Your Home Equity and Real Estate Commissions
Author: Jan McBeebr
Source: downloadbr
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If youre like most people, your home is the biggest single investment youve got. You expect it to increase in value over time, and you probably have more money tied up in it than in any other investment. This money is your equity, and a large chunk of it disappears when you sell your home using a real estate agent.
In this article, youll learn how real estate commissions affect your equity, youll see just how many real estate agents make money from a single commission, and in the section called Avoiding the Pressure, youll get an inside look at why many real estate agents are so persistent at getting their sellers to accept low-price offers.
A Quick Word to Buyers
Buyers and sellers alike benefit when there is no real estate agent involved. The term fair market value has a different ring to it when the middleperson is taken out of the equation, and prices trend to a truer value when they no longer reflect real estate commissions.
Equity
Equity is the value of the unencumbered interest in your home. Its the difference between the fair market value of your home and the unpaid balance of your mortgage, plus any other outstanding debt on the home.
Real Estate Commissions
Real estate commissions are the fees earned by real estate agents and are based on the selling price of the property. Theyre usually in the range of 6%, and they represent an excessive portion of the propertys equity, equaling thousands and thousands of dollars.
Your equity increases in two ways: as you pay off your mortgage and as your home appreciates. It decreases when you borrow against your home. But nothing reduces your equity quite like a real estate commission. You get nothing for it that you couldnt have got on your own.
Here are three assertions for why you should sell your home yourself:
Lower Cost of Selling
If you sell your home using a real estate agent, the commission youll be charged is around 6%. For a $250,000 home, thats $15,000. For a $600,000 home, its $36,000. You have to ask yourself what youre getting for all that money. The cost of selling your home on your own is negligible by comparison, and the result is the same: your home will sell. If you list your home on a For Sale By Owner real estate wed site, run a few classified ads in the real estate section of your local paper and prominently display a For Sale By Owner sign in your front yard, the cost of selling your home could be less than $1,000. With the amount youd save in commissions, you could still afford to advertise more, if necessary, in places like local real estate publications and newspaper supplements.
Retaining Your Equity
Lets say a couple decides to sell their home. It has a fair market value of $300,000 and they have $60,000 of equity in the home. They decide to use a real estate agent and agree to pay a 6% commission, or $18,000. The house sells. After the closing, the couple realizes theyve lost 30% of their equity. The $18,000 commission paid at closing meant that instead of walking away with $60,000, they only walked away with $42,000. So they have much less to put down on their next home.
Avoiding the Pressure
The economist Stephen D. Levitt and co-author Stephen J. Dubner wrote recently in their book Freakonomics (HarperCollins Publishers, Inc.) of Levitts study showing that when real estate agents sell their own homes, those homes stay on the market an average of 10 days longer than their clients homes. The same study shows that the selling price of real estate agents homes is on average 3% greater than that of their clients.
Heres why. A couple who lists their home with a real estate agent for $250,000 may hear from the agent that someone has offered $240,000 for the home. The agent will typically insist that this is a good offer and that the sellers should take it. Why would the real estate agent be so eager to accept a price thats $10,000 below the sellers asking price?
Its simple. Agents split their commissions: half goes to the buyers agent, half to the sellers agent. Then its usually split again: each agent gives half of their commission to the agency they work for. So the agent representing the seller is only getting 1.5% of the sales price of the home (6% ? 4).
With a $240,000 offer, the price of the home is reduced by $10,000, but the commission is reduced by only $600. The real estate agents cut of this is $150. It will cost the sellers agent only $150 to accept the low-price offer. What does it cost the seller? An additional $9,400.
This situation happens every day. There is a strong incentive for real estate agents representing the seller to entice their sellers into accepting offers well below their asking price.
Summary
As you can see, there are tremendous financial advantages to selling your home yourself. Thats not to say its for everyone. It requires a little more effort, and some are willing to part with all that equity to have a real estate agent do it.
But selling your home yourself can be easier than you think. The right research will help you price your home correctly, understand the paperwork involved, and prepare you getting the home ready to sell.
Make sure you walk away from your closing with your equity intact.
To see how much equity you would save by selling your own home, use this Equity Calculator. You might be surprised by what it shows you.
Jan McBee is chief writer and research adviser for DwellWell.com.br
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Cheap Homes for Sale: Tips for Locating Real Estate Bargains
Author: Simon Volkov
Source: articlesbase.com
Interested in buying cheap homes for sale? If so, you're in luck. Real estate bargains are everywhere. Drive through nearly any neighborhood and you're certain to see numerous "For Sale" signs. Many properties are listed as "For Sale by Owner" (FSBO) while others are listed through realtors or banks. Not all real estate falls into the cheap homes for sale category. However, the majority of properties are priced below market value. Homeowners facing foreclosure need to sell their house fast. If they owe more than their house is worth, they might be able to sell the property for less than is owed on their mortgage note. This type of real estate transaction is referred to as a short sale. When borrowers default on their mortgage loan and are unable to qualify for refinancing or loan modification, some lenders allow them to sell the home at a reduced price. Borrowers must obtain approval from their lender to short sell property. In order to buy short sale properties, borrowers must qualify for a home mortgage and be prepared to purchase the house immediately. Buying short sale real estate can be somewhat frustrating. Banks want to recoup as much of their investment as possible. Buyers can attempt to negotiate with the bank loss mitigation department to obtain a lower price, but offers must be reasonable. Foreclosure properties often fall into the category of cheap homes for sale. Presently, millions of foreclosed homes are sitting vacant across the U.S. Most foreclosure properties require repairs or renovations. Foreclosed houses requiring extensive repairs can oftentimes be purchased at 30- to 40-percent discounts. However, buyers must calculate the cost of repairs to determine the actual cost of the property. The goal is to purchase homes at reduced savings to obtain equity in the property. If the home is purchased at a 30-percent discount, but requires 40-percent of the cost in repairs it becomes an expensive home instead of a cheap home. Always do the math before making an offer on distressed properties. Cheap homes for sale can often be found via lending institution websites. These properties are referred to as real estate owned (REO) or bank owned homes. REO houses are foreclosure properties that did not sell at auction. When foreclosure houses are returned to the mortgage lender, the bank regains ownership and can sell the house to prospective buyers. Bank owned homes are usually priced below market value. Buyers will work directly with the bank to purchase REO properties. Be prepared to make multiple counter-offers on bank owned real estate. If lenders are unwilling to accept a respectable offer, buyers must be willing to walk away. There are plenty of bank owned homes available. If at first you don't succeed, search for other bank owned properties in the area. Chances are you will find several cheap homes for sale if you take time to scout them out. A lesser known way to locate cheap homes for sale is by searching probate court records. When a person dies their assets are held in probate until the estate is properly settled. When decedents own real estate, their estate is responsible for maintaining the property and paying costs associated with it throughout the probate process. Costs can include mortgage payments, homeowners insurance, homeowner's association dues, property taxes, and general maintenance. Oftentimes, the decedent's estate does not possess the financial means to pay real estate expenses. The estate administrator can sell the home in order to eliminate financial responsibilities. In order to locate probate real estate, buyers must review public records submitted through the probate court. The decedent's Last Will and Testament is a matter of public record. The Will contains valuable information regarding real estate holdings and financial assets. The Will also discloses contact information for the estate administrator. Once probate estates with real estate holdings are located, buyers can contact the estate administrator to negotiate a deal. By offering a reasonable price for probate real estate, buyers eliminate financial burdens and obtain real estate below market value.
California real estate investor, Simon Volkov, specializes in cheap homes for sale, foreclosure, real estate owned and probate properties. His expertise in distressed properties is far above the rest. For more information visit www.SimonVolkov.com.