The Ultimate Guide to Real Estate
Real estate is actually a linchpin industry in our society. People need to buy and sell property, and they need experts to help understand and manage the transactions.
In the past decade, software as well as websites have amended the standard real estate process. But no matter how much technology advances, it’ll never replace the real estate middleman — the agent.
Why? This is because as significant as real estate is to our society, it remains an enigma to most consumers. Between the varied laws, paperwork, and best practices, there’s a great deal that goes into buying and selling property.
That’s why we’ve compiled this guide, and our reasoning is twofold: to help consumers better understand the real estate process and to equip real estate agents to better market their business. We strongly believe this guide can actually assist both — particularly those consumers considering real estate as a career choice.
The Four Types of Real Estate
Real estate is defined because the property and buildings on a particular piece of land. Moreover, it even includes the air as well as underground rights above and below the land, respectively. The term “real estate” actually implies real, or physical, property.
As a physical entity, real estate includes four different type of property categories.
1. Residential
Residential real estate includes new construction as well as resale homes. You most likely know residential real estate as single-family homes. This category further includes duplexes, vacation homes, condominiumss and townhouses.
2. Commercial
Commerical real estate mostly includes places of business. This category also includes hospitals, shopping centers, colleges, strip malls, hotels as well as offices. Apartment buildings are often considered commercial, although they’re technically residential, because they produce income for their owners.
3. Industrial
Industrial includes manufacturing buildings and warehouses used for research, production, storage, and merchandise distribution.
4. Land
Land includes working farms and ranches. It also refers to vacant land, like undeveloped land and land on which homes or buildings are being assembled.
It’s important to grasp the various sorts of real estate because the sale and purchase of property differ depending on its type. Other processes like construction, zoning as well as appraisal are also handled independently.
Because these categories and their rules and regulations are so different, real estate agents typically specialise in only one specific type. Next, we’ll talk more about real estate agency in the section given below.
Who’s Who in Real Estate
The real estate industry is complicated, and a great deal goes into each transaction. For this reason, there’s a large number of individuals involved in the process. If you’ve ever bought or sold property, you’ve likely worked with some or all of those specialists.
The Agent
The real estate agent acts as a liaison between buyers or sellers and the industry itself. They’re accountable for finding potential property, listing property, negotiating prices, and far more. While some agents work with both buyers and sellers, most specialise in one or the other. This is because the responsibilities of each individual are very distinct.
The Seller’s (Listing) Agent
The seller’s agent works exclusively with people selling real estate, such as a home or office building. They’re also called a “listing” agent because they list property under their name and brokerage for others to actually find. (We’ll talk about the listing process below.)
Listing agents are liable for a range of things:
Helping determine the selling price of property
Listing and marketing the property
Managing open houses and showings
Answering questions of potential buyers
Guiding the negotiating of the sale price
Coordinating the sale and closing process
For residential sales, listing agents typically make 3% of the gross sale price, paid by the seller(s) — who pay another percentage to the buyer’s agent. For example, listing contracts written are for X% with X% offered to the cooperating agent.
The Buyer’s Agent
While on the other hand, the buyer’s agent works with individuals looking to buy real estate. They’re accountable for finding potential property, organizing showings and walkthroughs, negotiating on behalf of their clients, and assisting during the purchase and closing process.
Buyer clients typically don’t pay money for working with a buyer’s agent. Furthermore, if they successfully organize a real estate transaction, buyer’s agents make about 3% of the gross sale price, also paid by the seller.
The Broker
The real estate broker is taken into account one step above the agent. (Quite similar to the square or rectangle analogy; a broker is actually an agent, however an agent cannot be a broker.) Although the rules actually vary from state to state, brokers usually have more education as well as licensing than agents. As a result of this, brokers can form their own real estate brokerage and at the same time also hire agents as salespeople.
The Mortgage Lender
The mortgage lender is actually a financial institution that gives you money in order to fund your mortgage loan. When purchasing real estate, it’s actually encouraged to get pre-approved for a loan before touring as well as bidding on real estate. Real estate buyers will most probably work closely with a mortgage lender before looking at properties or homes.
The Appraiser
The appraiser works independently of the buying as well as selling party in order to determine the worth of property. Generally, the appraiser is chosen by the mortgage lender as it’s in their best interest to get the quite accurate and fair value of a home or building. Additionally, the property must appraise for the agreed-upon contracted sales price so that the lender can then grant the loan.
From conducting a room-by-room walk-through to reviewing exterior as well as interior conditions, the appraiser does most of their job on the site itself and then reports back to the lender.
The Inspector
Whereas appraisers are hired by lenders to actually determine the price of a property, inspectors are hired by potential buyers to really determine the structure, safety, and possible defects or damage in a home. It’s a lengthy process; inspectors are accountable for reviewing a listing of 1,600 things when looking over a building.
The Closing Attorney
The closing, or transactional, real estate attorney is just an attorney that specializes in real estate law. He or she is sometimes referred to as a “closing” attorney because that’s when most buyers or sellers encounter them — at closing. (We cover the closing process within the next section.)
Real estate attorneys actually assist buyers or sellers understand the legal documents with which they’re presented throughout the entire real estate process.
The Real Estate Process
Depending on the sort of property and individuals involved, the particular steps within each real estate transaction might fluctuate a small bit. But for the most part, the majority of transactions look the same.
Furthermore, for the sake of continuity as well as simplicity, we’re going to use a residential transaction tin order o outline the real estate process. Commercial and industrial transactions follow a comparable process, but the residential process is probably the most relatable among consumers.
We’ll cover both the seller’s and buyer’s perspectives below.
1. Hiring an Agent
When someone decides to sell their home, the very 1st thing he or she might do is hire a listing agent (unless they plan to sell it themselves as a For Sale By Owner).
Historically, clients have also found their listing agents via some personal recommendations or a local advertisement in a newspaper or even through a flyer. Nowadays, some sellers find their agents through online means, like social media, online advertisements, or on real estate websites. We talk more about few of these methods within the next section.
Listing agents typically give a listing presentation. This pitch will further even highlight how they’d price and market your home, what their commission structure is, and other competitive advantages. This further helps clients decide which agent is the best fit for their specific work.
When someone decides to purchase a home, he or she might do one of two things: secure a buyer’s agent who can help them discover and buy property, or start shopping for property themselves, they can even opt to hire an agent after they’ve found a property they truly like.
There’s no right or wrong way to go about hiring a buyer’s agent, although an agent might introduce you to potential properties you might’ve not otherwise found on your own. Interviewing and securing a buyer’s agent at the start of the real estate process can actually be far more rewarding than simply letting the listing agent take care of both sides. Buyers can benefit from representation, too.
2. Listing or Viewing Property
As a seller, your next step would be listing your property so potential buyers can find it. The steps in this process include
Determining the value of your home, which your agent can assist with. This is calculated using your home’s location, condition, amenities and upgrades, and also the price of similar properties. Agent’s will compile a comparative market analysis (CMA) to assist you understand how and why your house is priced.
Entering your house into the IDX or Internet Data Exchange, which even your agent has access to. The IDX brings together real estate listings from all over the country. Moreover, it also enables members of the multiple listing service or MLS to share as well as market their properties to other agents and potential buyers.
Marketing your home. Whether they really invest in traditional methods or simply list their home on other real estate websites, these marketing tactics will only increase the exposure of your property to other agents as well as buyers.
Hosting open houses and showings with buyers. Open houses and showings give potential buyers a first-hand check out your home. These in-person experiences further allow buyers to ask several questions as well as express concerns, which actually saves both parties time and energy in the long-run. Some agents may choose to create real estate videos and virtual staging opportunities for your home, too.
Some sellers choose to sell their home themselves, which is mentioned as for sale By Owner (FSBO). Theoretically speaking FSBO’s save sellers commission money (since seller clients pay both the listing as well as buyer’s agents), however in turn, they don’t get access to CMAs, the IDX, or any agent knowledge or marketing. In some cases, FSBO sellers may pay a cooperating commission to the buyer’s agent working with whomever buys their home.
As a buyer, this step would involve researching about the property thoroughly and viewing it. Some people use websites in order to find potential homes within their price range while others simply rely on their agent to find property and schedule showings.
Generally, buyers will attend open houses to get a feel for a property and its location, condition, and amenities. Then, they’ll schedule dedicated showings with their agent (or the listing agent) at which they’ll actually walk through the property and ask more specific questions.
Recall how we mentioned that buyers should be pre-approved for a loan before looking for homes. Why? Because if a buyer views a home they need to shop for, they ought to be prepared to place an offer on the spot … especially in a highly-competitive housing market.
If someone were to view a property they liked then search out loan pre-approval, the process could take weeks. No seller would wait that long if they need other offers.
3. Buying/Selling and Closing on Property
Let’s say you’re selling your home, and someone wants to shop for it. What happens then?
Well, firstly, the potential buyer would place a good offer on your home. This offer might be exactly at asking price, below or above, depending on how competitive the market is and exactly how desperate you and/or the seller is. Then, you’d consider the offer, discuss and consult with your agent (if you’ve got one), and accept or deny. There might be a little back-and-forth, or both parties could immediately agree and immediately sign a sales contract.
(If you, the seller, had entered into an agreement with a right-of-first-refusal clause, you’d need to let that potentially interested party view and make an offer on your property before any other parties. Right-of-first-refusal clauses are typically written into contracts between members of the family, tenants and landlords, and in the case of a homeowners association or HOA.)
As the seller, the next few steps don’t actually directly involve you. At this particular point, the buyer’s would simply submit his or her earnest money, order an inspection of your home, as well as work with their mortgage lender in order to secure an appraisal and therefore set up their mortgage. You might need to address any concerns or questions during this period, except for the most part, you sit back and wait.
The next time you see the buyers will actually be at closing. A home closing is essentially a fancy term for when the property title is transferred, the down payment is made, and also the seller and buyer’s names are signed a bunch of times. After closing, you’d actually hand over the keys and be on your merry way … albeit thousands of dollars richer.
Let’s just flip the script and say that you are the one buying a home!
We already know you’ve made a suggestion that’s been accepted, and you’ve signed a sales contract. What happens now? Well, the majority of this process involves you ensuring the home is exactly what you wished for to buy — and all you’ve got to do is simply do this within the given timeline that has been spelled out in your contract.
First, you’d submit your earnest money. This tells the seller, “Hey, we’re serious about this purchase.” FYI, earnest money isn’t your down payment — that goes to your mortgage lender. Furthermore, it’s held until closing and is actually credited to the buyer. Next, you’d order an inspection to see if there are any repairs that ought to be done before closing. (The party accountable for the repairs is to be negotiated between the sellers and buyers.) At the same time, you’d alert your lender that you’re under contract and start the paperwork to secure your loan.
After the inspection is complete, you and your lender will order an appraisal to make sure the worth of the house matches your offer and mortgage. You would simply research and order home insurance (often required by lenders), as well as schedule your utilities and closing. At closing, you’d bring proof of your mortgage, home insurance, and any required documentation to assume the house title and sign all required documents.
Voila! The home is now all yours!