Who Sets Real Estate Commission Rates?

Realtor and client shaking hands

Who Sets Real Estate Commission Rates?

Commissions are among the most debatable factors in real estate, which begs the question, who sets real estate commission rates? For this reason, it’s crucial to understand who determines commission charges so that you know how much to pay and score the best value service for your property. Who Sets Real Estate Commission Rates? While there is no formal regulation about who should set commission rates, it’s widely accepted in the real estate industry for realtors or brokerage firms to have the ability to determine commissions for each transaction. In some cases, sellers can set the rate if an agent is open to negotiation. However, since rates may vary depending on the real estate company or broker, you can consider choosing flat fee realtors to save money from percentage-based commissions. This kind of model provides all the services you need to buy or sell a house without paying for high agent commissions. Setting Rates Depending on the Kind of Real Estate Service Legally sellers have the right to negotiate any real estate commission. Real estate agents may be more or less flexible on these compensation terms depending on the type of services they are offering and how their company or team is set up. Full-Service Commission Some companies have full-service brokers, yet they ask for high commission rates. Firms have varying standards and strategies in what they deem as full-service, although there are some who would charge premium rates for more services. Real estate firms set a commission split for all transactions. For example, some companies offer gross commission splits, where agents would divide a percentage of their gross commission with the firm. In contrast, others put a commission cap for realtors to receive full commission after a certain period or threshold. These internal splits can play a role in how much, if at all, a real estate agent is willing to adjust their commission. Full-Service Flat Fee A flat fee company like CA Flat Fee sets the commission rates for their agents, saving you money since you won’t have to pay the standard commission charge based on the final sale price. Instead of a percentage commission, the broker or firm would set a fixed rate for the entire transaction. It is the perfect route for those who want the convenience of selling a property without managing every aspect of the process. This model serves as a one-stop-shop for sellers who need help in paperwork, inspection, negotiations, marketing, and anything else necessary to close a deal for a fixed fee. The most important thing to ask about with companies like this is what services they do not offer and what additional fees are included for additional services. CA Flat Fee provides all services for the same low flat fee. Discount Broker If you want more control over the commission rate, you can work with online discount brokers. Since discount brokers can set the commission rates themselves, they won’t charge you a full 6% rate. Instead, they can go as low as 1% to 2%.  However, they tend to use these lower rates as a marketing tactic for attracting new clients. While the upfront fees may appear to cost less, there’s a possibility that you might spend more in the future due to limited services. Standard Real Estate Commission Rate There’s no legal standard commission charge, yet brokers commonly set a 6% commission rate. Keep in mind that commissions depend on a house’s gross value. Thus, you need to calculate the rate according to the property value before taxes and other fees. Commission-based agents don’t get paid until the closing process, which means they usually shoulder the expenses for marketing and listing your property. This is part of the reason agents want to ensure they do not operate on too thin of a profit margin if they do not sell enough homes to have consistent and sufficient income to front these marketing costs. [lyte id=’nkia30I2i0Q’ /] How Commission Rates Work The number of home sales has been steadily increasing since 2011, with 6.5 million homes sold in America in 2020. This steady growth has brought many new companies to the market offering the various services involved in the sale process, with each person receiving a commission set by the seller’s broker or real estate company. Broker: Brokers can operate individually or through a firm due to their license and further education. In effect, they can set real estate commissions themselves. Agent: Agents are legally licensed individuals who can help buy or sell a property, although they must work under a licensed broker. Hence, brokers can set commission splits wherein they earn more than agents due to their greater experience and services. Listing agent: You can hire a listing agent to help list your property on the market for selling. Buyer’s agent: Acts as a representative for the buyer to search and purchase a property. Determining Commission Rates About 89% of sellers work with real estate agents to sell their homes. With such a rate, you can see the essential role realtors have in the selling process. However, this also means brokers and real estate firms have the power to demand their commission rates. Before starting the selling process, you need to finalize a listing agreement in writing, or if you’re a buyer, it would be a buyer-broker agreement. Either way, the contract should explicitly state the percentage the agent would get from a property’s sale price. The standard commission percentage in the State of California is between 5% and 6%. This would mean that on a $700,000 home the seller would pay around $35,000 to $42,000 in commissions. The total commission would then be split between the selling agent and the buying agent. This amount or split is factored into the initial listing contract. Related Questions Why Are Realtor Commission Fees High? Real estate commission rates are high because realtors still need to split the amount. They also have to spend upfront fees for marketing your property and negotiating with … Read more

published on July 28, 2021

Is It Normal For the Buyer to Pay Closing Costs?

Woman in pink shirt holding a key

Is It Normal For the Buyer to Pay Closing Costs?

While purchasing a property, buyers often incur additional charges called closing costs. These include paying any remaining mortgage fees or taxes owed to complete the sale and deed transfer from one party to another. These aren’t typically included in the listed price, so these might come as extremely surprising if you were unaware beforehand.  Is It Normal for the Buyer to Pay Closing Costs? Yes, it is normal for the buyer to pay closing costs in most real estate transactions. However, closing costs can be negotiated depending on the terms and conditions outlined in the purchase contract between the parties.  When closing on a home, the buyer typically pays for most expenses. It is important to pay attention to know who is paying what at the time of purchase and should be detailed in the contract and pertinent addendums. Overlooking these details, or not understanding them completely can be a costly mistake. You also have the option of hiring a flat fee brokerage, like CA Flat Fee, that can manage closing cost negotiations and help you pay less on closing costs. A flat fee realtor that offers full service will charge you one flat fee and manage every aspect of the transaction, from listing to handling calls and potential buyers, all while helping you save money without the hassle of taking care of the process yourself.  What Are Closing Costs? Closing costs are various fees that must be paid before the actual closing and deed transfer of ownership takes place in a real estate sale. These usually range from three percent to five percent, except larger than usual transactions (i.e., more expensive homes).  These costs include prepayment of taxes and the required fee payable to county or local authorities in addition to loan fees, title and escrow fees, cash to close, insurance, commissions and more.  When it comes down to who is responsible for these costs for a home purchase, all the interested parties need to know that they could be held accountable before signing any agreements at all.  What Closing Costs Are Paid By The Seller? Every first-time home seller should learn a few things before they make their sale. For instance, who pays for title fees? And how much of the closing costs does the buyer pay, and what do you have to cover on your end? The cost to sell can vary wildly, depending on what type of property is being sold. Some of the closing costs paid by the seller include;  Premiums for title insurance: Most selling parties often cover the title insurance for the owners, for protection in case of any ownership issues. Transfer taxes and recording fees: These are taxes imposed by local governments when one transfers property titles.  Prorated taxes and Homeowners Association dues: Sellers compensate buyers for paying future monthly home association dues or prorated tax payments if they take over before month-end.  Home warranty premiums: It is not uncommon that a seller has offered their protection plan against possible damages inside the residence during this transition period.   If you’re selling, California Flat Fees services mean never having to worry again about negotiating closing costs on your own. It takes all the work out of house hunting and leaves you to enjoy your new home with their flat fee model, saving you time and money. What Closing Costs Are Paid By The Buyer? In general, all costs related to the loan, the property, and required insurance policies are paid by buyers. It may come as a surprise that many of these closing costs stem from the type of mortgage they acquire with their lender. As such, here is an idea for what might constitute some average costs on your end: Attorney fees: These are needed to process all the required paperwork. Credit report fees: These can help secure your mortgage. Loan origination fees and inspection charges: Don’t worry, the lender will reimburse these.  Discount points: These are an optional fee that may lower interest rates on loans with higher initial interest rates. Appraisal fees: When you’re buying a home, it’s essential to ensure that the price of your property is justified. A survey may be required in some cases and can help determine the size or dimensions of land if any questions arise.  Escrow deposits or advance payments made by either buyer or seller: These cover future taxes homeowners’ insurance payments while also ensuring their availability should those expenses become necessary before closing. CA Flat Fee’s high-quality services are perfect if you’re looking to get your home listed fast so that it doesn’t miss out on any potential buyers during this challenging time. CA Flat Fee even handles negotiations on closing costs so that you can focus on making this big decision without worrying about any additional expenses. Related Questions What Does it Mean When the Buyer Pays for Closing Costs? As with many things in real estate, what happens at a settlement can vary. The usual scenario is that buyers are responsible for their expenses, and sellers pay their closing fees on top of everything else.  However, depending on where you live, this could be different! Checking your state’s laws or consulting an experienced agent will help clear up any confusion so you don’t end up paying twice as much to close the deal. As with most things, negotiations always come into play and which party pays for which fees can typically be negotiated. How Can I Avoid Paying Closing Costs? There are a few ways that you can avoid paying closing costs. As a buyer, you could negotiate them between lenders, use lender-paid programs or get the seller to pay your closing costs! As a seller, you can negotiate these along with the sale price and other terms. There are other alternatives to reduce your out of pocket expense, like rolling closing costs into your mortgage loan amount, but ultimately the charges and costs exists and must be paid somehow. [lyte id=’nkia30I2i0Q’ /] Conclusion   Closing costs are part of every … Read more

published on July 28, 2021

Are Real Estate Commissions Deductible From Capital Gains?

A person filling out a tax form

Are Real Estate Commissions Deductible From Capital Gains?

More and more people put up properties for sale these days, and they are required to pay a commission. As with any average person, you want to minimize costs when selling property so that you make as much capital gains as possible while minimizing the total tax burden. So, is there a way to get the real estate commission back? Are real estate commissions deductible from capital gains? Are Real Estate Commissions Deductible from Capital Gains? No, real estate commissions are not deductible from capital gains like closing costs or escrow fees. Rather, you can subtract the commissions from the selling price of your property. Once you’ve done this, the tax on your capital gains is, in turn, affected; allowing you to avoid losing money on the commission you have paid.  The IRS regards commissions as an added cost to the total sale or purchase of your property. But they cannot be directly deducted from capital gains like home mortgage interest. Instead, you could deduct the commission from the total selling price of your property. So, if your house sells for $400,000 and the commission is fixed at 5%, the net amount of $380,000 is what the IRS views as your selling price. Therefore, this amount is the basis on which they would determine how much you would be taxed. An Alternative To Real Estate Commissions While most realtors deal based on percentages, an alternative type of commission is a fixed fee. This allows you to keep most of your gains when selling your property, so you’re happy.  CA Flat Fee lists your home for a flat fee of $5,000 instead of charging the regular three to five percent most traditional realtors charge. For instance, if your property sells for $400,000 you would only be paying the $5,000 flat fee as opposed to the $12,000 that a realtor charging 3% would bill. Additionally, with California Flat Fee, you receive more services than a typical flat fee company who typically only provides a Multiple Listing Service. This includes showings coordination, professional photography, and marketing, as well as negotiation and closing management.  Sales Expenses that You Can Deduct from Capital Gains Certain costs are incurred while selling a house, and thankfully, some of them are deductible from capital gains.  Appraisal fees Advertising Attorney fees Escrow fees Closing fees Mortgage satisfaction fees Document preparation fees Notary fees Settlement fees Costs associated with removing title clouds Title search fees Recording fees (if any is paid) City, county, or state-charged transfer or stamp taxes Deduction of these costs in addition to using the flat fee model guarantees that you’re left with significant capital gains afterward without the stress of handling every aspect of the transaction yourself. Recovering Expenses Incurred on Home Improvement from Capital Gains While minor expenses incurred to increase the physical outlook of your house cannot be deducted, it turns out that expenses on major improvements or renovations can be. However, they would have to absolutely qualify as major renovations. If you made any significant physical additions or overhauls, even years before putting your property up for sale, you can include the costs on a tax basis. This would in turn reduce the portion of your capital gains that would be taxable after the sale. To clearly define this, the home improvements made must have been done to increase the material value of your home (not necessarily the physical overview as in minor renovations), increase property life expectancy, or additional sections included for various uses. Here are some of these deductible home improvements that qualify for deductions: Installation of pipes, new insulation, or ducts Landscaping activity, such as a new lawn Replacing old fences, as well as building new porches, decks, or patios Upgrading or replacing heating and air conditioning system Adding a new garage, bedroom, or bathroom Replacing an old roof, doors, or windows New floors or walls Adding new In-built appliances Installing new walkways or driveways Replacing the wall-to-wall carpeting The Capital Gains Rule or Exclusion The rule guiding capital gains isn’t exactly a rule, rather, it qualifies as an exclusion, but it still increases your gain. At this point, you should recall that your capital gain is what would be left over after covering expenses, as well as paying off any existing mortgage debt. And taxation of your capital gains falls under income taxes. So, here comes the silver lining: you’re allowed to exclude as high as $500,000 of capital gains that you made from the sale if you’re married, and $250,000 if you’re single. The only requirement is that the house must have been your primary residence for at least two out of the past 5 years. Note that using the flat fee model doesn’t imply that the real estate commissions be directly deducted from capital gains. You would also have to follow the same ‘subtraction from the sale price’ process mentioned above. A Detailed Scenario Remember that capital gains aren’t calculated based on the original purchase price of your home, rather, the cost basis of your home is considered. So, say you bought your home for $400,000 and $100,000 went into improvements, you now end up with $500,000 as your cost basis. If this house is sold by a married couple, who have lived in it for a minimum of two years, for $1,000,000, they would be required to pay nothing in the way of capital gain taxes. A higher cost basis implies that your tax bill would be lower when you sell. Therefore, all you would be required to do is pay the real estate commission, which would be less than usual, using the flat fee model. You would have to present evidence that you’ve lived in the house for that time, and make sure you keep all receipts detailing home improvement costs safe. Related Questions When Do You Have To Pay Capital Gains Taxes? You have to pay capital gains taxes before the fixed payment date that is specific to the exact quarter that you … Read more

published on July 26, 2021

Are Real Estate Commissions Included in Cash to Close?

Person calculating real estate fees on a desk

Are Real Estate Commissions Included in Cash to Close?

It’s important to be financially prepared when buying a property. With several things to pay to complete a transaction, are real estate commissions included in cash to close? We’re going to discuss what cash to close means, how to estimate and how to pay for it.  Are Real Estate Commissions Included in Cash to Close? Real estate commissions are not included in cash to close because this is a different assortment of fees. Instead, cash to close covers downpayment and closing costs, minus deposits and credits. While the process depends on the company, it’s traditional for agents to receive commissions after completing a deal. However, if you don’t want to deal with big commissions, it would be best to use a flat fee full service model so that you can limit these expenses while CA Flat Fee handles every step of the transaction and manages every aspect of it. Understanding Cash to Close in Real Estate Cash to close refers to the funds you need to prepare and pay to finalize a deal or purchase. This is why the cash to close doesn’t include the real estate commission, as this is a different payment that a company may settle before or after completing the deal. Also known as funds to close, this covers the purchase price plus closing costs, minus fees from mortgage, earnest money deposit, or lender credits. Breaking Down Cash to Close Payment Typically cash to close is a buyer issue, unless the seller does not have enough equity in the sale to cover their fees and the commissions. Regardless, it’s essential that you identify the inclusions of the cash to close system.  Downpayment: This may take up a massive chunk of the cash to close payment because it’s a percentage of a property’s purchase price that you need to pay upfront. However, this could reduce the loan amount. Origination charges: This is the fee for processing and other miscellaneous costs of creating your loan. You need to pay this to the lender for underwriting the mortgage.  Closing costs: This covers expenses beyond the property itself, including application fee, title insurance, Homeowners Association transfer fee, inspection, the survey fee, property tax, and title search fee. Taxes: Depending on the agreement, buyers and sellers may split payment for government taxes, particularly real estate transfers and refinancing.  Prepaid items: Lenders commonly establish a trust account or escrow to pay for prepaid expenses such as hazard insurance or assessment costs. Credits: If a buyer already pays for closing costs, a deduction or credits would reflect on the cash to close. Additionally, a seller would give credits to a buyer for potential repairs at closing. In effect, you may pay less during cash to close. Calculating Cash to Close Expenses The real estate home selling market sees a 20.7% growth due to increased mortgage applications, families seeking more space, and solid home-builder activity in recent times. This growth is increasing purchasing prices which in turn increase mortgage costs and related closing costs for buyers. Fortunately, you won’t have to worry about real estate commissions as part of the cash to close. Sellers are especially able to take advantage of flat fee full-service while the market is very hot, since this kind of model would handle every process until closing day and minimize overall closing costs on this side of the transaction. Buyers can generally find the total figure of lending costs on the Closing Disclosure form from the lender. It is important to note that most transactions send this final document at least 3 days before closing per legal regulations and lenders are required to give an estimate when you apply for a loan so you have transparency and truth in lending. If you want to determine a rough estimate of your payment, follow these steps: Follow the formula: [downpayment + closing costs] – credits and deposits = total cash to close. Note the house’s exact purchase price. If you’re still going through listings, decide on the maximum purchase price you’re willing to pay. Depending on your loan type, credit score, or contract, you may need to pay 3% to 6% of the purchase price as the downpayment as a minimum. For example, $15,000 would be your downpayment if you need to pay 3% of a property priced at $500,000. Closing costs are typically 1% to 5% of your loan amount. For instance, 1% of $500,000 equates to $5,000. So, $15,000 (downpayment) plus $5,000 (closing costs) = $20,000 Subtract credits or deposits from $20,000, and the total would be your estimated cash to close payment. Ways to Pay Cash to Close The most common and secure payment form required by most escrow companies is a cashier’s check certified by banks. While payment through wire transfers is also becoming popular, make sure to communicate with your closing agent properly to ensure you’re using the correct recipient account number. In this way, you can avoid falling victim to wire fraud, which saw a 48% increase in incidents.  Related Questions What’s the Difference Between Closing Costs and Cash to Close? Closing costs refer to the expenses that are owed at the close of a sale to satisfy the contract. On the other hand, cash to close refers to the total amount of money that you will will need to provide to the escrow company after all credits and fees have been taken into consideration. What Happens If I Don’t Have Money for Cash to Close? This depends on the terms of the contract. In some cases, the deal won’t close if you don’t have enough funds. Sometimes, you can get sued for non-performance, or be held to the responsibility of paying for it.  What If My Cash to Close Is Negative? Negative cash to close is a good thing because it means you have extra money to spend. This usually happens when you get an excellent closing deal or a lender finances you more than you truly need which can result in additional money being … Read more

published on July 16, 2021

Do Realtors Always Get 6%?

Person counting dollar bills

Do Realtors Always Get 6%?

Commission rates take a chunk out of your money. Whether you’re planning to buy or sell a property, you might be thinking, do realtors always get 6% of the selling amount? We’re explaining everything about the commission rates of realtors and how you can save money by skipping 6% rates. Do Realtors Always Get 6%? Realtors don’t always get the full 6% commission rate, as brokerage firms divide the commission among agents. They may also get a certain amount for the costs of selling your property. However, you can still negotiate for a lower fee or avoid standard commission rates by choosing a full service flat fee broker. The 6% commission fee comes from several factors, which we’re going to discuss, so you’ll know how to choose the best local real estate service company that can save you from paying huge rates. Reasons Why Realtors Get a 6 Percent Commission Rate Realtors don’t always get the 6% commission rate as they need to split this among the people involved in the transaction, including listing or buyer’s agents. Besides, realtors need to pay for the legal and logistical matters involved in the selling. If you’re selling your house for $500,000, this implies that the realtor’s 6% commission amounts to $30,000. Real estate agents earn an average annual income of $62,000. However, that doesn’t mean the agent only needs to sell 2 houses per year to hit that income.  Considering the legal, logistical, and marketing cost of about 3% of the split commission, the take-home pay may only amount to $1,000 to $3,000. Divide that for the number of hours realtors spent working for you, and they only earn $28 to $30 per hour. A History of Realtors Getting 6 Percent When the National Association of Realtors (NAR) stepped in to fix commission rates in the 1940s, the standard commission rate of 6% emerged. This continues to be the standard rate for more than 50 years in the real estate industry. While the Supreme Court ruled out the practice, it didn’t have much impact on the housing industry. Despite many lawsuits brought against the boards, the 6% commission remained the same. Process of Paying Real Estate Agents Realtors receive a percentage of the amount that the listing brokers earn on the sale. Hence, realtors do not always get 6% on their deals or transactions. Even after the split between the Listing agent and the Buyer’s agent, the Realtor typically has a further split with their Broker for managing legal oversight, errors and omissions insurance, technology platforms, and more. It could be 70/30, 60/40, 50/50, although it all depends on the ratio both the agent and company agreed upon. Usually, top-producing and more experienced agents get a larger percentage of the total commission. While there are many cases in which two parties can split the commission, a brokerage can keep the full 6% commission if it lists a house and finds a potential buyer. Moreover, about 4% of realtors consider lowering the rate if they are the only agent involved in the transaction. Flat Fee Commission Model The best way to push through a profitable sale is to use a flat fee model, especially if you don’t want commissions to minimize your earnings. Mainly when doing FSBO, the process can be overwhelming if you don’t have access to MLS listings for advertising. A flat fee broker like CA Flat Fee offers a full-service listing without realtors getting 6% of the earnings. Despite the minimal rate, we will coordinate showings, manage calls from other agents, accomplish the paperwork, and negotiate until closing the deal.  This includes conducting market research, viewing your home, and setting a home inspection with an appraiser to determine the right value of your property.  The service also covers sending out a professional photographer. We will even put up a ‘for sale’ sign and realtor lockbox. Commissions When the Home Sale Doesn’t Close Keep in mind that buyers only pay the commission after settling the transaction. However, there are many instances in which sellers are liable to pay the broker’s commission or fee even if the deal is incomplete. If the agent has an offer from buyers who are willing to buy, the agent is still entitled to receive the commission if; The seller changes his mind and declines the deal The seller has a partner who refuses to make a deal  The seller has a title with uncorrected defects The seller commits fraud in a transaction The seller mutually cancel the deal or transaction with the buyers All of these instances are very rare, and typically a Realtor will preserve a relationship and future business before trying to enforce a commission based on a last minute change of heart by the sellers just before the sale is complete. Negotiating the Realtor’s Commission Rate You can possibly lower the 6% commission rate by discussing it with the realtor. It’s acceptable to ask agents or realtors if their fees are negotiable. However, negotiating a lower rate depends on factors, such as the type of property, demand in your locale, season, and even your agent’s experience. To reach a mutually beneficial amount, determine your negotiating leverage by knowing the demand for properties like yours in the area. You also need to identify the average commission fee in your locale. Additionally, offer to manage the home improvements and pre-listing repairs. Aside from that, you can interview at least 3 realtors and compare their prices. Then, when you find the lowest rate possible, you can negotiate this amount with the realtor you want to help sell your property. However, choosing a flat fee would save you energy in negotiating. It is recommended to ensure the flat fee company has an experienced Broker and offers full service. Related Questions Who Should Pay the Realtor’s Fee?  The person who pays for the realtor’s fee depends on the transaction’s circumstances. However, it’s usually the seller’s responsibility to pay for the realtor’s fee. The price generally comes from … Read more

published on July 5, 2021

How Are Realtor Fees and Closing Costs Calculated?

A calculator and notepad placed on top of dollar bills

How Are Realtor Fees and Closing Costs Calculated?

Realtor fees and closing costs may get a larger chunk of your total home sale price than expected if not estimated correctly. Homebuyers and sellers often wonder, how are realtor fees and closing costs calculated? We’re sharing what makes up closing costs and realtor’s fees, as well as how to calculate them correctly. How Are Realtor Fees and Closing Costs Calculated? Calculating realtor fees involves multiplying the price of the house and the agreed payment percentage between the broker and agent. Meanwhile, calculating closing costs involves adding various charges a buyer pays when taking ownership of a property. If you’re preparing to list your house for sale, you must know how to calculate closing costs and realtor’s fees. Calculating the Realtor Fees Typically, the average realtor fee is about 5% to 6% of the home’s total sales price. The agreed payment percentage is multiplied by the property price. Bear in mind that the fee is a percentage, so 5% is actually 0.05. However, the exact terms of the real estate agents’ commission may vary between the firm they serve and sales. Moreover, most brokerages split their commission with their agents. For instance, if you sell a house for $200,000 and the current commission rate is around 6%, your equation will be 6/100 x 200,000 = $12,000 in commission. In general, the seller’s and buyer’s agents split the commission after closing the deal. The company takes out its fee from the sale price and transfers it to real estate agents accordingly. Here’s what agents can expect to be paid based on what your property is selling for: Home sale price 5% real estate commission 6% real estate commission $100,000 $5,000 $6000 $250,000 $12,500 $15000 $500,000 $25,000 $30000 $750,000 $37,500 $45,000 $1,000,000 $50,000 $60,000 Factors Determining the Realtor Fees The structure of agent’s compensation depends on what role they play in the sales process. That is to say, how your brokerage pays you depends on whether you’re a seller’s agent or buyer’s agent. However, it generally depends on the commission percentage by the purchase price. On average, realtors may process around 12 residential property deals per year, and their earnings primarily rely on the realtor fees. Various factors influence how much you need to pay for realtor fees. You may negotiate to get lower prices depending on these conditions: Property value Seller’s situation Repeat client High competition for clients Buying demand Housing inventory The current state of the real estate market Realtor’s fees often have hidden charges that may make home listing a costly procedure. Fortunately, reliable brokers like CA Flat Fee can help you lower the cost of realtors’ fees as it charges a fixed amount of commission. This offers you more control over your home selling or buying process. Calculating Closing Costs as a Seller Closing costs for a seller may reach 8% to 10% of the property’s sale price. In general, you simply need to add the total cost of origination charges, services you can and cannot shop for, taxes, prepaid charges, escrow payment, among others.  As the seller pays the buyer’s agent commission and listing charges, the closing costs are higher for them compared to the buyer’s closing costs. Here’s a sample calculation of some closing costs: LOANS Origination charge $700 Appraisal fee $450 Lender fees $325 Home inspection $140 Survey $484 Attorney and settlement fees $1,015 Postage $91 TOTAL  $3,205 OTHER COSTS Owner’s title insurance $1,310 Property tax for 3 months $1,203 Transfer taxes $3,842 Government recording fee $145 TOTAL $6,500 Combining loans of $2,721 and other costs of $6,500, the total closing costs amount to $9,705. Keep in mind that this is only a rough estimate to have an idea of how much you may need to prepare. Potential Inclusions of Closing Costs It is worth mentioning that closing costs are the collection of several different fees. Home sellers are responsible for paying realtor charges at closing. The realtor doesn’t pay any closing cost, even if the title implies that. The average closing costs in the USA amount to $5,749. With this considerable cost, it’s crucial that you understand what the closing costs could entail. Transfer charges: This covers what state and local governments charge on home sale deals, including transfer taxes, property taxes, and recording fees. Attorney fees and settlement services: Payment if an attorney represents you for the settlement of closing of the sale.  Appraisal: This fee pays for an appraiser who needs to confirm a property’s value using its size, condition, and features. Survey: Payment for a detailed assessment of the property’s boundaries. It also entails essential information like walls, roads, easements, and gas lines. Owner’s title insurance: This is an optional insurance policy, although this is beneficial if you need to face legal battles against foreclosures and property claims. Lender charges: Also known as origination charges, the lender charges are the fees associated with mortgage application and processing. Prepaids: Payment in advance for things you need to pay regularly as a homeowner. This may cover homeowner’s insurance to protect the property against natural calamities, theft, and other unfortunate events. Escrow amount: The escrow includes insurance in case you fail to pay in the future. Additionally, escrow property taxes provide backup should you miss paying taxes. Related Questions Do Buyers Need to Pay for Realtor Fees? Typically, buyers don’t need to pay the fees because the seller pays the real estate agent fees. The seller signs a listing contract with the agent and agrees to pay the commission charges.  What Should I Do If I Can’t Afford Closing Costs? The most common way to pay for your closing costs as a buyer if you are unable to afford them is to request a grant with approved states or local housing agencies or commissions, negotiate concessions, or qualify for specific loans that offset these costs. The agencies offer a certain amount of funding for grants for closing costs to help low-to-moderate income people and there are special loans designed specifically for first time … Read more

published on June 19, 2021

Are There Closing Costs as a For Sale By Owner?

Hand holding a house key and a tiny house model on a table

Are There Closing Costs as a For Sale By Owner?

If you’re considering selling a house yourself, you might be thinking, are there closing costs on a for sale by owner method? We’re breaking down closing costs on FSBO to help you understand how it works and see if this is the ideal process to sell your property. Are There Closing Costs as a For Sale By Owner? Yes, there are closing costs when you choose the For Sale By Owner selling method. This usually ranges from around 2% to 4% of the property’s purchase price. Depending on the transaction or locale, the FSBO closing costs may include transfer taxes, attorney fees, contracts, and promotional materials. If you want to try FSBO, you need to understand this buying process to ensure you’ll be getting your money’s worth and sell your property in the best way possible. Inclusions in the FSBO Closing Costs Some of the mandatory costs include taxes and fees from involved authorities such as state and local government and lenders. Attorney fees, seller concessions, and buyer’s agent commission are additional closing costs you may have to pay when considering FSBO. You may also need to pay for title search, reconveyance deed, pre-listing home inspection, staging, open house expenses, and professional listing photos. If the listing runs for about a month, you might need to continue paying for mortgage, insurance, utility bills, and HOA dues. Benefits of For Sale By Owner Selling your property for FSBO means you will sell your house in the competitive housing market without involving a real estate agent. FSBO transactions take up around 7% to 11% of the market, and this method offers several benefits. Save listing fees: Listing commissions can cost you more than 2.51% of the average home price. When you sell ‘For Sale by Owner’, you save the fees or commission on the listing agent. Closing costs without hiring a realtor make a typical average of 1% to 7% percent of the sale price.  More control over decisions: Becoming a FSBO seller means you make all the decisions regarding the price, showing schedules, listing timeframes, making marketing strategies, and negotiation tactics without input from a licensed agent. Lower commission or no commission: Selling your home as an FSBO seller means no commission or fee you need to pay. Even if the buyer works with an agent, you can still avoid 1% to 4% in listing commissions. Process of a House for Sale by Owner  Since there are closing costs on a For Sale by Owner method, it would be best to follow certain steps for you to sell properties effectively. Price Your Property The most important step to selling your home as a FSBO seller is determining the correct listing price. About 9% of FSBO sellers find it most challenging to set the right price, causing them to overprice their properties, which becomes the most costly mistake sometimes. Remember that homes that have high prices end up sitting too long in the housing market. That is why experts suggest doing a comparative analysis of the sold homes in your area before listing your home. It is a great way to estimate the list price for the property. You can also seek help from professionals who charge a fixed commission to list your home, such as CA Flat Fee brokers. Our team of professional brokers has access to different comparative tools, allowing them to provide an accurate assessment of the house’s worth. Stage “Home For Sale” It is pivotal to spend some time decluttering and organizing your home before selling it. You might want to take your personal items from the house, such as toiletries, photos, or toys like these. Keep in mind that home staging is an essential step if you want to appeal to a range of potential buyers. You may hire a professional home stager to do the task. Market Your Property Through Open Houses and MLS Listings  This step involves multiple tasks. Once your home is all set to attract buyers, you need to market it using your creativity. You can hire a flat fee broker as they’re experts and have access to marketing materials and several other resources. In fact, the broker has a marketing budget to advertise the home to buyers in different locations. If you want to do it independently, use your social media platforms, flyers, or host an open house to spread the word. You need to get your house in front of as many qualified buyers as possible, and the best way to do it is to list it on the MLS. The licensed agents from CA Flat Fee can help you list a house on the MLS without charging an additional amount. Negotiate the Home Sale Once you start receiving offers from the buyers, you’re responsible for carrying out negotiations as a FSBO seller. If the buyer offers a low price, negotiate with them on an acceptable price, along with all the contingencies. Related Questions Who Pays the FSBO Closing Costs?  Depending on the situation, the buyer or seller may pay the closing costs. The buyers or sellers pay this amount to the Escrow Company or Title Company for conducting or performing the closing. Both sellers and buyers pay closing costs, whereas the buyer pays more than the seller does.  How Can You Sell Your House Without Paying a Realtor’s Fee? If you want to sell your house without paying a realtor’s fee, you can try marketing your property on your own and holding an open house. However, this also involves paying for potential advertising and legal costs. It may become a stressful process if you lack the time to manage all the inquiries and showing as well as if you lack the experience and legal knowledge to work through the many contracts. [lyte id=’nkia30I2i0Q’ /] Summing Up For Sale By Owner usually entails closing costs of about 2% to 4% of a property’s purchase price. While this means you have to manage all of the processes involved in selling a … Read more

published on June 19, 2021

Are Buyers Agent Fees Tax Deductible?

Hand on a pile of tax documents

Are Buyers Agent Fees Tax Deductible?

If you’re looking for a potential buyer to sell your house, keep in mind that selling property allows tax deductions. As 2018 introduced some new tax codes or tax cuts, it has changed certain regulations and rules for homeowners. However, rest assured that if you’re planning to sell your house in 2020, the tax deduction still amounts to sizable savings when filing with the IRS. Does this tax deduction include buyers’ agent fees? Are the buyers’ agent fees tax deductible? Are the Buyers’ Agent Fees Tax Deductible? If you want to purchase a property or house for investment purposes, the cost to hire or use a buyers’ agent is tax-deductible (“cost base” or acquisition forms part). However; it is always better to check with a professional accountant to learn about the fees and whether they’re tax-deductible or not in a specific case. Put simply; you may deduct costs associated with home selling, such as advertising costs, legal fees, and realtor or agent commission. What Is The Buyer’s Agent Fee? Keep in mind that if you’re a buyer, your seller’s agent and your agent split a fee (commission). Typically, it is 5 to 6 percent of the total purchase price of the property. While the seller pays this fee, technically, it depends on how much a seller lists the home for. If you’re not interested in paying the buyer’s agent fee, you can choose a flat fee pricing model that has fixed rates for real estate services. When you work with reliable flat fee real estate brokers such as CA Flat Fee, you get more services than your average realtor while saving a lot of money.  Why Do You Need A Buyers’ Agent? When selling a property, engaging a professional buyers’ agent in the process may help in numerous ways. An agent not only saves you time, money, or stress but helps you with your investment. You gain more knowledge about the home selling process that helps you make an informed decision. With a buyer agent, you have access to extensive analysis and research into comparable market data and past sales. It protects you from making hasty and emotional decisions and paying extra. Plus, you gain access to more homes, silent listings, and a wide network of various investment opportunities. Typically, you need buyers’ agents for the given reasons: Save Time Working with a buyer’s agent reduces the time you spend searching. Otherwise, you need to check 60 to 200 properties to understand the market. Buyers’ agents can cut down the purchasing process to under 30 days. These agents can save you time that otherwise would go into attending inspections on weekends and completing lengthy paperwork. [lyte id=’sTp07cGbtto’ /] Additionally, buyer’s agents have access to most listings through an MLS, as well as homes that are For sale By the Owner. Save Money Buyer’s agents prevent you from making quick and emotional decisions and paying too much. They know the tricks to secure a house at the lowest price and can leverage this knowledge as you tap into the process, and have experience in negotiating the price as well as selling conditions. Most agents can complete a professional assessment to give you the confidence to buy or sell at the right price. Remove Stress from the Buying Process Buyer’s agents remove the pressure and stress of searching and dealing with realtors and agents and remove the frustration of constantly outbid at-home selling auctions. Buyers’ agents save you stress if they’re knowledgeable, experienced, and have your best interest at heart. They deal with the seller by taking emotion out of the negotiation and offer the right advice on the home’s value. With a vast agent contact database, a buyers’ agent helps people find off-market homes or properties. What Can A Real Estate Agent Deduct from Taxes? Licenses and Fees: For real estate agents, yearly fees are a common cost of doing this business. This is the reason they are deductible. The category of tax deductions includes the cost of professional membership, MLS dues, and renewal fees of state license. Also, a portion of some dues goes to lobbying, and advocacy is not deductible. You need to address it when filling.   Business and Insurance: Both Errors & Omissions and business insurance are deductible as real estate tax deductions by IRS. You cannot deduct any self-employment tax from taxable income; deducting real estate taxes is mandatory for the business. You can also look into selling your house under LLC for added tax benefits. Commissions Paid: All the commissions you pay to employees or agents are deductibles as regular business expenses. This is, without a doubt, a crucial deduction that adds up fast. Do Buyers Pay Realtor Fees? You may know of realtor fees as commissions. These are typically a part of real estate transactions. However, a buyer doesn’t usually pay realtor fees. Partnering with a flat fee realtor can help save a seller money. Typically, it is 3% to list a home for sale, but with CA Flat Fee we charge just $3,000. Does the Seller Pay the Buyer’s Agent? Typically, the selling agent contracts with the seller to receive a commission or fees. If a buyer hires their own realtor, the selling agent divides the commission with other realtors. In many parts of the USA, the seller pays the buyers’ agent fees. Conclusion In a nutshell, having a buyer’s agent by your side to close the deal can benefit you in many ways. Their fees are tax-deductible, especially when you buy a house for an investment purpose. However; it’s best to consult with a professional to understand the criteria of this deduction and how it may benefit you.

published on May 31, 2021

Does Zillow Take a Commission?

An aerial view of a neighborhood

Does Zillow Take a Commission?

For many sellers, the idea of listing a property, scheduling an open house, and decorating it seems overwhelming. Even if your property on sale is spotless, selling it can be a time consuming and tedious process. That’s where popular online real estate marketplaces like Zillow come in. But does Zillow take a commission?  In this post, we explain everything you need to know about Zillow’s work process and whether it takes a commission or not. Does Zillow Take a Commission? No, Zillow doesn’t take a commission from home sellers for listing their home or property. The online real estate marketplace only introduces sellers to potential buyers who work with different brokers. These brokers of prospective buyers may charge a fee. That is to say, there is no fee or charge to list a home on Zillow FSBO (for sale by owner). The real estate marketplace aims to simplify the home buying or home selling process for both parties. Yet, even if you use Zillow to list your house for sale, you might have to pay a commission to the buyer’s agent.  Other than that, with a platform like Zillow, you don’t have to worry about paying FSBO listing fees. Not having to pay these fees is a great benefit for anyone considering managing their own listing. You can choose Zillow… To start receiving offers to purchase your property directly within 48 hours To take a 10 percent to 15 percent discount to sell the property To eliminate some of the hassle and stress from the house selling process   What is Zillow FSBO and How it Works Zillow FSBO (for sale by owner) refers to listing your property on an online real estate market for sale on your own. As mentioned above, Zillow is an online aggregate website for listing real estate properties. It has accrued over 70 percent of the online search traffic for real estate listings.  The FSBO listing process makes selling a property on Zillow without hiring a professional realtor or real estate agent easier. However, that also means every aspect of selling and marketing your home is your responsibility. These responsibilities include listing, negotiating, staging, pricing, and closing your house, among other services that real estate brokers usually do for you.  However, if you don’t want to pay additional charges or think that hiring a real estate agent will eat into your profits, you can opt for a flat fee real estate agent instead. It is an excellent way to get the exceptional services you expect from a competent realtor at a fixed cost.  Does Your Property Show On Local MLS When You List On Zillow?  No. Most people who use platforms like Zillow also choose to get their properties on an MLS (multiple listing service). That’s mainly because many FSBO sites don’t have enough traffic or visitors and rely on MLS listings to actually sell a house. That doesn’t mean that listings posted directly on Zillow wont be seen, but they are not syndicated to MLS. You’d need to hire a licensed real estate agent or a flat fee broker to ensure a property is on an MLS, which would allow other local buyer realtors to see the property for sale. Listing on an MLS allows for current and accurate information for buyers, as well as over 200 fields of information, which most can be identified through acronyms. Zillow currently offers 40-90.  How Does Zillow Make Money? Since Zillow does not take commissions on FSBO listings, they instead allow real estate agents to pay for “buyer leads”. This allows realtors to become Premier Agents in their system.  When buyers request to be contacted regarding a property a list of Premier Agents will be shown prior to the property owner. As a seller, this means that interested buyers could reach out to an agent first instead of connecting directly with you. Working directly with a flat fee realtor avoids this entirely since the property would be listed directly on an MLS with one selling agent listed. As a seller, you would be able to select and work directly with your agent and they would handle all interested buyers. This also ensures you avoid solicitations from Zillow agents looking to work with you to sell your home. Does Listing FSBO on Zillow Save Time? As the selling agent of your own property, you are able to instantly list your home on Zillow. You do not need to go through a third party or wait for an agent to post on MLS. However; before setting up the listing on Zillow there are items that need to be completed first that will take time and research, such as… Researching home features and benefits Scheduling professional photography and staging Researching market value Managing showings with buyers and agents All of the above items are necessary to ensure that your listing is ready for buyers to review. The cost savings by listing on Zillow may not outweigh the time required to successfully list your home.  Is It a Good Idea to List Your House on Zillow? Listing your house on Zillow can be a good idea if your primary goal is saving money while selling your house. Especially since Zillow is free and other services will charge an upfront fee or commission. Additionally, for those interested in managing their entire home listing, Zillow can be an enticing alternative. However; their services can be limited compared to other real estate options. If you list on Zillow, you would be fully responsible for staging your home, taking professional pictures, accurately listing all aspects of your home, and selecting an appropriate selling price. The real work truly begins once an offer is received and as a home owner you need to navigate many pages of contracts and legal addendums, work with title and escrow companies to transfer ownership deeds, manage inspections, negotiate repair requests and support appraisals. This all occurs after taking many phone calls and coordinating many showings and sifting through the minute … Read more

published on May 31, 2021

Is Zillow a MLS?

Woman using a laptop to look for real estate listings

Is Zillow a MLS?

Zillow, as one of the most-visited real estate websites in the US, offers consumers an on-demand experience for buying, selling, financing, and renting homes. It allows seamless and transparent end-to-end service. Like multiple listing services, dozens of realtors rely on its market across the country. Seeing many similarities between Zillow and a multiple listing service (MLS), many homebuyers and sellers are wondering, “Is Zillow an MLS?” If that’s your case, you have come to the right place. Is Zillow an MLS? Zillow is not an MLS. While many consumers believe that Zillow is the same as an MLS, many real estate agents consider Zillow less effective compared to using multiple listing services for selling or buying properties. Zillow itself is a real estate database and marketing company selling advertising to real estate agents and brokers, and connecting them with potential buyers. There are several reasons why people might think Zillow is an MLS:  It is free to list a house on Zillow FSBO (for sale by owner) or with a real estate agent.  It shows listings for houses for sale by owners and by agents  It is an excellent marketing tool to sell homes  It shows images, layouts, and relevant information about the listed houses Uninformed sellers think that if they list their house on Zillow, most agents and buyers will know that it is for sale only because it’s on the site. They expect their house will receive an excellent offer and capture buyers’ attention right away. However, it doesn’t happen this way. Typically, when sellers list their houses on Zillow for sale, they receive more calls from telemarketers or real estate agents looking for a lead than from potential buyers. Most real estate agents would rather sign a listing agreement in which they make sellers agree to pay a commission of six percent. This is perhaps the reason many sellers and buyers consider MLS more reliable than Zillow when it comes to selling and buying properties. Most realtors and real estate agents use MLS to find homes for the potential buyers they work for. In general, real estate agents use MLS more than they use Zillow to find the right deal for their clients. Why Do Realtors Use MLS? Realtors, including flat fee realtors, use MLS because they contain more accurate and comprehensive information. Most importantly, MLS, in contrast to Zillow, provide non-public information that’s relevant to the agents and their buyers. While Zillow has 50-80 fields of information and pictures about the properties, an average MLS has more than 300. That means Zillow provides limited information about a property. In contrast, an MLS includes all the market times, listing information, photos, unsuccessful listings that date 10 to 20 years back. Zillow only includes information that depends on whoever listed the property, the relationship with real estate brokerages, and the MLS in the area. In other words, Zillow has no effective mechanism in place to help the platform correct listed information.  MLS have experts who constantly look out, identify, and report errors. Most importantly, MLS have the ability to fine monetary charges to the participants or realtors who enter false or incorrect details or avoid correcting errors. Does Zillow Use MLS? Keep in mind that many MLS are associated with the Zillow Partnership Platform (ZPP). The relationship between brokers and Zillow creates this association and listing information. One of the common goals of ZPP is to show and deliver curated, accurate, and real-time data of listings to serve both consumers and agents. Now, multiple listing services take advantage of the Zillow Data Dashboard, which is a part of the Zillow Partnership Platform. It is typically a reporting platform and listing management system that increases control of MLS brokers and members to send direct information to Zillow. Does Zillow Feature Every MLS in The Country? Currently, Zillow doesn’t feature every MLS in the country. However; the online marketplace is working on including more. There are currently over 600 MLS in the United States, and Zillow is trying to understand the relevance of each one before partnering with them. Can Home Sellers List on Zillow without MLS? Yes, home sellers can list their property on Zillow without paying any realtor fees. However, only a small percentage of people can close the deal themselves this way, also MLS uses a lot of acronyms that you may not be familiar with. Over 60 percent of home sellers try to list their houses themselves on Zillow to save realtor’s fees or commissions, only a few of them end up sealing the deal. Partnering with a flat fee agent can help home sellers save money, but also receive the benefits of an MLS listing.  Is Listing on Zillow Worth it? According to Forbes, Zillow might offer sellers up to 10 to 15 percent discounts. That means, if you’re an experienced home seller, listing your house on Zillow might be worth it as it may help you eliminate hassle, effort, and stress from the whole process. If you aren’t, you’ll benefit from the services of a professional broker who has in-depth knowledge of the local market and what services will suit you the best when listing your house. For instance, opting for a flat fee model to list your property is a great way to get competent real estate services at affordable prices. From showing coordination to closing, you can get everything at a low, flat fee price when you work with an experienced and renowned flat fee broker.   Summing Up All in all, while Zillow offers some significant advantages to realtors and home sellers, it is not always the best platform to sell your house. You can use it to get leads by repackaging details from MLS syndication and various other sources. Thus, you need to remember that it is not an MLS but may serve as a part of it for home sellers. 

published on May 31, 2021