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The Truth About Real Estate Commissions and Credits

The Truth About Real Estate Commissions and Credits

Real Estate commissions are a negotiable amount agreed upon between a Broker and a Principle (Seller) at the time of taking a listing. In recent years, real estate brokers and agents have tried to reduce real estate commissions in order to provide incentives to clients. Here’s the true facts about the industry and real estate commission credits.

Real Estate Buyer & Seller Statistics

  • Access to public real estate data and new technologies hit the real estate industry in the early 2000’s with the expansion of websites like Zillow and Redfin.
  • In 2017, over 51% of home buyers (3,122,220) found the home they purchased online vs. 30% who found it through a real estate agent.
  • The typical buyer used a mobile device to search for properties online. Buyers looked at websites with photos, home listings, and information about the home buying process. They then contacted an agent and visited a median of 10 homes over 10 weeks before purchasing a home.

The Problem for Home Buyers

  • As over 51% of consumers now find the home they purchased online, Buyers often spent an average of 10 months and countless hours searching for the right home.
  • As home prices reach all time highs, inventory remains low, forcing many home buyers to stretch to the end of their budgets in order to purchase a home.
  • Often Buyers look to save just enough money for a down payment without understanding the additional closing fees involved when purchasing a home.

The Problem for Home Sellers

  • Aside from taxes, real estate commissions are the largest fee Sellers have to pay in order to close escrow on their home. In 2017, the national average commission rate was 5.26% of the sale price, which totaled $717 Billion in real estate commissions paid.
  • In order to save on commissions, some sellers attempt to sell their property themselves as a “For Sale By Owner (FSBO)” listing. Although Sellers can save on commissions, the lack of exposure to qualified buyers has lead FSBO listings to sell at an average sale price of $60,000 under homes listed by an Agent.
  • When deciding to Sell, the majority of home owners continue to occupy the home until the property is about to close escrow. This can be a hassle to schedule showings for both the Seller and Buyer.
  • Many homes are in need of updating or substantial repair but sellers lack the cash available to do the renovations; since their savings are often tied up in the homes equity.
  • In order to make the home more appealing to buyers, Sellers are asked to remove personal belongings from their property and often have to find an offsite storage to keep their belongings.
  • “We will buy your home cash” type companies have spread across the country seeking home sellers who will sell their home direct to a local investor. Often, the home owner is forced to take a well below market offer without knowing the true value of what an investor market would actually pay.

The Problem for Real Estate Agents

  • Most REALTORS® worked 40 hours per week with a median gross income of $42,500. That’s an hourly rate of $20.43.
  • U.S. real estate agents and brokers spent an estimated $8.9 billion on residential advertising. That equates to each licensed agent spending in the vicinity of $4,684.00 per year or $2.25 out of their hourly wage; bringing the median hourly rate to $18.18 before taxes, insurance, technology fees, legal fees, license fees, etc.!
  • While Agents are taking advantage of the technology that is available to them, one of the biggest challenges firms are facing is keeping up with technology.
  • Due to increased technology and data now available to the public, age old real estate business practices are forced to change.
  • Agents who do advertise a reduced commission often are independent agents who lack technology platforms or services consumers still demand. Since their Brokerage split and services don’t coincide with the agents marketing, Agents are then forced to provide an inadequate service level in order to offset the commission credit discount; this has been what has become known as a “discount broker.”
  • Agents who don’t advertise a reduced commission % are then put into an awkward position constantly trying to prove their worth.
  • Real Estate Brokerages have decreased commission splits and have started to virtualize their offices in order to reduce overhead. With consumers now doing a lot of leg work when buying a home, they in turn are demanding savings in the form of commission credits.

Real Estate Market Statistics

  • Although the majority of buyers found the home they purchased themselves, the use of an agent for both Buyers and Sellers remains at historical high numbers, 87% and 89% respectively. FSBOs remain at an all-time low of 8%.
  • In 2017, 5.51 million existing homes ($1.362 Trillion) and 612,000 new homes ($1.98 Billion) were sold in the U.S.
    • At an average 5.26% commission rate thats $717 Billion in real estate commissions paid.
  • An estimated $36.6 Billion in commissions were paid to real estate Brokers where the home buyer found their own property (That’s roughly $18.3 Billion in commissions paid to a buyers agency with an average of $5,859.52 per closing).

About Homebate

Founded in 2011, Homebate® is a licensed real estate company helping consumers receive the ultimate savings when buying or selling a home.

Homebate® seeks to save Buyers and Sellers more than $19.89 Billion in real estate commissions revolutionizing the real estate transaction.

  • We provide representation services to Buyers of real property: Buyer Services
  • We help consumers net more when selling their property: Seller Services
  • We help consumers find investors to purchase their property within 24 hours: Instant Offer Auctions
  • We help acquire real property assets for investors: Investor Services
  • We negotiate discounts and rebates on Home Products and Services: Affiliate Services

Buyer Services

Buyers can view upcoming open houses, new construction projects, check home values and investment returns or even make an offer online with Homebate®.

When a Buyer opts to Draft their offer through the Homebate® platform, they’ll receive 50% of the Partner Agents Commission as a credit to help pay for closing costs, buy down their interest rate or even credit it back to the Seller to help lower the purchase price.

When a Buyer gets 50% commission back, they have more power to negotiate in a sellers market and often pay $0 in closing costs.

  • e.g. a 50% rebate on a $600,000 home would save a Buyer an average of $9,000 in closing fees.

Seller Services

Sellers can take advantage of their commission credit in the form of a listing fee reduction from the industry standard 6%.

Sellers can keep track of their home’s current value through Homebate’s automated Sale and Rental Analysis tools. When they’re ready to list their home, they can either select to sell on the MLS (Open Market Listing) OR they can choose to list through Homebate’s Instant Offer Auctions.

Sellers who select an MLS (Open Market Listing) through the Homebate® platform can do so with a reduced listing fee of 1% of the sales price with a minimum fee of $2,500 payable to the listing Broker. An additional 2% Commission offering to a buyers agent is also required.

Instant Offer Auctions

If a Seller decides to list their home through an Instant Offer Auction, the seller will confirm their minimum sale price and list a day/time for a one time buyer inspection.

A notification is then sent out to all qualified investors to submit their interest to bid within 24 hours. A Homebate® partner agent is assigned to the transaction to ensure successful negotiation between all parties.

Offers from investors will be submitted through the Homebate® platform allowing the Seller to Accept the terms of the winning bidder.

Investor Services

Homebate® works with REIT’s and qualified investors to acquire real estate investment opportunities.

Qualified investors have the opportunity to bid on Instant Offer Auctions and purchase properties as low as 33% below market comps.

Affiliate Services

Not only does Homebate® provide commission credits when Buying or Selling a Home, but we also negotiate discounts on Home Products and Services for clients.

These rebates include items such as a Free Appraisal, Home Inspection, No Lender Fees or even exclusive discounts on Home Products like Washers + Dryers.

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Homebate® Realty

Homebate® helps buyers and sellers negotiate real estate commission credits with their agent representatives, and works with 3rd party companies to provide loan, energy and home improvement rebates for clients in order to receive the ultimate savings.

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