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Zachary Schunn, MBA and Advisor discusses in Part 1 of his Blog Series,

Why you should Hire a Broker ……

You’re in the market for real estate, but you’re confused about where to start. You instinctively start calling about properties where you see signs for sale or lease, or maybe you start contacting people you find online. You’ll probably hear back from a mix of owners, listing agents, property managers, and buyer/tenant representatives. You may start to feel rushed or overwhelmed and think to yourself, “What is going on?”

Step 1: Understand AgencyZachary Schunn, MBA

First, it is important to understand the concept of fiduciary duty and how real estate agency works. When property owners look to sell or lease their properties, they often enlist the help of a real estate agent. The owner is technically hiring the brokerage firm (not just the agent) to assist them. By law, the listing contract is signed with the brokerage firm; that way, if the agent leaves the firm or if the owner is unhappy with the agent’s efforts, the brokerage firm can assign a new agent to sell or lease the property. The same is true when the owner hires a property manager since, in most states, property managers must be licensed real estate agents and all management contracts must go through the brokerage firm as well.

The benefits of hiring a brokerage firm for a property owner are obvious. Real estate agents typically have better knowledge of the market, more contacts, better marketing abilities, and more experience completing a transaction. In return for these services, an owner typically agrees that if their broker successfully closes a deal, in a certain period of time (typically 6-12 months), the broker receives a commission. While “standard commission rates” are commonplace in the real estate industry, every contract is negotiable. There is no “standard” rate to charge. Percentage fees are most common, but flat rates, consultancy fees, and other payment arrangements are possible.

In the old days, what is described above is all you would need to know about agency: agents/brokers represented property owners. But in the 1980’s and ‘90’s, real estate consumers demanded change. Now, Buyers’ Agents and Tenant Representatives are the norm. Many consumers still do not understand the difference, which is why it’s so important. Anyone looking for space to buy or lease would be doing themselves a disservice by not embracing this change.

 

You can and you should hire a real estate broker

Once buyer agency became the industry norm, most brokers adopted the idea of offering “co-op” fees—i.e., offering a portion of their commission to buyers’ agents to entice them to bring prospects to their listings. By and large, this has become the standard practice. However, many agents/brokers refuse to offer co-op fees on listings, so they can earn all of the commission themselves. SVN has taken a unique stance when it comes to industry cooperation. SVN requires ALL brokerage franchisees to offer a minimum of 50% to cooperating brokers/agents for anyone who brings a prospect to their listing.

Today, EVERY real estate consumer who is planning to buy, sell, or lease a property has the right to hire a real estate broker. It is obvious to see why this change occurred when you compare real estate representation to legal representation. In a court case, there is typically a lawyer representing the plaintiff, and a lawyer representing the defendant. If for some reason you do not have your OWN lawyer, you are drastically reducing your chances of success. The same is true for anyone who chooses not to hire a professional real estate broker.

 

What does it cost?

In most cases, property owners are tasked with paying the sale or lease commission for both agents. Consider a hypothetical transaction offering a 4% commission. In this transaction, there are two possibilities:

  • If the listing broker represents only the owner in the sale, he or she receives the full 4% commission.
  • If the listing broker offers a co-op fee to a buyer’s representative that brings a successful buyer, the seller still pays 4%, but now 2% goes to the listing broker and the other 2% goes to the buyer’s broker.

In either case, the buyer owes NO real estate commission. But in the second scenario they gain a huge advantage by hiring their own professional representation!

Real estate brokerage can be complicated, especially when it comes to matters of agency and representation. But the key is to remember that the most important step in any real estate transaction is hiring someone who is working ONLY in YOUR best interest.

What next?

Call us! We offer a no-cost consultation with no obligations. Once you are ready to move forward, we can meet to discuss terms and conditions of a representation contract.

Watch for Part 2 in this series in early May 2016, which will focus on landlord representation and why hiring a broker is an investment that more than pays for itself!

Contact Zachary Schunn, MBA – Advisor – 513.588.1139 – zschunn@svn.com