Learn everything you need to know about the real estate process and how to market a real estate business as an agent.
Real estate is a linchpin industry in our society. People need to buy and sell property, and they need experts to help them understand and manage the transactions.In the past decade or so, software and websites have amended the traditional real estate process. But regardless of how much technology advances, it’ll never replace the real estate middleman — the agent.Why? Because as important as real estate is to our society, it remains an enigma to most consumers. Between the various laws, paperwork, and best practices, there’s a lot that goes into buying and selling property.
1. What is real estate?
Real estate is defined as the property and buildings on a specific piece of land. It also includes the air and underground rights above and below the land, respectively. The term “real estate” means real, or physical, property.
2. The Four Types of Real Estate
As a physical entity, real estate includes four different categories of property: residential, commercial, industrial, and land.
Residential includes new construction and resale homes. You probably know residential real estate as single-family homes. This category also includes condominiums, townhouses, duplexes, and vacation homes.
Commercial real estate primarily includes places of business. This category includes shopping centers, strip malls, hospitals, colleges, hotels, and offices. Apartment buildings are often considered commercial (even though they are technically residential) because they produce income for their owners.
Industrial includes manufacturing buildings and warehouses used for research, production, storage, and product distribution.
Land includes working farms and ranches. It also refers to vacant land, such as undeveloped land and land on which homes or buildings are being assembled.It’s important to understand the different types of real estate because the sale and purchase of property differ depending on its type. Other processes such as zoning, construction, and appraisal are handled independently, too.Because these categories and their rules and regulations are so different, real estate agents typically specialize in one specific type. Next, we’ll talk more about real estate agencies below.
3. Who’s Who in Real Estate
The real estate industry is complicated, and a lot goes into each transaction. For this reason, there’s a multitude of people involved in the process. If you’ve ever bought or sold property, you’ve likely worked with some or all of these specialists.
Different Types of Real Estate Agents
There are several different types of real estate agents that are involved in the purchase or sale of residential real estate. We’ll break each one down below.
The Real Estate Agent
The real estate agent acts as a liaison between buyers or sellers and the industry itself. They’re responsible for finding potential property, listing property, negotiating prices, and much more. While some agents work with both buyers and sellers, most specialize in one or the other. This is because the responsibilities of each are very distinct.
The Seller’s (Listing) Agent
The seller’s agent works exclusively with people selling real estate, such as a home or office building. They’re also called a “listing” agent because they list property under their name and brokerage for others to find. (We’ll talk about the listing process below.)
Listing agents are responsible for a variety of things:
- Helping determine the selling price of the property
- Listing and marketing the property
- Managing open houses and showings
- Answering questions of potential buyers
- Guiding the negotiating of the sale price
- Coordinating the sale and closing process
For residential sales, listing agents typically make 3% of the gross sale price, paid by the seller(s) — who pay another percentage to the buyer’s agent. For example, listing contracts written are for X% with X% offered to the cooperating agent.
The Buyer’s Agent
On the other hand, the buyer’s agent works with people looking to buy real estate. They’re responsible for finding potential property, organizing showings and walkthroughs, negotiating on behalf of their clients, and assisting during the purchase and closing process.
Buyer clients typically don’t pay for working with a buyer’s agent. If they successfully organize a real estate transaction, buyer’s agents make 3% of the gross sale price, also paid by the seller.
Real Estate License
In order for a member of the public to assist individuals with the lease, purchase, or sale of real estate, they must have a real estate license issued by the state in which the property exists. Each state has individual requirements for obtaining a real estate license including the number of hours of education, testing prerequisites, and licensing fees.
The real estate broker is considered one step above the agent. (Similar to the square/rectangle analogy, a broker is an agent, but an agent isn’t a broker.) Although the rules vary from state to state, brokers typically have more education and licensing than agents. Because of this, brokers can form their own real estate brokerage and hire agents as salespeople.
The Mortgage Lender
The mortgage lender is a financial institution that gives you money to fund your mortgage loan. When purchasing real estate, it’s encouraged to get pre-approved for a loan before touring and bidding on real estate. Real estate buyers will likely work closely with a mortgage lender before looking at homes or property.