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What Does 2021 Have in Store for Home Values?

 

According to the latest CoreLogic Home Price Insights Report, nationwide home values increased by 8.2% over the last twelve months. The dramatic rise was brought about as the inventory of homes for sale reached historic lows at the same time buyer demand was buoyed by record-low mortgage rates. As CoreLogic explained:

“Home price growth remained consistently elevated throughout 2020. Home sales for the year are expected to register above 2019 levels. Meanwhile, the availability of for-sale homes has dwindled as demand increased and coronavirus (COVID-19) outbreaks continued across the country, which delayed some sellers from putting their homes on the market.

While the pandemic left many in positions of financial insecurity, those who maintained employment and income stability are also incentivized to buy given the record-low mortgage rates available; this is increasing buyer demand while for-sale inventory is in short supply.”

Where will home values go in 2021?

Home price appreciation in 2021 will continue to be determined by this imbalance of supply and demand. If supply remains low and demand is high, prices will continue to increase.

Housing Supply

According to the National Association of Realtors (NAR), the current number of single-family homes for sale is 1,080,000. At the same time last year, that number stood at 1,450,000. We are entering 2021 with approximately 370,000 fewer homes for sale than there were one year ago.

However, there is some speculation that the inventory crush will ease somewhat as we move through the new year for two reasons:

1. As the health crisis eases, more homeowners will be comfortable putting their houses on the market.

2. Some households impacted financially by the pandemic will be forced to sell.

Housing Demand

Low mortgage rates have driven buyer demand over the last twelve months. According to Freddie Mac, rates stood at 3.72% at the beginning of 2020. Today, we’re starting 2021 with rates one full percentage point lower than that. Low rates create a great opportunity for homebuyers, which is one reason why demand is expected to remain high throughout the new year.

Taking into consideration these projections on housing supply and demand, real estate analysts forecast homes will continue to appreciate in 2021, but that appreciation may be at a steadier pace than last year. Here are their forecasts:What Does 2021 Have in Store for Home Values? | MyKCM

Bottom Line

There’s still a very limited number of homes for sale for the great number of purchasers looking to buy them. As a result, the concept of “supply and demand” mandates that home values in the country will continue to appreciate.

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The Holidays Aren’t Stopping Homebuyers This Year

The Holidays Aren’t Stopping Homebuyers This Year | MyKCM

Black Friday and Cyber Monday are behind us, yet finding the perfect holiday gifts for friends and family is certainly still top of mind for many right now. This year, there’s another type of buyer that’s very active this holiday season – the homebuyer.

Each month, ShowingTime releases their Showing Index which tracks the average number of appointments received on active U.S. house listings. The most recent index notes:

“The Showing Index reported a 60.9 percent jump in nationwide showing traffic year over year in October, the sixth consecutive month to see an increase over last year.”

Here’s the breakdown of the latest activity by region of the country compared to this time last year:

  • The Northeast increased by 65.5%
  • The West increased by 64.7%
  • The Midwest increased by 55.7%
  • The South increased by 54.7%

Why is the traffic so active?

The health crisis definitely put homebuying plans on pause for many earlier this year. Buyers, however, are in the market and making moves well past the typical busy homebuying seasons of spring and summer.

One of the main reasons buyer traffic has continued to soar in the second half of 2020 is how dramatically mortgage rates have fallen. According to Freddie Mac, the average mortgage rate last December was 3.72%. Today, the rate is a full percentage point lower.

Bottom Line

There are first-time, move-up, and move-down buyers actively looking for the home of their dreams this winter. If you’re thinking of selling your house in 2021, you don’t need to wait until the spring to do it. Your potential buyer is very likely searching for a home in your neighborhood right now.

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Common Issues That Home Inspectors Typically Look For

top things home inspectors look for

Homebuyers almost always hire professional home inspectors to find any problems with a property before closing. If you’re planning to sell a home, it’s important to address key issues before this important process begins. Read on to learn which hot spots inspectors focus on when they’re assessing the condition of a home.

Roofs and Chimneys

Because it’s the first line of defense against the weather, roofs get a lot of attention from inspectors. Deteriorating shingles and other flaws are one of the very first things they will notice. Rotted or moist elements beneath the shingles will typically draw requests for repairs. The inspection will also include a long look at the attic. Any sign of water stains or mold will lead to a negative report.

Sellers should also make sure the flashing around the chimney is watertight. The bricks and mortar should be in good condition, and the fireplace needs to function properly and be free of creosote buildup which can increase the risk of uncontrolled fires and, in rare instances, explosions.

Plumbing

home inspector plumbingDuring an inspection, you should expect every part of your home’s plumbing system to get a thorough once-over. Repair leaks long before the inspector sets foot on your property. It’s always important to address pumping problems quickly because they can lead to extensive, unseen water damage that can reduce a home’s value.

Inspectors also check water pressure by flushing toilets, turning on multiple faucets, and simultaneously running the dishwasher. They also assess the health of a home’s septic system.

Basements and Crawl Spaces

Home inspectors pay special attention to signs of mold in basements and crawl spaces. Any sort of mildew stain and foul odor can torpedo a home sale, especially if there is evidence of black mold. Even if the mold in your home isn’t dangerous, you need to treat it and address the source of the problem to prevent a recurrence.

Even slight mildew odors are signs of excessive moisture. Home inspectors look closely at the floors and walls for signs of dampness and patches of mildew. Inspectors often use meters to determine how much moisture is present because moisture eventually attracts insects and deteriorates building materials.

You can cover exposed earth in crawl spaces and basements with plastic sheeting to help lower moisture levels. Most foundation leaks are caused by poor drainage that forces water toward the foundation. This can cause the underlying soil to expand and shrink as the water evaporates.

If your home has foundation problems, and you can’t afford repairs, you may have to lower your asking price upfront with the understanding that the price reflects the problem. You could also give the prospective buyers an allowance to make repairs after closing.

Electrical Systems

Inspectors also assess electrical systems with a critical eye. Your circuit breaker and electrical panel configuration must be adequate for the requirements of your house. Depending on the code, these systems can change over time, especially with older properties. It’s best to review current codes before you put your home on the market to see if there are any issues.

In bathrooms and kitchens, inspectors will look for receptacles equipped with ground fault circuit interrupters (GFI). These contain mini-circuit breakers that shut off during a power overload or short circuit. bear in mind that good inspectors check receptacles to make sure they aren’t dummies that aren’t wired correctly.

Other Considerations

Home inspections generally look at every part of a home. Although roofs, basements, wiring and plumbing are always primary areas, they aren’t the only places worthy of your attention.

Inspectors will check cooling and heating systems to make sure they work and note their efficiency. They will take a close look at the foundation and structure, along with any appliances that remain with the house. This includes carbon monoxide detectors and smoke detectors, so make sure all of these are in good working order.

While most buyers are mainly concerned with the condition and safety of a home, some hope to find minor issues, so they can lower their offers. In the end, the fewer issues they find, the less opportunity buyers will have to haggle overpricing.

Thinking of selling your home? The Wheaton Team makes it easy. With decades of residential real estate experience in Colorado Springs and the Tri-Lakes area, our skilled professionals are ready to guide you through every step of the complex selling process. Contact our team to learn more.

To learn more about home inspections, read: 5 Tips on Finding the Right Home Inspector.

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Buyer’s Market vs. Seller’s Market

buyers market

Most people have heard the real estate terms “buyer’s market” and “seller’s market.” But what do these mean, and how do they affect your ability to sell or buy a home? Read on to learn how supply and demand influence home prices.

What is a Buyer’s Market?

With a buyer’s market, the supply of available homes for sale outnumbers the amount of motivated buyers who are interested in purchasing a home. Because they have so many options, buyers can afford to be pickier. This forces sellers to be more reasonable with their pricing.

If you’re searching for a new home, a buyer’s market is the best time to make a move. In many instances, you will be able to get a home for a lower cost than you would if you were shopping during a seller’s market.

On the other hand, if you are hoping to sell a home, you will have a harder time during a buyer’s market. Not only will you have to price your home to compete with other available inventory; your home may take longer to sell. If your home stays on the market for a while, you may also have to lower your asking price or make certain concessions to secure a buyer.

What is a Seller’s Market?

With a seller’s market, the supply of available homes for sale is less than the number of motivated buyers who are interested in purchasing a home. Because they have fewer options and increased competition, buyers cannot afford to be as picky. This allows sellers to raise their asking prices.

sellers marketWhenever demand exceeds supply, multiple buyers often become interested in a single home, resulting in bidding wars. If you’re planning to sell your home, a seller’s market is the best time to make a move. In most instances, you will be able to secure your asking price; you may also be able to get a higher offer if there are multiple interested buyers.

If you’re trying to buy a home in a seller’s market, the seller will have the advantage. If there are other buyers interested in the same home you’re making an offer on, you will find it very difficult, if not impossible, to haggle for a better price. In fact, you might even lose the opportunity to buy the property if a competing buyer swoops in with a higher offer.

Seller’s markets are also commonly referred to as “renter’s markets” because potential buyers often need to keep renting until they can either accumulate a higher down payment to help compete with other buyers or wait for market conditions to change.

How Do You Determine the State of the Market?

There are a number of different factors that determine real estate market conditions, both nationally and locally. If an area has a booming economy with a lot of great employment opportunities, more people are going to want to live there, and limited housing opportunities will create a seller’s market. The same works in reverse.

Shifting mortgage rates can also drive buyer demand since they help determine loan affordability. At the same time, the supply of local housing is constantly in a state of flux. Home inventory can increase when people move elsewhere, whether they’re downsizing or moving into a larger home for an expanding family. Similarly, inventory can increase with new home construction.

On the other hand, housing inventory can decrease due to natural disasters such as earthquakes, fires and floods. Limited land availability can also lead to plot shortages that limit new home construction and make existing properties more valuable.

The real estate market can also go up and down based on the season. There are typically more homes for sale in the summer. This means you could have a seller’s market during the winter and a buyer’s market when the weather warms up.

With all this in mind, it can be difficult for ordinary buyers and sellers to assess current market conditions. One way to determine if it’s a seller’s or buyer’s market is to analyze available inventory. If inventory is low, it is most likely (though not always) a seller’s market. If inventory is high, it is most likely (though not always) a buyer’s market.

With so much to consider, however, it’s generally best to seek counsel from a reputable real estate agent to help you get a clear understanding of existing market conditions.

With 60-plus years of combined experience, The Wheaton Team specializes in residential real estate throughout Colorado Springs and all of El Paso County. Let us guide you through each step of the buying and selling process, so you can achieve your real estate goals. Contact us today to get started.

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Knowledge Is Power on the Path to Homeownership

 

Homeownership is on the goal list for many young adults, but sometimes it’s hard to know exactly how to get there. From understanding the homebuying process to pre-approval and down payment assistance options, uncertainty along the way can ultimately hold some buyers back.

Today, there are over 75 million Millennials and 67 million Gen Z’ers in the U.S., making up a significant number of both current and soon-to-be homebuyers. According to a recent Fannie Mae survey of more than 2,000 of these individuals:

“88% said they are confident they will achieve homeownership someday.”

In addition, the survey also reveals that for younger generations, the motivation to own a home may be more emotional than financial compared to previous generations:

  • <50% say they want to use their home as an asset
  • 78% believe it’s the best way to live the way they want, without restrictions
  • 80% believe homeownership is the best way to make it on their own

Whether homeownership goals come from the heart or are driven by financial aspirations (or maybe both), the obstacles standing in the way don’t have to bring these dreams to a screeching halt. The same survey also reveals two key roadblocks for potential buyers. Thankfully, they’re both easily overcome with the power of knowledge and trusted advisors leading the way. Here’s a look at these two challenges potential homebuyers face today:

1. 73% of future homebuyers are unaware of low-down-payment mortgage options

For those who want to purchase a home, low-down-payment options are instrumental to affording one sooner rather than later, especially given the amount of debt many younger adults have accumulated. Fannie Mae also notes:

“Among the challenges they face is an unprecedented amount of debt, along with a lack of understanding of the mortgage process and their own purchasing power. Debt, in particular, creates many obstacles such as a limited ability to save and the fear of taking on more debt.”

Today, there are more than 2,340 down payment assistance programs available nationwide to help relieve this pressure. Understanding what’s out there and the options available may help many buyers become homeowners faster than they thought possible. In a year like this, with record-low mortgage rates making their mark in the history books, being able to take advantage of the opportunity buyers have right now is essential to long-term affordability.

2. 64% of buyers expect lenders and other real estate professionals to educate them about the mortgage process

While many people love to do a quick search online to find instant answers to their questions, it isn’t the only way younger generations want to consume information or build their knowledge base. As the survey mentions, having trusted professionals help them learn what it takes to achieve their dreams is definitely on their wish list too.

Bottom Line

If you’re aiming for homeownership someday, it may be in closer reach than you think. Let’s connect so you can learn about the process and get the guidance you need to make it happen.

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Is Buying a Home Today a Good Financial Move?

Is Buying a Home Today a Good Financial Move? | MyKCM

There’s no doubt 2020 has been a challenging year. A global pandemic coupled with an economic recession has caused heartache for many. However, it has also prompted more Americans to reconsider the meaning of “home.” This quest for a place better equipped to fulfill our needs, along with record-low mortgage rates, has skyrocketed the demand for home purchases.

This increase in demand, on top of the severe shortage of homes for sale, has also caused more bidding wars and thus has home prices appreciating rather dramatically. Some, therefore, have become cautious about buying a home right now.

The truth of the matter is, even though homes have appreciated by a whopping 6.7% over the last twelve months, the cost to buy a home has actually dropped. This is largely due to mortgage rates falling by a full percentage point.

Let’s take a look at the monthly mortgage payment on a $300,000 house one year ago, and then compare it with that same home today, after it has appreciated by 6.7% to $320,100:Is Buying a Home Today a Good Financial Move? | MyKCMCompared to this time last year, you’ll actually save $87 dollars a month by purchasing that home today, which equates to over one thousand dollars a year.

But isn’t the economy still in a recession?

Yes, it is. That, however, may make it the perfect time to buy your first home or move up to a larger one. Tom Gil, a Harvard trained negotiator and real estate investor, recently explained:

“When volatile assets are facing recessions, hard assets, such as gold and real estate, thrive. Historically speaking, residential real estate has done better compared to other markets during and after recessions.”

That thought is substantiated by the fact that homeowners have 40 times the net worth of renters. Odeta Kushi, Deputy Chief Economist for First American Financial Corporation, recently said:

“Despite the risk of volatility in the housing market, numerous studies have demonstrated that homeownership leads to greater wealth accumulation when compared with renting. Renters don’t capture the wealth generated by house price appreciation, nor do they benefit from the equity gains generated by monthly mortgage payments, which become a form of forced savings for homeowners.”

Bottom Line

With home prices still increasing and mortgage rates perhaps poised to begin rising as well, buying your first home, or moving up to a home that better fits your current needs, likely makes a ton of sense.

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Buying In A Historic Neighborhood: What To Know

historic neighborhood

Owning a home within a historic district provides a unique opportunity to celebrate and share the history of your property. It can also be a worthwhile investment since historic homes tend to maintain great property value even in slow real estate markets. To better understand the pros and cons of this type of investment, consider the following.

It comes with limitations. 

If you choose to buy a home in a designated historic district, there may be certain restrictions on what you can do to your property’s exterior. This can include everything from painting to installing new windows. Before you begin any type of renovation or upgrade, you will need to check with your local planning department to get the ok.

Districts listed only on the National Register of Historic Places don’t typically restrict what you can do to your property; that said, areas on a local or state registry often impose restrictions. While such restrictions can limit your options, they apply equally to everyone. This means you won’t have to worry about your neighbors painting their exteriors with an atrocious shade of pea green.

Easements are binding

When you set up a historic preservation easement, it will protect the historic integrity of your property in perpetuity. This legal tool imposes restrictions on what can happen to the home and requires any future owners to adhere to your rules.

You will typically pay a government agency or qualified preservation organization to hold the easement, and your payment may qualify for a federal tax deduction. Before buying a historic home, it’s important to find out if any sort of easement is already in place. You should also determine what the easement entails and who holds it.

Maintenance can be expensive.

buying in historic neighborhoodHistoric homes stand the test of time because they are structurally sound. Many people are surprised to learn that homes built in the 1980s can actually deteriorate faster than homes built in the 1800s. It all depends on the original workmanship and the quality (and consistency) of maintenance.

If any of this is lacking, you could end up paying thousands of dollars in repairs and restorations. It’s best to exercise caution if you’re thinking of purchasing a historic home that needs extensive work. Some state historic preservation offices will provide grants or tax benefits for homeowners. These can help with maintenance and repair costs for the exterior of registered properties.

Whatever the case, even structurally sound historic homes are likely to require steady maintenance to help them hold up against Father Time.

It can be difficult to get insurance and financing. 

Some lenders may hesitate to provide financing for a historic home that needs extensive repairs. In some instances, you may be unable to secure a traditional loan backed by the U.S. Department of Housing and Urban Development. You may, however, be able to acquire a private HUD Title 1 loan to cover smaller repairs.

You can also look into acquiring rehab mortgage insurance which can help pay for the purchase of the home and some of the rehab costs. You may also be able to apply for a Fannie Mae HomeStyle Renovation mortgage for similar purposes.

Bear in mind that some insurance companies are reluctant to provide policies because they often assume that replacement costs are higher for designated historic homes. You will have an easier time getting insured if your property is only federally registered and free of restrictions. Whatever the case, expect to spend some time shopping around for a decent homeowner’s insurance policy.

Historic homes are old. 

Although most lenders typically won’t demand a home inspection, it’s best to get one before purchasing an older home. While an average inspector may be great at uncovering problems with modern homes; they may not have the expertise to properly inspect a historic property. It’s best to find an inspector who has extensive experience with historic homes and the unique issues they present, such as the possible presence of asbestos and lead paint.

It’s also important to understand that historic homes may not be able to satisfy your modern-day desires. You simply may not be able to install a fully equipped kitchen or expansive master bathroom amid historic architecture. What’s more, any upgrades you make could actually devalue your home.

With this in mind, it’s best to ask yourself a few questions before you consider making a purchase. Are you viewing it as an investment or a home? Can you live without modern conveniences, and how will any changes you make affect the home’s character and resale price? It’s important to carefully assess your goals, so you won’t be blindsided by the realities of owning an older property.

If you’re interested in buying a home, The Wheaton Team can help guide you through the complicated buying process so you can find the home of your dreams. Contact us today to learn more.

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Two Important Impacts of Home Equity

Two Important Impacts of Home Equity | MyKCM

Equity continues to rise, helping American homeowners secure a much more stable financial future. According to the most recent data from CoreLogic, the average homeowner gained $9,800 in equity over the past year. In addition, experts project 2020 home prices to continue rising. With prices going up, equity gains will also keep accelerating. Black Knight just reported:

“The annual percent change in the overall median existing single-family-home price has skyrocketed in the past several months, with recent numbers at three to five times higher than rates seen in the past several years.”

Jeff Tucker, Senior Economist at Zillow, just qualified recent price increases as “jaw-dropping” and “within a hair’s breadth of double-digit year-over-year appreciation.”

Knowing equity will help enable many homeowners to better survive the economic distress caused by the ongoing pandemic, it’s important to break down two key homeowner benefits of increasing equity.

1. Equity Increases a Homeowner’s Options to Buy a New Home

Aside from the financial damage of the last seven months, there has also been a tremendous emotional toll on many people. Shelter-in-place mandates, quarantine requirements, and virtual schooling have all made us re-evaluate the must-have requirements a home should deliver. Having equity in your current house gives you a better opportunity to move-up or build your perfect home from scratch.

Mark Fleming, Chief Economist at First American, recently explained:

“As homeowners gain equity in their homes, they are more likely to consider using that equity to purchase a larger or more attractive home – the wealth effect of rising equity.”

If you need to make a move, the equity in your current home can help make that possible – right now.

2. Equity Enables Homeowners to Help Future Generations

An increase in home equity grows overall wealth, which can transfer to future generations. The Federal Reserve, in an addendum to their recent Survey of Consumer Finances, explains:

“There are numerous ways families can transmit wealth and resources across generations. Families can directly transfer their wealth to the next generation in the form of a bequest. They can also provide the next generation with inter vivos transfers (gifts), for example, providing down payment support to enable a home purchase or a substantial wedding gift.”

The Federal Reserve also explains another way wealth (including the additional net worth generated by an increase in home equity) can benefit future generations:

“In addition to direct transfers or gifts, families can make investments in their children that indirectly increase their wealth. For example, families can invest in their children’s educational success by paying for college or private schools, which can in turn increase their children’s ability to accumulate wealth.”

Bottom Line

Equity can help a homeowner grow their confidence in a more stable financial future. It provides near-term move-up options and creates a positive impact for future generations. In many cases, the largest single investment a person has is their home. As that investment appreciates in value, financial options increase too.

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Is it Time to Move into a Single-Story Home?

Is it Time to Move into a Single-Story Home?

Is it Time to Move into a Single-Story Home? | MyKCM

Once the kids have left the nest, you may be wondering what to do with all of the extra space in your home. Chances are, you don’t need four bedrooms anymore, and it may be a great time to sell your house and downsize, maybe even into a single-story home. You’ve likely gained significant equity if you’ve lived in your home for a while, so making a move while demand for your current house is high could be your best step forward toward the retirement goals you set out to achieve several years ago.

The dilemma, though, is where to go next. A big concern for many homeowners who are ready to sell is finding a home to move into, given today’s lack of houses available for sale. There is, however, some good news: the number of single-family 1-story homes being built today is on the rise, improving your odds of finding the right home for your changing needs. In a recent article, The National Association of Home Builders (NAHB) explains:

“Nationwide, the share of new homes with two or more stories fell from 53% in 2018 to 52% in 2019, while the share of new homes with one story grew from 47% to 48%.”

Here’s a map showing the breakdown of newly constructed homes being built by region, and the percentage of 1-story and 2-story homes in that mix:Is it Time to Move into a Single-Story Home? | MyKCM

What are the benefits of buying a one-story home?

Still not sure about buying a single-story home? An article from Home Talk covers several advantages of switching from two floors to one:

1. Energy Efficient

“It is easier to heat and cool a single-story house [than] it would be to regulate the temperatures of a multi-story house.”

Most single-story homes only need one heating or cooling unit, and they typically stay cooler than a two-story home, both of which can lead to significant savings.

2. Easier to Maintain

“Doing a general cleaning in a single story requires less effort and you will be able to see all areas that need cleaning and the areas are easily accessible.”

Cleaning and maintenance of a single-story home can take less time and effort, and better upkeep helps improve the overall value of the home.

3. Accessible for Everyone

“A single-story house can be accessed by anyone, whether they are young children or the senior citizens.”

If you’re looking for a house that provides a safe and easily accessible environment at any age, a single-story home may be optimal.

4. Good Resell Potential

“When buying a single-story house, you should consider the resale value should you think of reselling it in case of a circumstance that can happen. Look at the growth rate of that area. Due to the high demand of these types of houses it is [easy] to resell them and depending on the growth rate of an area, it increases in value significantly.”

Single-story homes have a lot of benefits and are often in higher demand. This bodes well for future resale opportunities.

Bottom Line

There are many benefits to downsizing into a one-story home. Doing so while demand for your current house is high might make it easier than ever to make a move. Let’s connect if you’re ready to purchase the single-story home you need while homes are so affordable today.

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How Do Realtors Get Paid?

how do realtors get paid

A real estate agent can streamline the complex process of selling or buying a new home. In return for their guidance and expertise, your agent will typically collect a commission based on a set percentage of a property’s selling price. Read on for an in-depth look into how your agent will be compensated for his or her services.

Digging Deeper into Commissions

Most real estate agents earn a living through commissions, which are essentially payments made directly to brokers for all the necessary services rendered in the purchase or sale of a real estate property.

A commission is typically a percentage of the home’s selling price, although it can sometimes be a flat fee. While agents rely on commissions for income, they usually only get a slice of the pie. To understand how agents are paid, it helps to know about the relationship between agents and brokers.

Agents and Brokers

Professional agents are licensed salespeople who work under the umbrella of a designated real estate broker. It’s important to note that an how realtors get paidagent is not able to work independently and is prohibited from being paid any commission directly by a consumer.

On the other hand, a broker is able to work independently and/or hire real estate agents. In most cases, real estate commissions are paid directly to the broker, who then splits the commission with the agent or agents involved in the transaction.

The broker’s compensation will almost always be specified in the listing agreement, and the rate of the broker’s commission is usually negotiable. Commissions are funded by sale proceeds, and it’s usually the seller who pays them, unless the seller and buyer negotiate a split.

Most sellers factor agent/broker commissions into a home’s asking price, so it could be argued that the buyer pays at least some portion of the commission in either case due to the inevitable increase in the overall asking price.

How Commissions Get Divided

Real estate commissions are often divided among several different people. In a standard real estate transaction, the commission might be shared between up to four professionals, including:

  • Buyer’s agent
  • Buyer’s agent’s broker
  • Listing agent
  • Listing broker

For instance, let’s consider an example of an agent who has taken a listing on a $400,000 property at a 6% commission rate. If the home sells for the asking price, the listing broker and the buyer’s agent’s broker would get 50% of the commission ($400,000 sales price x 0.06 commission ÷ 2 = $12,000 each). The brokers would then split the commissions with the agents.

It’s common for commissions to be divided so 40% goes to the broker and 60% goes to the agent; however, the split could also be split at whatever ratio the broker and agent have agreed upon. In a 60/40 split, each agent in the above example would receive $7,200 ($12,000 X 0.6), and each broker would receive $4,800 ($12,000 X 0.4). The final breakdown would be:

  • Buyer’s agent—$7,200
  • Buyer’s agent’s broker—$4,800
  • Listing agent—$7,200
  • Listing broker—$4,800

Commissions are sometimes divided among fewer people. For instance, when brokers list a property and also identify a buyer, they may keep the full 6% commission. Or, if a listing agent sells a home acting as both the buyer’s agent and listing agent, he or she would only need to split the commission with the sponsoring broker.

Of course, as with almost every other financial transaction, all parties must contend with taxes and business expenses. This includes everything from federal, state and self-employment taxes to the many costs of doing business, including dues and fees, insurance and advertising. All of this can turn what appears to be a substantial commission into a much more modest profit.

Things to Consider

Commissions are typically only paid when a transaction settles. There are certain instances, however, when a seller might be liable for the broker’s commission even when a real estate transaction is not closed. For example, if the broker already has an offer from a willing and able buyer, he or she may still be entitled to claim a commission if the seller:

  • Chances his or her mind and refuses to sell
  • Has a title with uncorrected defects
  • Agrees with the buyer to cancel the transaction
  • Commits any sort of fraud in relation to the transaction
  • Insists on terms that weren’t included in the listing agreement
  • Can’t deliver possession of the home to the buyer within a reasonable timeframe
  • Has a spouse who refuses to sign the deed after already signing the listing agreement

The Bottom Line

In rare instances, real estate agents are employed by their brokers and paid an annual salary. Most commonly, however, agents earn income through commissions paid to brokers when real estate transactions are settled.

Thinking of buying or selling a home? The Wheaton Team can help. With 60-plus years of combined experience, our team specializes in residential real estate throughout Colorado Springs and all of El Paso County. Let us guide you through each step of the selling, buying and financing process, so you can turn your vision into reality.