Transcript Chapter 22 Residential Brokerage

Chapter 22
Residential Brokerage
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
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
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
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
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
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
The Essence of the Residential Real
Estate Brokerage Business
 Traditional market functions of residential
real estate brokers:
1. provide information to market
participants
2. analyze situations and refine the
interests and objectives of buyers and/or
sellers
3. disseminate information about sellers
properties or buyers needs in order to
secure a potential match, and
4. negotiate contracts which meet the
objectives of the buyers and/or sellers
5. assist with closing the transaction
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
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
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
Submarket Analysis
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Submarket Analysis (Contd.)
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
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
Types of Listing Contracts
 Bruce J. Lindeman suggests that all
listing contracts include the following:
1. A legal description of the property to
be sold
2. Legal names of the owners
3. 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
4. Asking price and any special terms
required by the seller for a sale to be
acceptable
5. Expiration date of the listing contract
6. 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
Determining Asking Prices
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
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
Closings
 The Real Estate Settlement Procedures
Act, or RESPA, 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
What does it take to make it as a
residential ales agent?
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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
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
END
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner