
Ideally, the home should be similar in size and condition as yours. Also ask how long they were on the market.

What is your commission?
Most brokers charge 6% but may be willing to trim it if your home will command a high price or sell fast. Also ask who is responsible for paying the commission.

What can I do to upgrade my home?
Brokers can offer tips on strategically fixing up your home to command the best price-like painting your front door or repaving the driveway.

How long will my home be listed with your brokerage?
You also want to know up front when your home will be added to MLS and whether it will remain there until closing-in case your deal falls through.

How long will the contract last?
You want to know how long your home will sit unsold with a brokerage before you can seek out another brokerage or sell it on your own, commission-free.

If you're buying a home:

Who pays your commission?
In most cases it's the seller, but that should be clear from the outset. In certain states, there may be conditions under which the buyer pays the commission.

Which properties in my budget have you sold recently?
Be sure you see pictures online of the homes to ensure that your expectations and your budget are in line.

Will you show me new properties?
Some brokers first exhaust homes that have lingered in their inventories before showing homes that have just entered their listings.

Do you show properties offered by other brokers?
You want to be sure that a broker will expand their pool of properties even though they may have to share a commission.

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