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Who Draws Up the Purchase Agreement for a Home That Is For Sale by Owner?

November 15, 2019

Who Draws Up the Purchase Agreement for a Home That Is For Sale by Owner?

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The seller’s agent is typically the person who draws up a real estate purchase agreement. But what happens if the home is for sale by owner (or FSBO) and the owner isn’t represented by a real estate agent at all?

A FSBO sale can occur in a seller’s market or when sellers want to maximize their profits on a sale by not having to pay a commission to a real estate agent.

So if the buyers want to make a written offer on property, who will be tasked with drawing up the purchase agreement, or the contract outlining the terms and conditions of the sale?

Some buyers may wonder what their next step will be without an agent to guide them through writing a contract and closing the sale. It’s not unheard of for buyers to move on, because they are afraid to sign a contract without the help of an agent.

Experts say the solution is to turn to the buyer’s own representation for writing a contract.

“Typically, if the seller does not have a Realtor®, the buyer’s agent ends up doing most of the work,” explains Ryan Hardy, a real estate broker with Gold Coast Realty in Chicago.

Who drafts the purchase agreement for a FSBO?

As a real estate buyer, a purchase contract is one of the first steps toward closing the sale.

“In layman’s terms, a purchase contract is simply the written contract between the buyer and seller outlining the terms of the sale,” Hardy explains.

Most real estate purchase contracts include details such as the purchase price, closing date, and any contingencies the sale hinges on—such as the real estate passing inspection or appraising at a value that the buyer’s lender agrees is high enough to warrant a mortgage.

Real estate purchase contracts generally also contain financing contingencies, meaning you get your earnest money deposit back if you can’t get a mortgage. This makes sense, because most buyers can’t fulfill a contract to buy residential property if they can’t get financing.

Buyers can have real estate agreements drawn up by a real estate attorney or agent. A title company or Realtor can help the buyer find someone to write a contract if necessary.

If the seller doesn’t have an agent lined up to draft the purchase contract, the buyer’s own real estate agent can take care of the transaction paperwork as a transactional agent, also known as a dual agent, says Joanne Bernardini, a Realtor with Coldwell Banker–Casa Bella Realtors in Linwood, NJ.

You may also need help writing up a contract if someone is selling property on a land contract. A land contract is used when the owner provides financing when going to sell, so that you do not have to get a mortgage elsewhere to purchase the property.

The contract stipulates the amount of the loan, the interest rate, and what happens if you fall behind on property taxes or payments. You and the seller can negotiate the terms of the agreement, including the interest rate on the loan.

Keep in mind that certain states do not allow dual agency in real estate transactions, and that some states see it as an ethical dilemma.

If you as the buyer decide to use a transactional agent for the contract, think of them as “one person who neither represents the seller nor the buyer but facilitates the documents necessary for the sale,” says Joyce Mitchell of Mitchell & Associates, in Bigfork, MT. If you have any doubts about the contract, consult your own attorney.

Who pays the fees to draw up an agreement to purchase a FSBO?

The cost of drawing up a purchase contract is typically included in the real estate seller’s commission fee, paid at closing from escrow as part of closing costs.

However, if an owner doesn’t have a real estate agent because it’s a FSBO, and the buyer’s agent is doing the work of preparing the transaction, that doesn’t mean the buyer needs to foot the bill.

The buyer just needs to be prepared to ask the seller to pay the portion of the commission for writing the contract, says Kaera Mims, a Realtor with Liz Moore and Associates in Newport News, VA.

“If you have a real estate agent in mind, I would discuss the scenario with them, and they can contact the seller on your behalf to schedule the showing and ask about compensation,” Mims says. “I find that some sellers will pay the agent’s commission if I bring them a ready and willing buyer. We just have to ask.”

The post Who Draws Up the Purchase Agreement for a Home That Is For Sale by Owner? appeared first on Real Estate News & Insights | realtor.com®.

What Percentage of the Sale Price Do Real Estate Agents Charge?

May 3, 2019

What Percentage of the Sale Price Do Real Estate Agents Charge?

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If you’re a home seller, you’re probably asking yourself an important financial question: What percentage of the sale price do real estate agents charge?

There is no legal guideline stating how much commission you must pay an agent to sell your home. However, there is an industry standard for fees and the percentage given to agents who help during a real estate transaction.

What percentage of the sale price do real estate agents charge?

The percentage of the sale price real estate agents charge is known as a commission. That figure can vary from state to state and among brokerages. You can find your local Realtor® association and ask what commissions generally are in your city or town. But in most areas, the typical commission is 6%; that comes out of the sale price of your home, to be split 50-50 by the agents of the seller and buyer.

For example, a home that sells for $400,000 would generally see a $24,000 commission, $12,000 of which would go to your agent and the other $12,000 going to the buyer’s agent. Note that how the fee is broken down is a separate contract between the brokers and not something the buyer gets to negotiate.

Why do real estate agents take a commission?

The answer is fairly simple: The commission is the fee the agent earns for the work of marketing and selling your home. This could include researching potential properties, spending their own money on marketing, hosting open houses, writing up offers, and being present during inspections. In other words, this is how they get paid.

“Your agent will also have to split a part of their commission with his or her broker for office overhead and other expenses,” says Lee Dworshak, a real estate professional with Keller Williams Harbor Realty in Rancho Palos Verdes, CA.

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Watch: Just How Long Does It Take to Close on a Home?

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Will real estate agents take less than 6%?

As we stated above, a 6% commission is standard, but some real estate agents will charge more or less depending on the situation.

“I can tell you that, personally, I don’t take listings for less than 6%,” says Denise Shur with 1:1 Realty, in San Jose, CA. “Sometimes I even charge 15% if the situation is extraordinary. I do this because I work very hard for my clients, spend lots of money on marketing, network with clients internationally, and take on no more than two clients at a time.”

That said, commissions are almost always negotiable. And what an agent will accept as a commission depends on market conditions, as well as the location and condition of your home. A fixer-upper on the outskirts of town may take more time and effort to sell, so an agent may want a higher fee.

“Talk to several real estate agents and see what you can negotiate,” says Tracey Martin, an agent with Realty World Premier Associates in Salinas, CA.

Commission and dual agency

Let’s say you and your agent agree to a 6% commission to list your home for sale. If your agent represents only you, she will get 3% and the buyer’s agent will get 3%. If your agent represents you and the buyer, she will get the full 6%. Agents representing both sides of a home purchase is known as dual agency.

Dual agency is legal in some states, but not all. There are both advantages and disadvantages to buying a house through dual agency, but ultimately, you want to make sure your agent is representing your best interests.

“You want your listing agent focused 100% on getting you top dollar on your home,” says Shur. So if it is legal in your state, she advises sellers to include language in your listing agreement that states your agent won’t represent buyers.

The post What Percentage of the Sale Price Do Real Estate Agents Charge? appeared first on Real Estate News & Insights | realtor.com®.

Real Estate Agent Fees: Who Pays the Bill?

February 20, 2019

Real estate agent fees are how most agents are paid for the homes they sell. This commission can vary from state to state and among brokerages. But in real estate, who is responsible for paying commission—the buyer or the seller?

Who pays the commission of the real estate agent?

If you’re buying a home, you’re probably off the hook for paying the commission of the real estate agents. The home seller usually picks up this payment. Typically, the fee is paid by the seller at the settlement table, where the fee is subtracted from the proceeds of the home sale.

The agent fee is typically paid by the seller to the listing broker who, in turn, shares part of it with the agent who brings a buyer to the table, explains Adam Reliantra, a real estate agent in West Toluca Lake, CA.

When the sellers set a listing price for the home, they usually take the agent’s commission into account; it’s the cost of doing business.

How much is the commission for a Realtor®?

The real estate agent commission is a percentage of the sale price. So the specific amount depends on how much your home sells for, but it’s commonly 6% of the sale price. For example, if the home sells for $500,000, the real estate agent commission of 6% would be $30,000.

The commission is split between the buyer’s agent and the seller’s agent. It’s a separate contract between the brokers and not something the buyer gets to negotiate as part of the offer (hold your negotiating for the closing costs).

Dual agency: When one agent represents two parties

It’s not a common situation in real estate, but if the agent you’ve hired to represent you also represents the seller of the house you’re buying, it’s called dual agency. Dual agents, also known as transaction brokers, represent the interests of both the buyer and the seller.

Certain states—Florida, Colorado, and Kansas—have made dual agency illegal in a real estate transaction to outright eliminate any question that the agent was neutral in representing the seller and the buyer. But in the states that allow dual agency, agents are required by law to disclose that they’ll be representing both sides to their clients.

Critics who advise against dual agency worry about potential conflicts of interest—the chance that the interests of both the buyer and seller will not be met. And to their credit, we understand how this could be a problem.

When it comes to real estate commission, a dual agent gets to keep everything because he or she is doing more work by representing both sides.

What do closing costs cover?

Closing costs are the miscellaneous fees separate from the real estate agent fees that must be paid at closing. They cover things such as the following:

  • Loan processing
  • Title company fees
  • Surveyor costs (if needed)
  • Recording of the real estate deed
  • Insurance
  • Any taxes or homeowners association fees, which may need to be prorated if they’re already paid

The amount of the real estate closing costs will vary with each home sale/purchase and can range widely from 2% to 7% of the home’s purchase price. Typically, though, closing costs amount to about 3.5% of the sale price of a home, according to Leah Layman, a real estate agent in Augusta, GA.

Your agent will provide you with a buyer’s sheet that lays out the closing costs, and by federal law you must receive what’s called a “good-faith” estimate of your closing costs from any lender you use in your real estate purchase.

As for who pays the closing costs, that’s where your negotiating skills (or your Realtor’s) come into play. There is no cut-and-dried rule about who—the seller or the buyer—pays the closing costs, but buyers usually cover the brunt of the costs (3% to 4% of the home’s price) compared with sellers (1% to 3%).

“Most closing costs are negotiable,” Reliantra says. “Do not let the Realtors or vendors convince you otherwise.”

Attorney fees, commission rates, recording costs, and messenger fees can all be negotiated down.

Sometimes the buyer will have written into the contract that the seller will pay the buyer’s closing costs up to a certain percentage or amount.

“That’s why you need a good real estate agent to negotiate a contract for you,” Layman says.

If the closing costs are too steep and the sellers won’t chip in as much as buyers would like, the buyers can request that real estate closing costs be rolled into the mortgage.

So whether you’re the buyer or the seller, the listing price isn’t the only number you should focus on. Those fees outside the price of the house can add up, and you don’t want to be hit with any surprises late in the game.

The post Real Estate Agent Fees: Who Pays the Bill? appeared first on Real Estate News & Insights | realtor.com®.