Chapter 22 Residential Brokerage

1. Chapter 22Residential Brokerage “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

2. Major Topics • Organization of the Residential Brokerage Industry • Licensing requirements • Role of Agents in the Transaction Process • Multiple Listing Services and the Internet • Listing Agreements, Pricing and Incentives • Influences on Time on the Market • The Impact of the Internet • The Future of Residential Brokerage “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

3. Industry Scale, Terms and Licensing • Roughly 7 million residential sales each year in the United States incl. new (about 1.5 million) and existing home resales • Less than 20% of sales in the year 2002 were sold directly by home owners, known as “FSBOs”, pronounced Fizz Bo, for “for sale by owner” • State licensing authorities have grouped together in an organization called ARELLO, for Association of Real Estate License Law Officials • www.ARELLO.org “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

4. REALTORS: A Trade Registered Name • REALTORs are members of the National Association of REALTORs, either as brokers or REALTOR Associates for agents working under brokers • Real estate brokerage firms that are not members of NAR, or the state and local chapters of NAR, will usually list their firm name with “Realty” on the end and in fact cannot describe themselves as REALTORs • The REALTIST group was formed in 1947, partly as a response to restrictive local REALTOR Board membership practices towards minorities and to serve a heavily African American constituency “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

5. The MLS: Multiple Listing Service • Central to the functioning of most local REALTOR Boards are local Multiple Listing Services, or MLS, which is the data exchange bank of local property available for sale, along with other market information to assist agents in evaluating market trends, perform comparative price analysis, and match buyers and sellers • The local MLS is rapidly giving way to electronic based national MLS and even international MLS systems which is placing great pressure on local REALTOR Boards to develop new ways to effectively serve their members “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

6. Fees • Typical commission rates for successfully completed transactions in the United States are 5% to 7% of the sales price, with 5% typical for new home sales in larger developments, and 6% or 7% typical in many other local markets for what the industry describes as “full service” firms • A few firms have evolved which charge less than typical fees or flat fees and provide listing, advertising, and negotiation assistance, but no showing/ other services “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

7. The Essence of the Residential Real Estate Brokerage Business • Traditional market functions of residential real estate brokers: • provide information to market participants • analyze situations and refine the interests and objectives of buyers and/or sellers • disseminate information about sellers properties or buyers needs in order to secure a potential match, and • negotiate contracts which meet the objectives of the buyers and/or sellers • assist with closing the transaction “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

8. Buyer Representation • Buyer brokerage is a relatively new phenomena in the real estate brokerage industry • Dual agency, where an agent acts in behalf of both buyer and seller on an open and disclosed basis, a common phenomena in the 1970s and 1980s is rare today • One major advantage of buyer representation specialization for a firm or broker is that there is little overhead cost such as advertising associated with the servicing of buyers as compared to servicing potential sellers listings “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

9. How do agents find buyers to represent? • According to successful real estate agents, most buyer clients come through referrals from satisfied clients, friends and relatives • Another primary source of buyers is through open house visitors and calls on ads placed on other listings by the listing agent or firm, which usually do not match the tastes and preferences or financial abilities of the buyers showing up at an open house • A third major source of buyers is through “floor time” where agents answer general office calls inquiring about other agents listings or from general firm advertising “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

10. Submarket Analysis “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

11. Submarket Analysis (Contd.) “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

12. Seller Representation • To serve the needs of sellers agents must be able to: • understand the greater priorities of the seller between the objectives of selling quickly or at a higher price, • research the market prices of comparable property which has recently sold or is for sale and advise on an asking price and likely sales price • develop a marketing plan to help match the property with potential buyers • facilitate the negotiation and contracting process, and eliminate contingencies prior to closing “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

13. Types of Listing Contracts • Bruce J. Lindeman suggests that all listing contracts include the following: • A legal description of the property to be sold • Legal names of the owners • Objective of the listing, such as producing a contract offer from a buyer, ready, willing and able to purchase the property with terms acceptable to the seller • Asking price and any special terms required by the seller for a sale to be acceptable • Expiration date of the listing contract • Commission rate or fee and the manner in which it will be calculated “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

14. Determining Asking Prices “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

15. Material Defects and Disclosure • It is a requirement in all states to disclose material defects • A material defect is anything that would alter the value of the property in the mind of the typical buyer if they had known about the defect • The seller must now provide the buyer with a written disclosure statement that details the mechanical and structural conditions of the property in a form specified by the state legislature • All real estate licensees should be familiar with this form to be sure that the buyer is fully informed of the property's condition “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

16. Closings • The Real Estate Settlement Procedures Act, orRESPA, was enacted by the U.S. Congress in 1974 • RESPA requires a standardized form as produced by HUD, the Housing and Urban Development agency of the federal government, to be used at all closings involving financing from federally mortgage lenders or whenever federal insurance or benefits are involved • RESPA requires the advance disclosure of all closing costs to the buyer • Most buyers sign a waiver of this disclosure right in order to speed up the closing process “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

17. What does it take to make it as a residential ales agent? • long hours, high energy, positive thinkers • driven to succeed • totally committed and able to focus • they like the independence and entrepreneurial reward nature of a career in sales • most found a good mentor early in their career but others were self-starters • love to work with people • most use assistants, especially those who are more productive • most use all of the available technology • most pre-qualify or screen buyers in order to not waste time on unrealistic buyer dreams “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

18. The Future of the US Residential Brokerage Industry • To the extent that firms depend on one another to share the total demand for their services, imitative pricing will be the rule of survival in local markets • Consumers are gaining more control over the search process and this affects the enforcement mechanism that has historically deterred price competition among brokerage firms • A drop in the commission rates will likely drive the marginal producers out of the industry • This “weeding-out” process is likely to result in a more professional and experienced agent becoming the norm “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

19. END “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner