About Real Estate Agency, Commissions & Choosing an Agent.

Real Estate Agency Loosely Defined

Alabama and most states have laws governing agency relationships in real estate transactions. Generally, agents may function in a true agency capacity for a particular party to a real estate transaction or only as an aid to a party in a real estate transaction without being involved in an actual agreed agency relationship. There are other technicalities but the primary differences in the use of a real estate agent is whether within an agency agreement on paper or the lack of such agreement. A buyer or seller can either choose to engage a real estate licensee as an agent or not have an agency agreement and still use the services of the licensee. The highest level of service an agent can provide is as an agent representing you as the buyer or seller in a single capacity. As an agent representing you in the transaction, the real estate licensee has greater obligations to you within the entire process of finding a suitable property, making an offer, negotiating a contract and seeing the whole process through closing.

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Real Estate Commissions

As you likely know, real estate is listed, marketed and sold with commission structures. What some people do not fully understand is how the commissions are earned and distributed between brokerages "cooperating" in real estate transactions. Commission fees are negotiable and determined with agreement between the listing brokerage's agent and the seller at the time of listing the property. Commission agreements most often are based on a percentage of the eventual selling price for the property but vary somewhat between different types of properties or, sometimes, depending on the value of the property. Land is most often listed within the range of 8% to 10% commission structures and homes most often within the 5%-6% commission range. A property of lower value may be listed for a flat feet of say $2000 because the normal percentage rates would not even make marketing the property worthwhile for a brokerage. For example, a 10% commission on a lot that is only worth around $5000. When that lot sells, with a 10% commission there would only be $500 to split between two brokerages which isn't really even enough to cover the time expense of seeing that transaction through. Similarly, while negotiating the commission on a home down to 4% or on land down to 6% may seem like good business practice, the reality is that your property offering will probably realize better results with a competitive commission structure more attractive to potential selling agents. Given two properties that appear as suitable prospects for an agents engaged buyer, there is no question that the agent will lean more toward the one with a 6% commission as opposed to one that may have a 4% commission. Agents work exclusively on commission and, just like with you, income is critical to their survival.

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Commission Splits and Agent Representation

Common perceptions, even among agents, is that the seller "pays the commissions" for the real estate transaction when closed. It is true that the commissions, along with many other costs, reduce the funds the seller will realize from closing because the commissions must come from the transaction. Also, as noted above, the seller has played the part of negotiating the commission rate, so that is within their control before the purchaser comes into the picture. However, it is the purchaser who brings the funds to the transaction in the first place, so who actually pays them? There are no funds for disbursement without the purchaser's participation in and contribution to the transaction. Fact of the matter is that the commissions are necessarily committed to the transaction in order to cover expenses involved with maintaining the MLS Systems, any additional marketing of the property and the services of professional real estate agents. This commission structure is set up to allow for transactions in which both the seller and the purchaser may each have separate agency representation. As a purchaser, choosing your own "Purchasing Agent" does not add costs to you in the transaction. It is true that listing agents sometimes offer to reduce the total commissions if they sell their own listings themselves. This can save the seller some expense in the transaction but a good question with respect to that scenario is at whose expense do those savings come. Personally, this agent prefers not selling his own listings due to all the potential conflicts of interest that invariably seem to present themselves in those situations. A purchaser might want to give some serious thought as to whether the sellers representative can also represent their best interests in the transaction process. A seller might want to ponder whether potential legal exposure is best shielded with their agent also representing the purchaser in the transaction. Certainly from a legal standpoint and more than likely from a financial standpoint, if spread evenly between both parties, the parties to a real estate transaction are generally best served when each has their own separate agent representation and the agents are from separate brokerage companies.

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Listing Your Property as a Seller

So, you have property you plan to sell. How will you best choose the agent and brokerage with which to list your property? The answer to this question can present several points worthy of consideration. Many people are likely to choose an agent they know, or an agent that is a friend of a friend, etc. for listing their property. This often is a good choice because that agent is probably known, respected and considered of good character by either yourself or someone you know. However, another important consideration is the specialization of the agent you choose. Many agents are part time, many agents & brokerages confine their activities to a relatively small coverage area and most typically are involved primarily with urban or suburban homes on typical lots. Other agents or brokerages may specialize in commercial properties, raw land, development land, farms, etc. Brokerages specializing in commercial development properties or farms and acreage properties typically deal with much wider geographical areas. Brokerages or agents with specialization probably are geared more toward the marketing of those specific types of properties through either print advertising, internet marketing, newspaper ads or any combination of different media types. Thus, depending on your property type, you might be well served to consider the specialization and "marketing niche" of the brokerage and agent you choose. Of course the primary marketing tool for most any property generally is to get it listed in the local MLS System. Some properties, such as recreational use properties, farms or investment properties, may benefit significantly from listing on multiple MLS systems, for which your options become more limited. Relatively few brokerages are members of more than one MLS System. Often the primary benefit of listing your property with a brokerage that can place your property on multiple MLS Systems is within certain border or overlap areas between different MLS System coverage areas. Within these type areas, marketing of the property between two different cities can provide equivalent chances for reaching your eventual buyer from either of the opposing market areas.

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If You're Moving into Buying Mode

You plan on buying, know roughly what type of property you want to find and have been keeping an eye out by searching the internet or other means. When you spot a property or a few properties you would like to visit, how do you best choose an agent? If you are selling a property within the same market area, you probably already have an agent engaged for listing the property you plan exiting. Otherwise, how you proceed at this point will have a significant bearing on the amount of time, effort and frustration you will spend looking at properties. If, for example, you would like to look at 4 different properties in one day, your time will not be efficiently spent if you try to arrange to look at these 4 properties by scheduling with 4 separate agents. That will entail working within the time availability of 4 agents, redundant familiarization of 4 agents with your needs, preferences or other important considerations and will invariably present problems with meeting a preset schedule for viewing different properties. You will want to select 1 agent for arranging the scheduling which will result in a much more efficient and effective viewing experience for narrowing down or eliminating the properties for consideration. A wise choice for an agent will most likely be in one that specializes in the type property you are seeking. Once a choice is made for engaging an agent, that agent can get a good feel for your needs and desires, better facilitate the pre-screening of properties and provide valuable assistance from the pre-screening phase all the way through to closing the transaction. Of course, if you should ever decide your choice for an agent is not suitable, you can always "fire" that agent and engage another. In any event, proper planning is very important if serious about purchasing a property. Regardless of how much you may or may not know about real estate in general or the location and type property you are planning to purchase, buying a property is a major endeavor worthy of proper planning, qualified professional assistance and well thought out and implemented decisions throughout the whole process. Experienced Agents generally recognize and have great appreciation for the chance to work with prospects that exhibit qualifications for purchasing, have a clear perception of the type property sought, what the affordable price range is, the locational characteristics of where the property should be located and proper implementation of a realistic plan toward meeting the objectives. Your recognition of these points will serve you well in your property purchasing experience.

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