Thursday, January 3, 2019

How Do Real Estate Agents Get Paid?

I've started writing about common questions that buyers and sellers have, and, believe it or not, how we get paid is still one of them.  To understand the payment process, we first have to go over the legalities of licensing.  Each real estate company has one broker for legal purposes.  At Pearce, for example, I'm that person.  All agents at Pearce "hang" their licenses with us, although some of them are salespeople (who must work for a broker), and some are brokers themselves (who could work independently or can work for another broker).  Over 90% of real estate companies across the country have fewer than ten agents, and the broker sells him- or herself.  That makes Pearce Real Estate one of the largest firms in the State, and across the country.  The principles of agency, however, are the same regardless of size.  It's also useful to note what Realtor designates (and it needs a trademark sign, which is above my pay grade on a computer!):  It means that the company, and therefore all of its agents, belong to the National Association of Realtors, agree to abide by its Code of Ethics, and can participate in the Multiple Listing Service (MLS).  Most local firms are Realtor firms if they sell residential real estate, and, increasingly, commercial firms are not. We are, and we handle both types of property.

When a seller signs a listing agreement, or a buyer signs a buyer broker agreement (and those two contracts are basically equivalent), they sign with the broker in charge.  Only the broker in charge sets the rules--commission rates and terms--or can legally change or cancel the agreement.  Most compensation is offered through the MLS:  When a listing is posted there, it has a BBC (Buyer Broker Commission) offered, and the listing firm is required to pay that amount to the broker who represents the buyer, unless a change is agreed to by both firms, or firm if it is a sale with both brokers at the same company (which we call an "in-house" sale).   In order to have an in-house sale, both buyer and seller must sign a Dual Agency agreement.

When the property closes,in most cases, the closing attorney makes out a check or checks to the brokerage firm--checks cannot be made out to individual agents.  Firms differ widely in the way they compensate agents within their firms, both in the percentage of the check that goes to the agent, and in what expenses they pay toward the transactions.  In addition, some (usually national) firms also charge buyers and sellers "transaction fees", which are paid on top of the commission, and go only to the real estate company. In some cases, the commission is divided evenly between the listing side of the transaction and the selling side.  Increasingly, the listing firm keeps a higher amount, and offers a BBC that is less than half of the total.

Agents are legally independent contractors, so they don't get a salary, or a regular paycheck.  They earn money only when property closes or rents, and they share that with their firm.  It used to be that the firm got half and the agent got half, but now it can vary.  Some companies pay higher amounts (sometimes much higher percentages) to the agent, but often charge them for their desk, their postage, their copies, and their marketing.  Many transaction-related expenses are borne by the agent personally.  If he or she takes you to lunch, that comes out of his or her pocket.  If a problem arises during the selling process, and is paid for by the broker, that is also often coming out of the agent's share.  If you were referred to your agent or agency by another real estate agent or company, either here or somewhere else, that agent's firm can be receiving up to half of the total amount paid.

If all of this is making you feel as though the poor agent is at the bottom of the heap, you could be right, especially if you don't end up selling or buying, and they get nothing for all of their work.  What my goal is, however, is to make you understand what they make, and when, and to help you appreciate their excellent efforts on your behalf!

Friday, December 28, 2018

Reaping the Rewards?

Now that the stock market has started to rally so strongly, maybe it’s time for people to take what they’ve made, and buy real estate instead.  In our region, prices are still very low, compared to even twenty years ago.  We used to have average home prices well above the national average, so that job recruits moving here were worried about finding affordable housing comparable to their previous homes.  Now, we are very close to the national average, and we haven’t gone up, in some areas, enough to cover the declines of the last decade.  Commercial prices have been bumping along, also not moving up over time.  Some industrial buildings are at prices equal to those of years ago.  While some towns have a shortage of smaller commercial spaces, others have empty big box stores, many of which could be repurposed.  We are very short on affordable housing in our region, and the gap keeps growing, as rents continue to rise.  Even as housing prices for homes have declined, rents have doubled, and many tenants are paying a percentage of their incomes for rental units that is considered to be onerous.

What does all this mean for buyers?  Real estate is, and always has been, cyclical to some extent.  Through the boom  years, we would say that what goes up, must come down.  Now it seems that the opposite should also be true:  What went down, will come back up.  There is still an opportunity in our area, which isn’t true in much of the country—especially the coasts—to get normal appreciation on purchases, given the current state of prices.  We know that investors have been increasingly drawn to our state, because of the high prices in Boston and NY.  Why would locals not invest as well?  While we’ve been reading about the woes of Connecticut, others have been coming from out of state and out of the country, and buying and buying.  With our deeper knowledge of the local market, we should be able to do better than they could.  So let’s make a resolution in 2019:  Buy local!

Wednesday, December 5, 2018

Racing for Daylight

This is the time of year where you need to make a drop dead decision ASAP, if you plan to close this year.  Although there are only four weeks left as of this writing, it's amazing how much faster something can happen if everyone gets on board to do so early.  Bankers, for instance, often have bonus plans that would give them that extra boost to push a transaction over the finish line.  Realtors certainly do. Owners, of course, have tax consequences that would favor closing in one year over another.

If you think it's too late, it's still worth checking.  People travel less before the holidays, at least for business, so those who are around may be more reachable and available.  It's just true that, when you put a rush on any order, everyone moves it to the top of the list.  So don't despair if you have left a sale for too late--just act quickly!

Monday, November 12, 2018

Got docks?

At almost every commercial meeting in our office, someone has a client with an immediate need for space that has at least one dock and overhead door.  We can usually satisfy the latter request, but are often stumped on the dock issue. For some reason, our area is woefully short on dock space.  It could be because not much has been built recently.  It could also be due to repurposing of commercial space into other types of uses--it's not uncommon to see a brewery with an overhead door used to make outside bar space, for instance.

Whatever the reason or reasons, we urge you to contact us if you've been considering the sale or lease of property that has at least one dock.  There's no time like the present for meeting that need!