2023 Real estate glossary (A-K) : questions and answers
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further ado, here is our comprehensive real estate glossary! We will cover both descriptive words and phrases and general real estate terminology.100% commission brokerage
Takeaways
Agents who work with a 100% commission brokerage do not have to share a percentage of their commission. The total amount goes to the agent. These brokerages earn revenue by charging monthly or annual fees and transaction fees.
Many independent contractor agents often collaborate with brokerages that work solely on commission. Two famous examples of such brokerages are Fathom Realty and HomeSmart.
What is a 100% commission brokerage?
In a 100% commission brokerage, agents do not have to pay a commission percentage. They receive the entire amount of each sales commission. These brokerages earn their income by applying monthly or yearly fees per transaction.
Why do 100% commission brokerages matter?
If you’re an agent who doesn’t want to pay for traditional brokerage services, you might consider 100% commission brokerages as an alternative. Sometimes the commission split at other brokerages can be too high, especially if you can handle your marketing and technology.
It’s worth noting that many 100% commission brokerages do provide technology, marketing, and other support services, but they may charge for these services on a case-by-case basis.
What is the difference between a 100% commission and a traditional brokerage?
There are two types of brokerage fees: those charged by 100% commission brokerages and those set by traditional brokerages. 100% commission brokerages require fees for each transaction and recurring monthly or annual fees.
Traditional brokerages, on the other hand, usually offer most services as part of their commission split. However, it’s important to note that many conventional brokerages also have monthly or yearly fees to cover office space or other services.
How does a 100% commission brokerage employ agents?
Real estate brokerages that provide 100% commission typically employ agents as independent contractors. As these brokerages offer only essential services, agents must develop and maintain their business practices more appropriate for the independent contractor model.
Furthermore, by offering 100% commission, brokerages can recruit more agents without incurring costs associated with full-time employees.
What are some examples of 100% commission brokerages?
Two popular brokerages, Fathom Realty and HomeSmart, provide 100% commission and charge a flat fee per transaction instead of a fixed commission percentage.
Agent search portal
Takeaways
Are you in need of a reliable real estate agent? Utilizing agent search portals can be a great resource! These websites offer insightful details on an agent’s performance, reviews, and areas of specialization.
It’s important to note that many agent search portals require agents to pay a referral fee for successful connections. Homelight is the most widely used agent search portal based on website traffic.
What is an agent search portal?
Are you looking for the perfect real estate agent? A portal for searching can help you find one that fits your needs. These websites offer information on an agent’s experience, reviews, and specialties. The site will match you with an agent who best suits your interests, whether you’re buying or selling a property.
How do agent search portals make money?
Agent search portals often receive payment from buyer and seller agents for successful referrals thatSomeAdditionally; some do not search outlets require agents to pay a fee for each lead they receive.
What are the most popular agent search portals?
It is worth noting that Homelight is currently the most frequently visited agent search portal. However, this market has other competitors, such as UpNest and LemonBrew.
Agent team
Takeaways
An agent team is composed of a group of agents who work together within the same brokerage. Around 30-40% of agents are estimated to belong to a team. These teams may have non-agent staff to help them with their tasks. The size of agent teams can vary from just two agents to more than twenty.
Usually, each team has a leader who may receive a percentage of their team members’ commissions. Some brokerages also use agent teams to recruit new agents directly to join their teams.
What is an agent team?
Many real estate agents work in teams with non-agent staff, such as administrative assistants and transaction coordinators. These teams can range in size from two to twenty agents. Although industry data varies, around 30-40% of agents are estimated to belong to such teams. As for the structure and payment of these teams, it goes.
How are agent teams structured and paid?
Do you have any idea about how team IDs work? Yes, it varies. Usually, team IDs are headed by a team leader who may negotiate their Split with the brokerage.
The team leader then assigns a different partition for each team member, where they receive a portion of each transaction completed by the team. Alternatively, some teams function differently.
What are the advantages of an agent team?
What are the benefits of having an agent team?
An agent team can help to pool resources and streamline tasks, leading to more efficient marketing and a cohesive branding approach. Furthermore, certain brokerages use teams to attract new agents, with individuals chosen to join a team rather than the brokerage. This approach can also facilitate the hiring of non-agent personnel.
Automated valuation model (AVM)
Takeaways
The automated valuation model (AVM) calculates property prices using data. AVM is often abbreviated as such. Most AVMs boast 50% accuracy within 2% of the final sales price. Zillow Zestimate is the most famous AVM.
What is an automated valuation model?
An automated valuation model determines a property’s value using data. This type of model commonly employs similar data that traditional valuations use, including public records, prior sales prices, and sales prices of comparable homes. Automated valuation models are frequently utilized to provide quick estimates on a large scale.
What is an AVM?
The term AVM is often used as shorthand for automated valuation models.
Why do automated valuation models matter?
Automated valuation models (AVMs) are significant in modern real estate pricing. When buying or selling a property, people often turn to AVM data before seeking guidance from a professional. Popular real estate websites like Zillow frequently display price estimates generated by AVMs.
As a result, real estate professionals must understand how these models work. Agents must often advise clients on the accuracy and impact of AVMs. Changes in the calculation method of an AVM can also significantly affect a home’s pricing.
It’s worth noting that AVMs provide estimates that can influence prices and shape buyer and seller expectations. As such, they are essential to consider in the real estate market.
How accurate are automated valuation models?
Automated valuation models are 50% accurate within 2% of the final sales price. This is an impressive feat for modern technology. However, this accuracy may only be achieved for the 50% of properties with easily estimable values. The other 50% of estimates may be significantly off.
What are some popular automated valuation models?
You may already know Zillow’s Zestimate, a widespread automated valuation model. However, other real estate websites like Redfin, Trulia, and Realtor.com also offer automatic valuation models.
What are some criticisms of automated valuation models?
Real estate agents often criticize automated valuation models for several reasons. Firstly, AVM estimates are not held accountable when they are wrong and are only accurate within 2% of pricing half of the time. This means that when AVMs miss the mark, it can negatively impact agents trying to provide more accurate pricing information.
Secondly, AVMs rely heavily on data, which can be inconsistent in specific markets. For example, an AVM with a lot of New York data may not provide reliable estimates for properties in Minnesota. Lastly, AVMs lack the human judgment necessary to consider more nuanced factors like renovations and marketing impact.
This can lead to poor-quality homes being favored over better properties on paper, which is not ideal.
What are some examples of automated valuation model software?
Several companies, such as CoreLogic, Attom Data Solutions, and HouseCanary, provide automated valuation model (AVM) software. This software assists businesses in promoting their AVMs to clients and enables them to obtain them for multiple properties simultaneously.
Furthermore, these companies usually offer more comprehensive data and insights than AVMs available on real estate portals.
Buyer’s and seller’s agents
Takeaways
When buying a home, a buyer’s agent can assist with finding properties, arranging tours, making offers, and finalizing the transaction. It’s common for new real estate agents to prioritize working with real estate buyers rather than sellers.
On the other hand, an agent who represents the seller helps to list the property for sale, promote it, and plan showings and open houses. Sometimes, a listing agent is referred to as a seller’s agent. Rental agents often perform the same duties as sales agents for rental properties. They may represent either the landlord (seller) or the renter (buyer).
What is the difference between a buyer and a seller agent?
Real estate agents usually work with both buyers and sellers. However, they typically represent the buyer or the seller in every transaction. The agent’s responsibilities differ depending on the side they represent.
Agents who represent buyers assist in searching for properties, scheduling tours, negotiating offers, closing the deal, and supporting their clients after the sale. On the other hand, seller’s agents typically focus on preparing listings for sale, marketing the listings, coordinating open houses and tours, and supporting negotiations and closings.
What does a buyer’s agent do?
When purchasing a home, a buyer’s agent can assist in finding, touring, making offers, and closing the sale. New agents tend to prioritize working with buyers rather than sellers. Buyer’s agent often dedicates much of their time to helping clients search for potential homes and schedule tours.
What does a seller’s agent do?
When selling a home, a seller’s agent can be beneficial. They can assist with listing the home for sale, marketing it to potential buyers, and organizing tours and open houses. Additionally, they can dedicate a significant amount of time to ensuring the home is in top condition for sale, ultimately resulting in a quicker sale at the best possible price.
What is a listing agent?
A listing agent is an agent who represents the seller in a real estate transaction.
Are rental agents different from other real estate agents?
Real estate agents often assist with both rentals and sales. However, some agents specialize in rentals and may hold different licenses. Many agents starting in their careers decide to focus on rentals. Like sales, they can represent the landlord and assist with the rental process or represent the renter and help secure a rental property.
While the responsibilities are similar, the rental process tends to move quicker, and commissions may be lower.
Cloud brokerage
Takeaways
Cloud brokerages do not have physical offices for their real estate agents. Instead, they provide cloud-based software and services to support their agents. Cloud brokerage splits are often more favorable to agents than traditional brokerages. Two popular cloud brokerages are eXp Realty and Real.
What is a cloud brokerage?
A cloud brokerage operates without physical offices for real estate agents. Instead, they offer cloud-based software and services that enable remote work. Cloud brokerage splits tend to be more favorable to agents than traditional brokerages.
Why do cloud brokerages matter?
The national cloud brokerage, eXp Realty, has rapidly become one of the top five real estate brokerages regarding transaction sides. As a result, both traditional and tech-enabled brokerages have been forced to improve their official offerings.
What is the difference between a cloud brokerage and a traditional brokerage?
Traditional brokerages typically have physical office space, while cloud brokerages do not. This lack of office space allows cloud brokerages to have a lower cost structure, but it may also result in weaker technology and remote services that could hinder remote work.
How does a cloud brokerage employ agents?
Many cloud brokerages hire agents as independent contractors, which is attractive to agents seeking the benefits of a traditional brokerage without the need for physical office space. The fees paid by agents are typically allocated toward technology and non-office services.
What are some examples of cloud brokerages?
Two well-known cloud brokerages are eXp Realty and Real. Both offer agents consistent commission splits and provide access to technology that supports their official structure.
Commission Disbursement Authorization (CDA)
Takeaways
For a broker to receive their commission, they must complete a commission disbursement authorization form. These forms usually contain details about the property, sales price, commission amounts, and contacts involved in the transaction. The acronym commonly used for commission disbursement authorization is CDA.
Many brokerages utilize CDAs to ensure regulatory compliance and gather necessary documents.
What is a commission disbursement authorization?
A broker must fill out a commission disbursement authorization form to receive a commission. Such conditions usually contain details about the property, the sales price, the commission amounts, and the relevant contacts involved in the transaction. Additionally, they may include checklists and necessary document attachments that the brokerage requires for every home sale.
What is a CDA?
Commission Disbursement Authorization is often referred to as CDA.
Why do commission disbursement authorizations matter?
As an independent contractor, a real estate agent may have limitations on what they can be directed to do by their brokerage. However, commission disbursement authorization is crucial in ensuring that agents receive payment. For this reason, many brokerages utilize this stage to enforce regulatory compliance and gather necessary documents.
Commission split
Takeaways
The commission split in the real estate industry refers to the fee a brokerage receives from its employed agents for each transaction. This Split is typically expressed as a percentage, such as 80%, or as a ratio with the agent’s rate listed first, such as 80/20. It’s worth noting that higher-performing agents often receive better commission splits.
Sometimes, commission splits may improve for agents as they generate more business. However, some split arrangements have set dollar limits, known as caps, while others may include both features.
Modern brokerages like Redfin, which employ agents as full-time staff, do not have commission splits. Instead, they pay more than 70% of their commissions and agent-related fees to their agents.
What is a real estate commission Split?
When a brokerage employs a real estate agent, the commission split is the fee the brokerage charges for each transaction. This fee is usually a percentage of the agent’s gross commission income, such as 80%, or it can be expressed as a ratio of what the agent receives compared to what the brokerage gets, such as 80/20. Some brokerages may have fixed fees, while others have no commission splits.
The commission split also represents the gross margin for the brokerage, which is the total amount of money the brokerage receives after collecting commissions and paying them to agents after the splits.
What are the types of commission splits?
Commission splits can be categorized as either fixed or graduated. A fixed break remains constant regardless of the agent’s gross commission income. For example, a fixed 60/40 split would mean that the agent receives 60% of their gross commission income, whether they generate $1,000 in commissions or $1,000,000 in commissions. On the other hand, a graduated commission split changes depending on the agent’s production.
This means that an agent has a particular split up to a specific amount of earnings, and beyond that amount, the split changes. Typically, splits become more favorable to agents as they generate more income. This is because the brokerage earns more margin from high-performing agents and wants to retain them.
In contrast, lower-performing agents face more competition, and their commissions may not cover their expenses.
What is a commission split cap?
Some brokerage firms limit the commissions that agents can earn. This limit is a fixed amount of money which cannot be exceeded. This approach is a variant of a graduated commission. When agents make more than the cap, their total payment to the brokerage is lower as a percentage of their earnings.
This makes the math calculations more manageable. Often, brokerages offer an 80/20 split with a $16,000 cap. For instance, if an agent earns $100,000 in commissions, they only pay $16,000 to the brokerage, which means they get to keep 84% of their earnings. However, if they earned $50,000, they would be below the cap and need to pay the brokerage 20% or $10,000.
What is the average real estate split?
There is no typical real estate split, and Splits can vary significantly by the brokerage. Here are a few examples:
- Keller Williams commission split: Varies but typically 70/30 split with a cap
- eXp Realty commission split: 80/20 with a $16,000 cap
- Actual commission split: 85/15 with a $12,000 cap
- Fathom Realty commission split: 100/0 split and $450 fee per transaction for the first 12 transactions; $99 per transaction after
What is the Split for Redfin or other modern brokerages?
Many current brokerages provide their agents with salaries, which means there is no traditional commission split for the agent. However, Redfin’s revenue cost considers personnel considerations and other fees that agents usually pay. You can use the gross margin of Redfin as a quick way to estimate a split-like number.
According to a source, in 2018, Redfin’s gross margin on real estate services was 28.5% of its revenue. This means roughly 71.5% of Redfin’s gross commissions go towards agents and agent-related fees. While it’s not technically a commission split, it’s the closest calculation that can be made.
When are commission splits determined?
When real estate agents are hired, they negotiate the Split with their brokerage. This is typically included in their independent contractor agreement (ICA). The Split is often renegotiated periodically, either annually or every few years. However, some brokerages, like eXp Realty, have standard splits and do not require negotiation.
What is a 100% commission split?
Certain brokerages offer agents a 100/0 split, but they may impose higher monthly or per-transaction fees. Despite this arrangement, the brokerage still receives some profit from its agents, although not based on a percentage of every transaction.
Company dollar
Takeaways
The term “company dollar” refers to a broker’s revenue after deducting fees and commissions. This calculation involves two steps: deducting agent commissions from the total gross commission income and adding the agent fees. The company dollar is a valuable metric for evaluating a brokerage’s profitability. I
f the brokerage’s operational expenses exceed the company dollar, they will incur losses.
What is a company dollar?
The term “company dollar” refers to the funds a broker earns after deducting fees and commissions.
How is the company dollar calculated?
To calculate the company dollar, two steps are involved. Firstly, the agent commissions are deducted from the total gross commission income. Then, the agent fees are added to the resulting figure.
Why does the company dollar matter?
Assessing a brokerage’s profitability can be done using the company dollar metric. This metric considers the gross commission income paid to the brokerage as revenue. However, if an agent’s Split is very high, the brokerage may not retain much of that revenue.
In some cases, brokerages may not make any money from commissions and instead charge monthly fees to agents. The company dollar is a way to factor in this possibility.
From a planning perspective, the company dollar helps brokerages create budgets. The brokerage can avoid losing money by ensuring operating expenses are below the total company dollar. On the other hand, if operating expenses exceed the company dollar, the brokerage will experience a loss.
Comparative market analysis (CMA) and valuations software
Takeaways
A Comparative Market Analysis (CMA) evaluates properties comparable to a particular home. This information is then presented to potential or existing clients by an agent. This analysis aims to help the seller establish the appropriate listing price for their home, known as the valuation estimate.
The CMA must be accurate since the property must be priced high enough to receive the best possible sale price but not so high that it remains on the market for an extended period. While CMA software is available to assist agents in compiling and presenting this data, many agents still use spreadsheets and text documents to create their CMAs.
What is a comparative market analysis?
A Comparative Market Analysis (CMA) evaluates recently sold properties similar to the target home. Real estate agents usually compile this information into a packet and present it to potential or existing clients to aid in setting the listing price for a home, referred to as the valuation estimate.
What is a CMA?
Comparative market analysis is often referred to as CMA.
Why do CMAs matter?
Creating a Comparative Market Analysis (CMA) is crucial for agents to determine the right price when selling a home. It’s a balancing act of setting a price that attracts the best offers while avoiding having the property sit on the market for too long. However, choosing the proper comparison homes, or comps, for the CMA is not a one-size-fits-all process, resulting in varying results between different CMAs.
Where do agents get CMA data?
Real estate agents typically rely on data from various sources, including recently sold properties, current listings, and valuation companies, to determine a property’s comparative market analysis (CMA). While the MLS is a standard tool for accessing this data, public portals such as Zillow can provide similar information.
What is comparative market analysis software?
Agents can use comparative market analysis (CMA) software to gather and display property data. These tools allow agents to find similar properties, collect printable packets, and generate a digital CMA that updates automatically.
The software is handy for showing pricing on currently available listings, as the pricing of these properties can fluctuate daily and is not easily captured in a printable packet.
What are some examples of comparative market analysis software?
MoxiPresent, Cloud CMA, and DashCMA are popular comparative market analysis tools. Many MLSs also have built-in CMA software, and an agent can generate CMA reports from any MLS search in those cases.
Some agent software tools come equipped with built-in CMA presentation functionality. This means that you can create CMAs using a spreadsheet or text document. Due to this, many agents opt out of using any additional CMA software.
Days on Market (DOM)
Takeaways
The age of a real estate listing is measured by the number of days it has been on the market, referred to as Days on the Market (DOM). This is the duration between when the listing became active and when an offer is accepted. A low number of DOM typically indicates a recently listed and highly sought-after property.
Generally, most homes remain on the market for 3-8 weeks, with the national average being around 30 days.
What are the days on the market?
The age of a real estate listing is measured by the number of days it has been on the market. This includes the time from when the listing becomes active until an offer is accepted and may also end when the agreement between the seller and real estate agent expires.
What is DOM?
DOM stands for “Days on the Market.” It is a commonly used abbreviation for when a property has been listed on the MLS or consumer portals like Zillow.
Why do days on the market matter?
When a home is on the market for a short period, it usually indicates a new and competitive listing. On the other hand, homes on the need for a long time tend to be less competitive and may have difficulty selling. If the days on the market are lower than typical for the area, it’s a sign that the location is highly competitive.
Assuming a similar selling price, homeowners prefer to sell their homes quickly. This is because every day the house is on the market, the owner will have to pay carrying costs related to the property. Additionally, the time spent on the market is also the time the owner or real estate agent must spend marketing the home.
How are days on the market calculated?
Days on the market are calculated by counting when a home is listed and has an accepted offer.
What are the shortcomings of using days on the market?
It is common for agents and owners to manipulate the days a property is on the market. They may hold private showings or delay listing the home on the MLS until the last moment. Some even delist the property for a few weeks, only to relist it at a different price.
This tactic resets the days on the market and could potentially mean the property was priced too low, resulting in lost profits. It is essential to balance selling a property quickly and for the right price.
What is the average time to sell a house?
Most homes that are sold typically stay on the market for 3-8 weeks, with the national average being approximately 30 days. However, this can differ depending on the home’s price and the market’s competitiveness. Luxury homes may take longer to sell, while homes in sluggish markets may have difficulty attracting potential buyers.
Discount brokerage
Takeaways
A discount firm offers brokerage services at rates lower than the market standard. Usually, these firms prioritize discounted rates for listing services. These firms often hire full-time agents to ensure that all clients receive the same level of service, regardless of the commission amount.
What is a discount brokerage?
A discount real estate brokerage provides brokerage services at lower commissions than the market rates. Typically, discount brokerages concentrate on reduced rates for listing services. However, some models also offer commission rebates to buyers.
Why do discount brokerages matter?
Did you know that agents play a role in more than 85% of real estate transactions? However, it’s important to note that this figure includes discount brokerage deals, which are becoming more common and can lower the average commission rates.
What is the difference between a discount brokerage and a traditional brokerage?
Discount brokerages offer services that are similar to traditional brokerages. However, traditional brokerages argue that discount brokerages compromise on quality to reduce costs.
How does a discount brokerage employ agents?
Numerous discount brokerages hire full-time agents to provide equal service to all clients, regardless of the commission amount. However, some discount brokerages use agents as independent contractors.
What are some examples of discount brokerages?
NestApple is a renowned discount brokerage that provides a 1-2% listing fee service. It is a tech-savvy brokerage that utilizes technology to increase its volume. On the other hand, Homie offers a flat fee service for home sales and refunds some of the fees to clients who purchase a home with them.
Flat-fee brokerages and listing services
Takeaways
If you’re looking to buy or sell a property, agent search portals can be helpful.
These websites provide information on traditional real estate agents, such as their past performance, reviews, and areas of expertise. When a buyer or seller referral leads to a successful sale, agents typically pay a fee to the search portal. Among the various agent search portals available, Homelight is the most widely used based on website traffic.
What is a flat-fee brokerage or listing service?
A flat-fee brokerage charges a fixed amount for certain real estate services. Typically, these services are geared towards sellers, with the most commonly offered service being posting a listing on the MLS.
Who does a flat-free brokerage appeal to?
Many homeowners prefer their properties to be promoted through MLS agents without paying the full commission real estate agents charge. This is where flat-free brokerages come in handy. There are also instances where a buyer or seller wishes to manage most of the real estate transaction themselves but may require assistance on specific matters, which flat-free brokerages can provide.
Why do flat-fee brokerages matter?
Real estate transactions involve agents in over 85% of cases, although this figure includes deals that do not require brokerage fees. As a result, agents may not always play as prominent a role in the transaction as they once did.
For instance, a buyer or seller may use a real estate website to search for a property or create a CMA and then enlist an agent for a specific task, such as listing the property on the MLS or facilitating the closing process.
What is the difference between a flat-fee brokerage and a traditional brokerage?
There are two types of brokerages when it comes to real estate services. Flat-free brokerages charge a predetermined amount for their services, and they do not mandate buyers or sellers to use their services for the entire transaction. On the other hand, traditional brokerages offer end-to-end services and charge a percentage of the total home sales price.
How does a flat-fee brokerage employ agents?
Brokerages that charge a flat fee may hire agents as independent contractors or full-time employees. However, more prominent flat-fee brokerages commonly opt for full-time employees to maintain all customers’ uniform pricing and service levels.
What are some examples of flat-fee brokerages?
A few popular flat-free brokerages are Savvy Lane, Houzeo, Fizber, and NestApple. Many of these services specifically focus on flat-fee listing packages for home sellers.
For sale by owner (FSBO) overview and market size
Takeaways
When a homeowner sells their property without the assistance of a real estate agent, it is referred to as a For Sale By Owner (FSBO) transaction. Many people pronounce the acronym “Fizz-bo.” There are approximately 420,000 FSBO transactions annually, totaling around $84 billion in sales value.
The number of FSBO listings is often monitored to evaluate the relevance of real estate agents in property sales. Due to the potential for new clients, real estate agents often target FSBO listings.
What is a For Sale By Owner?
A “For Sale By Owner” refers to a home that is sold directly by the owner without the involvement of a real estate agent. However, a buyer can hire an agent to represent them during the transaction.
What is an FSBO?
FSBO stands for For Sale By Owner. It is commonly pronounced as “Fizz-bo” and refers to homes that are sold without the assistance of a real estate agent.
What is the total market size for FSBO homes?
Approximately 420,000 FSBO transactions occur annually, amounting to a total sales value of around $84 billion.
What percentage of homes are sold by owners?
Owners sell roughly 7% of homes. But they only represent ~5% of the total sales value of homes sold.
What is the average price of an FSBO home?
The average FSBO home sells for around $200,000.
What are the advantages of an FSBO listing?
When owners sell their homes without the help of a real estate agent, they avoid paying a 2-3% listing commission. Some owners may believe they can put more effort into selling their home than an agent would.
Some owners may sell their homes to a friend or family member without an agent’s assistance.
What are the disadvantages of an FSBO listing?
Individuals without a license cannot list their property on MLS portals for agents. As a result, the owner must handle all marketing and home showings. Furthermore, research has demonstrated that homes sold by agents generally sell for a higher price.
However, it is possible that this relationship is not causal but rather correlational. Agents may prefer not to represent homes valued at less than $200K, which may be difficult to sell without renovations and offer a lower commission.
Why do FSBO listings matter?
Real estate sales are often measured by the number of FSBO listings, which has decreased over the last two decades. This implies that real estate agents play a crucial role in home sales. Seller agents frequently seek FSBO listings to acquire new clients. They often contact these sellers and promote their services by highlighting how they can sell homes faster and for a higher price than their fees.
How do FSBO trends today compare to historical trends?
It has been observed that the number of For Sale by Owner transactions has decreased significantly over the past few years. Moreover, real estate agents are now involved in more home sales than 40 years ago. To elaborate, statistics reveal that in the 1980s, FSBO transactions constituted approximately 15% of all home sales.
Fractional home ownership
Takeaways
Some companies offer fractional homeownership opportunities where they purchase a portion of a home alongside the primary homebuyer. This investment increases in value with the overall price of the house.
This approach helps to create a larger pool of buyers in the market who may not have the funds for a downpayment otherwise.
These companies profit from the increasing value of the homes and often purchase the initial equity at a discounted rate of up to 20%.
What is fractional homeownership?
Some companies specialize in fractional homeownership. They purchase a portion of a home with the homebuyer, and the value of this investment grows as the price of the house increases. This differs from a mortgage because it represents actual ownership of a percentage of the home rather than just a loan.
Why does fractional homeownership matter?
Fractional homeownership is beneficial in creating more buyers within a market. Several buyers may not have the necessary cash for a downpayment. Fractional homeownership companies can offer first-time buyers the required capital they may not obtain through a mortgage alone.
How do fractional homeownership companies make money?
Companies that offer fractional homeownership primarily earn money by investing in homes and selling them for a higher price. To mitigate risk, they typically invest in the initial home equity at a discounted rate of up to 20% of the purchase price.
As a result, they are concerned about the potential increase in the home’s value, the buyers’ risk level, and the likelihood of improvements being made to the property by the buyers.
What are some examples of fractional home ownership companies?
Unison and Point are both fractional home ownership companies.
Some fractional homeownership companies work directly with buyers and sellers, and others provide services to real estate professionals to offer to their clients.
Franchise Brokerage
Takeaways
Franchisors, also known as franchise brokerages, offer a complete business system that includes marketing, technology, and other support to be implemented by regional operators or franchisees at the local level. By providing a proven method and a credible national brand, franchisors attract franchisees who pay a fee for their services.
More than 40% of real estate agents are associated with a franchise. Two of the largest franchise brokerages in the US are Keller Williams and RE/MAX.
What is a franchise brokerage?
A franchisor, a franchise brokerage, offers a business model that includes marketing, technology, and other support for regional operators or franchisees. This allows potential broker-owners to establish their brokerage operation quickly.
By partnering with a franchisor, they gain access to a reputable national brand and a proven system. The franchisor charges a fee to the franchisee for these benefits.
Why do franchise brokerages matter?
Did you know that over 40% of real estate agents are affiliated with franchises? This means that national franchises have a significant impact on industry practices. However, it’s important to note that the quality of a brokerage under the same brand name can vary significantly from region to region.
What is the difference between a franchise brokerage and a traditional brokerage?
In franchise brokerages, different individuals typically manage operations in each location. The support teams are not centralized but are handled locally by each franchisee. In contrast, traditional brokerages have a single leadership team and support staff, but they may also have regional or office support.
As a result, franchise agents tend to have closer relationships with local management than with the overall brand.
How does a franchise brokerage employ agents?
Franchise brokerages almost always employ agents as independent contractors.
What are some examples of franchise brokerages?
Keller Williams and RE/MAX are two of the largest franchise brokerages in the US.
Gross commission income (GCI)
Takeaways
The total amount of commission received by a brokerage or agent is known as gross commission income. This is usually the term used by most brokerages to define their revenue. We multiply the total sales volume by the average commission rate to calculate gross commission income.
An agent’s gross commission income often determines the benefits they receive at a brokerage, with higher-income earners receiving better benefits and splits.
However, it’s important to note that gross commission income doesn’t represent an agent or brokerage’s earnings after fees and expenses.
What is gross commission income?
A brokerage or agent’s total commission income is the gross commission income. Typically, brokerages consider their revenue to be their gross commission income. We multiply the total sales volume by the average commission rate to calculate the gross commission income.
For instance, if an agent sells a property for $100,000 at a commission rate of 3%, their gross commission income would amount to $3,000.
What is GCI?
GCI is a commonly used acronym for gross commission income.
Why does gross commission income matter?
The gross commission income is the total revenue an agent or brokerage earns before deducting expenses. This income includes the fees agents pay to their brokerage and vice versa. An agent’s benefits at a brokerage are often determined by their gross commission income.
Brokerages tend to offer more favorable splits to agents with higher gross commission incomes and may provide them with dedicated offices or desks, support staff, and marketing budgets. Agents with high gross commission incomes often receive competitive offers from various brokerages.
What are the advantages of using gross commission income?
Calculating gross commission income is a reliable way to determine the annual earnings of a brokerage or agent. This metric represents the total money deposited into the brokerage’s bank account and effectively measures business performance.
What are the disadvantages of using gross commission income?
Using gross commission numbers as a universal metric can be challenging since many brokerages and agents don’t openly share this information outside their firm. Sales volume and sides are typically reported more openly. It’s important to note that gross commission income doesn’t necessarily indicate how much an agent or brokerage makes after fees. For instance, if a brokerage earns $100,000 in gross commission income but gives all of it back to the agent, this metric doesn’t reveal much about the brokerage’s earnings.
Home flips and fix-and-flip overview and market size
Takeaways
Investors purchase houses, renovate them, and sell them quickly for profit in a process known as home flipping (or fix-and-flip). On average, it takes around 180 days from the time of purchase to the sale.
Approximately 200-250K homes are flipped annually, with a total sales value of $500-650 billion. An average home flip generates a profit of roughly $60,000, resulting in a 40% return on investment.
What is a home flip?
A home flip is when an investor buys a house, renovates it, and then sells it for a profit.
What is a fix-and-flip?
Fix-and-flip is simply another word for a home flip. But it often refers to any loans that home flippers take. Fix-and-flip loans are also called hard money loans or private loans.
How long does the average home flip take?
The average home flip takes about 180 days from purchase to sale.
How many homes are flipped each year?
Roughly 200-250K homes are flipped yearly, typically representing 5-10% of all homes sold.
What is the market size of home flips?
The total sales value of annual home flips is $500-650 billion. The number can vary depending on the strength of the fix-and-flip market in a given year.
What is the average purchase price for a home flip?
The average home flip is purchased for around $155,000 and sold for nearly $215,000.
How much profit is generated per home flip?
It’s estimated that an investment property can yield a profit of approximately $60,000, resulting in a return on investment of about 40%. However, it’s important to note that this figure doesn’t include the cost of renovations, which can range from 20-35% of the home’s after-repair value. Can you provide more information on the average cost of renovations for investment properties?
What are the average rehab costs per home flip?
Home sales market size
Takeaways
Can you give me additional details on the typical expenses for renovating investment properties? Specifically, I am interested in the rehab costs per home flip. Additionally, can you provide information on the size of the home sales market?
Takeaways:
The annual total value of homes sold in the United States is approximately $1.6 trillion. Real estate commissions make up roughly $70 billion of this total. About 5.3 million existing homes and 700,000 new homes are sold yearly. Homes priced under $100K account for approximately 2% of the market.
What is the total market size of homes sold in the United States?
The total value of homes sold in the United States annually is ~$1.6 trillion.
What is the total market size for real estate commissions in the United States?
There is roughly $70 billion in real estate commissions each year. This is based on a ~5.7-5.8% average commission and ~87% of transactions, including a real estate agent.
How many homes are sold in the United States?
Roughly 5.3 million existing homes are sold yearly, and about 700,000 new homes are sold annually.
What is the average home sales price in the United States?
The average price of an existing home is around $265,000.
The average price of a new home is closer to $350,000.
How many real estate sides occur each year?
There are roughly 12 million real estate sides that occur each year.
What percentage of home sales involve a real estate agent?
85-90% of home sales in the United States involve a real estate agent.
How many real estate transactions occur per price segment?
The following is a breakdown of real estate transactions by home sales price:
- Under $50K: ~600K transactions / 10% of home sales
- $50-99K: ~900K transactions / 15% of homes sales
- $100-149K: ~900K transactions / 15% of home sales
- $150-199K: ~900K transactions / 15% of home sales
- $200-299K: ~1.2M transactions / 20% of home sales
- $300-499K: ~900K transactions / 15% of home sales
- $500-999K: ~480K transactions / 8% of home sales
- $1M+: ~120K transactions / 2% of home sales
What is the total value of homes sold per price segment?
The following is a breakdown of real estate sales value by home sales price:
- Under $50K: ~$14.7B in value / 1% of home sales value
- $50-99K: ~$67.1B in value / 4% of home sales value
- $100-149K: ~$112.1B in value / 7% of home sales value
- $150-199K: ~$157.1B in value / 10% of home sales value
- $200-299K: ~$299.4B in value / 19% of home sales value
- $300-499K: ~$359.6B in value / 23% of home sales value
- $500-999K: ~$359.8B in value / 23% of home sales value
- $1M+: ~$210B in value / 13% of home sales value
How to become a licensed real estate agent
Takeaways
The total sales value of homes can be divided into four categories: $200-299K, $300-499K, $500-999K, and $1M+. The values for each type are approximately $299.4B, $359.6B, $359.8B, and $210B, respectively. These categories represent 19%, 23%, 23%, and 13% of the total home sales value.
To become a licensed real estate agent, it’s important to note that license requirements vary by state. Typically, you must complete 60-120 hours of coursework, pass an in-person exam, and submit an application that includes the brokerage where you plan to work. While coursework can be completed online, the exam must be in-person.
It’s worth noting that certain states offer expedited licensing processes, allowing you to become licensed in as little as 2-4 weeks.
How to become a licensed real estate agent
The process of getting licensed as a real estate agent varies by state. As a result, the best way to find out how to get licensed is to check with the licensing body of any form. At its fastest, getting licensed can be 2-4 weeks but typically longer. Most licensing processes involve the following steps:
To obtain a real estate license, one must fulfill the education requirement, typically 60-120 hours of education consisting of 2-4 classes with a final exam for each. These classes are held at state-approved schools, either in-person or online. Sometimes, the final exams may need to be taken in person or proctored.
Once the education requirement is met, the next step is to pass the state’s required in-person exam. Lastly, one must join a brokerage to receive their license. It is common for agents to find a brokerage to sponsor them before beginning the exam preparation process.
Can an agent get their license online?
Generally, the real estate exam must be taken in person, which means obtaining a license entirely online is not typically feasible. However, many real estate courses can be completed online. In certain states, the application process to become an agent can also be done online. How can I assist you further with your real estate inquiries?
How much does it cost to get a real estate license?
The primary costs of getting licensed are coursework and application/testing fees. Online courses are often cheaper, and range from $150 to 300, and In-person classes and additional study materials can exceed $1,000. Exam and application fees are often $50-100. As a result, getting licensed can range from $200 to over $1,500.
How does an agent become a Realtor?
Becoming a licensed real estate agent does not make someone a Realtor. They must apply with the National Association of Realtors, take additional ethics courses, and pay fees associated with the National and local Realtor associations.
Are there any ways around licensing requirements?
There are two exceptions to licensing requirements worth noting. Attorneys and individuals with real estate degrees from traditional colleges are often exempted. However, in some states, they may still be required to take the state exam. Furthermore, if an agent possesses a license from another state, they may be able to waive some or all education requirements and potentially even the real estate exam.
Nevertheless, it’s important to note that not all states acknowledge previous experience and education from other states.
IBuyer
Takeaways
Some companies, iBuyers, offer homeowners cash in exchange for their houses. These companies usually make minor repairs and improvements on the properties they purchase before listing them for sale to sell them at a profit. The standard service fee for iBuyers is generally 7.5%, although it can be anywhere from 5% to 15%.
It’s worth noting that many iBuyers are not yet profitable on every home they purchase, such as Zillow Offers, which lost between $1,000 and $2,000 per home as it expanded its operations in 2019. The average price for a home purchased by an iBuyer falls between $200,000 and $400,000.
The most notable iBuyers in the market today are RedfinNow, Zillow Offers, Opendoor, and Offerpad.
What is an iBuyer?
iBuyers are companies that offer sellers cash for their homes. These companies make minor repairs and improvements to purchased homes, list them for sale and attempt to sell the house for a profit. In addition to the appreciation on the home sale, iBuyers make money by charging a service fee to the seller.
What is the average iBuyer service fee?
The typical iBuyer service fee is 7.5%. But they can range from 5-15%. Buyers may also charge the seller for repairs or costs related to the closing.
How do iBuyers make money?
iBuyers can generate profits in three ways. First, they capture the appreciation in the sales price of a home they purchase. Second, they charge a service fee to the seller. Finally, they make money from added services to the buyer or seller.
This can include helping the seller find a new home or hiring a service provider.
How much money does an iBuyer make per home sale?
Because iBuyers are new, there is still no industry-standard profit per home. Many iBuyers are still refining their growth strategy and operations, and many iBuyers do not yet generate a profit on each home.
For example, Zillow Offers lost $1-2K per home as its operations grew in 2019. But in initial tests in 2018, it did generate a small profit for each home.
What is the average sales price of a home sold to an iBuyer?
The average home purchased by an iBuyer is between $200,000 and $400,000. iBuyers often focus on homes that are affordable in the market. These homes require minimal renovations to be ready for sale, and they are usually not priced high enough for the competition from top listing agents.
IBuyers will likely move to higher price points as they refine their business models.
Why do sellers use an iBuyer?
Sellers who work with iBuyers are typically most concerned about speed, and iBuyers will make an offer to buy a home within 24 hours. Alternatively, an agent may have to market a home for over 60 days before selling it.
Why shouldn’t sellers use an iBuyer?
Sellers concerned about the sales price of a home are not great candidates for iBuyers. Real estate agents have a strong incentive to maximize the sales price of a home, and they receive a larger commission and a better reputation with sellers. iBuyers have an incentive to pay the lowest possible price.
That said, it’s also possible an iBuyer can still produce a better financial outcome for a seller. It may provide a competitive offer in the right market. It can also limit renovations, carrying costs, and concessions fees.
How are iBuyers different than home flippers?
A common misconception is that iBuyers are glorified home flippers. But iBuyers focus much more on move-in-ready homes requiring minor improvements. Home flips are purchased well, substantially below the listing price. And they need significant renovations.
Many of these homes are purchased in foreclosure. The average investment in a home flip is around $35K. By contrast, Zillow Offer’s average renovation cost 2019 was closer to $15K.
Who are the top iBuyers?
The largest iBuyers are RedfinNow, Zillow Offers, Opendoor, and Offerpad. Tech-enabled brokerage Redfin owns RedfinNow, and Zillow Offers is owned by the real estate portal Zillow.
Independent brokerage
Takeaways
- An independent brokerage is owned and operated by one entity. All marketing, technology, and support are handled by one company.
- Franchises were often necessary to provide systems, marketing, and advice. Technology has helped independent brokerages scale to new markets without requiring local operators.
- eXp Realty, Howard Hanna, Compass, and Redfin are some of the largest independent brokerages in the country.
What is an independent brokerage?
An independent brokerage is owned and operated by one entity. All marketing, technology, and support are handled by one company.
Why do independent brokerages matter?
Over 40% of real estate agents are associated with a franchise. But technology is allowing more independent brokerages to emerge. Franchises were often necessary to provide systems, marketing, and advice.
This technology has helped independent brokerages scale to new markets without requiring local operators. This has been particularly visible with cloud brokerages and tech-enabled brokerages.
What is the difference between an independent brokerage and a traditional brokerage?
Independent brokerages are an example of a traditional brokerage, and they are owned and operated by a single entity with centralized support systems.
How does an independent brokerage employ agents?
Independent brokerages typically employ agents as independent contractors.
But some new tech-enabled models have broken away from this trend, sometimes hiring agents as full-time employees.
What are some examples of independent brokerages?
eXp Realty, Howard Hanna, Compass, and Redfin are some of the largest independent brokerages in the country. Many top independent brokerages are also cloud brokerages and tech-enabled brokerages.
Independent contractor agreement (ICA)
Takeaways
- The independent contractor agreement (ICA) in real estate is the document that establishes the working relationship between the brokerage and an agent.
- Typically, the independent contractor agreement clarifies commission splits and broader business practices.
- Negotiating the independent contractor agreement usually coincides with discussions about changing commission splits.
What is an independent contractor agreement?
The independent contractor agreement (ICA) in real estate is the document that establishes the working relationship between the brokerage and an agent. Typically it clarifies commission splits and broader business practices.
What is an ICA?
ICA is the commonly used acronym for the independent contractor agreement.
Why does the independent contractor agreement matter?
Most importantly, the ICA is often negotiated with commission splits and agent incentives. As a result, dealing with the independent contractor agreement is usually done to change the commission split between the brokerage and agent. The independent contractor agreement establishes working practices between the agent and the brokerage.
This can include office practices, processing payments, and non-compete clauses, among other terms. It also elaborates that the agent is an independent contractor, not a full-time employee.
This usually means the contract’s language is designed to clearly show an independent contractor relationship as defined by state and federal law.
Key real estate agent statistics
Takeaways
- There are roughly 2 million licensed agents, and about 1.35 million are active.
- The average active real estate agent annually supports seven home sales transactions across buyers and sellers.
- The average agent generates roughly $51,200 in annual commissions. After expenses and before taxes, they take home about $37,000.
How many real estate agents are there in the United States?
There are around 2 million licensed real estate agents in the United States.
How many active real estate agents are there in the United States?
There are roughly 1.35 million active real estate agents in the United States. In contrast, 2 million professionals have real estate licenses, and only around 1.35 million pay for the Realtor’s Association membership.
While this isn’t a perfect measure, it’s safe to say that only agents doing at least a deal or two annually find it worthwhile to pay for a membership in the Realtor’s Association. Many agents maintain a license but do not work on transactions actively.
How many homes does the average real estate agent sell each year?
The average active real estate agent annually supports seven home sales transactions across buyers and sellers.
How many home sales involve a real estate agent?
Over 85% of the homes sold in the United States involve a real estate agent.
What is the average agent’s gross commission income?
The average agent generates roughly $51,200 in annual commissions.
What is the average agent’s take-home pay?
After brokerage expenses and other costs, the average agent takes home roughly $37,000 before taxes.
Key real estate brokerage statistics
Takeaways
- There are around 105,000 real estate brokerages in the United States.
- The average brokerage employs just under 20 licensed agents. But when adjusting for active full-time agents, the number is closer to 13.
- The average brokerage makes around $670,000 in gross commissions and $100,000 in gross profit.
How many real estate brokerages are there in the United States?
There are around 105,000 real estate brokerages in the United States.
How many agents does the average brokerage employ?
The average brokerage employs just under 20 licensed agents. But when adjusting for active full-time agents, the number is closer to 13.
How much revenue does the average brokerage make?
The average brokerage makes around $670,000 in gross commissions.
How much profit does the average brokerage make?
The average brokerage generates around $100,000 in profit after paying splits to agents. But a brokerage may still have many other expenses related to operations. And it may also capture additional revenue from agent fees and other business lines.
Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.
