3. Buying and Selling U.S.
Real Estate
Page 29
Finding a Listing Agent
38% ask a friend, neighbor, family member
22% work an agent used previously
Look around the neighborhood: in person or
online
Check the agents’ Websites—are they tech
savvy?
Select agents
Next step: call for an appointment
Page 30
Listing Presentation
Seller can meet and
interview agents
Agents can introduce
themselves, describe their
services, learn about the
seller and the home
Page 31
Agent Interviews
Find an agent who has
the knowledge and
experience to do the
best job
Someone the seller
likes and trusts
Page 32
Red flags
Denigrating the
competition
Promising an
unrealistically high
sales price
Offering a very low
commission
Listing Agreements
Exclusive-Right-to-Sell Listing
 Broker earns a commission by and bringing a buyer directly
or through a cooperating broker
 If the owner sells the property, broker is owed a
commission unless buyer is a specified exception
Exclusive-Agency Listing
 Owner reserves the right to sell and pay no commission
Open Listing
 Seller pays a commission only to the broker who brings a
buyer
 Few brokers will invest time or resources
Page 33
Commission Exceptions and
Protections
Exception clause
 Specified persons owner may sell to, broker
is not owed a commission
Protection clause
 Specified time period (30–60–90 days)
 Broker owed a commission after the listing
agreement expires if owner sells the home
to a buyer brought by the broker
Page 34
Preparing and Showing
Staging the home
 Make it more attractive
 Emphasize the positive features
 May involve minor repairs, decluttering,
storing personal items
Owners not present during showings
Listing agent may or may not be present
Page 34-35
Offers
Presentation of a contract signed by buyer
Check for earnest money held in escrow
Standardized contract form
Seller can:
 Accept the offer by signing it
 Reject the offer by returning it unsigned or
letting it expire
 Make a counteroffer in writing
Page 35
Buying a Property
Buyer consultation session
Meet and get acquainted
Gather information about the buyer such as
needs, wants, and motivation,
Questions about financial situation, source
of funds, cash or mortgage
Who does the agent represent?
Page 36
How Much Is This
Property Worth?
Sales Approach
 Residential valuation
 Compares recent sales of
similar properties
 Adjustments for property
features, condition
 Analysis compiled in a
comparative market analysis
(CMA)
Page 36-37
Commercial Property Valuation
Cost approach: price tag for reconstructing
the property on vacant land
Income approaches:
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Capitalization (Cap) Rate
Cash-on-Cash Return (ConC)
Gross Rent Multiplier (GRM)
Net Present Value (NPV)
Internal Rate of Return (IRR)
Page 37
Making an Offer
Contract, signed by the buyer, and a check
for earnest money
 Agent prepares, presents the offer to seller or the
seller’s agent
 Buyers don’t participate personally or negotiate
face-to-face
Counteroffer—step in negotiation process
An accepted offer is a binding contract
Page 38
Multiple Offers
Seller’s Perspective
 No obligation to accept
highest or consider in order
received
 Seller can accept best
combination of price and
terms
 Listing agents are not
required to disclose multiple
offers
 Buyer, buyer’s rep must ask,
seller must agree to divulge
Page 39
Buyer’s Perspective
 Other buyers are unknown
factors
 Don’t panic or withdraw,
could be the best offer
 Offshore offers lose out if
not prepared to move
quickly
 First offer should be the
best offer
Contract Terms
 Date of contract signing
 Date and location of the closing
 Full correct name of all parties
and their addresses
 Name of the broker
 Legal description of the property
 Method for notifications
 Price, down payment, balance
due
 Right of cancellation if clear title
is not available
 Covenants, easements, and
restrictions of record
 “Time of is the essence”
 Fixtures and personal property
 Apportionment of taxes,
insurance, water, and utilities
Page 40
 Signatures of all parties
 Contingencies
Contingencies
Conditions of the sale
that must be met prior
to closing
Too many make an
offer less appealing
Seller may submit a
counteroffer with
contingency clauses
Page 41
Common contingencies
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Mortgage availability
Home inspection
Appraisal
Condo/HOA rules
Selling a current home
Early move in
Clear title
Disclosures
Seller must disclose material facts about the
property
Standard disclosure form
Buyer receives between contract and closing
Required disclosures determined by state
Only federal disclosure: lead-based paint
Page 42
Inspections
Contingency gives buyers the right to have a
professional inspect the property
Cancel/renegotiate if major problems found
Contract should allow reasonable timeframe
for inspections
Seller may arrange own home inspection
Page 42-43
Mortgage or Cash?
55% of foreign buyers pay cash
Cash deal means no financing, not the use of
actual currency
 Large amount of currency raises suspicions
Credit rating and information may not match
U.S. lenders’ requirements
Branch of the client’s home bank, bank that
serves many foreign buyers
Page 43
Appraisals
If buyer finances purchase, lender will order an
appraisal
Appraiser's job: unbiased opinion of the value
Appraisal is lower than the offer price?
 Appraisal contingency—cancel or renegotiate
 Larger cash down payment
 Second appraisal (no guarantee it will be
higher)
Page 43-44
Property Insurance
Don’t wait to the last moment
Lenders require property insurance to close
If insurance premiums and other financial
obligations exceed DTI ratio, lender may cancel
Loss-History Report (CLUE)
 Impacts the cost, availability of insurance
 Tied to the property, not the current owner
Page 44
Title Insurance
Lender’s title insurance protects the
mortgage company, not the buyer
Owner’s title insurance protects against title
issues, competing ownership claims, liens or
encumbrances
One-time fee paid at closing
Page 45
Commercial Due Diligence
“Vetting” the deal
Thorough examination of the property, risk
assessment, all aspects of property and deal
Can deal can close as anticipated?
Requires a specialist
Property is kept off market during process
Page 45
Walk Through
1 – 2 days before the closing
Buyer walk-through
Is the property in the expected condition?
Contingencies resolved?
Not a time for reopening negotiations
Page 46
Other Professionals
Appraiser
Mortgage lender
Closing officer
Recorder of deeds
Home inspector
Title company
Insurance agent
Termite/insect
inspector
Involvement of an attorney is standard procedure, not
an indication of problems or anticipation of conflicts.
Page 46
At Closing
The Buyer
 Signs the deed and
mortgage commitment
 Endorses the check from
the lender for balance due
to seller
 Pays balance of down
payment and closing costs
 Receives keys to property
Page 47
The Seller
 Brings necessary
documents (e.g., utilities
and taxes paid)
 Signs deed over to buyer
 Receives net proceeds of
sale
 Pays closing costs,
mortgage balance
Closing Costs
Buyer
 Mortgage fees and points
 Credit report fee
 Inspection, appraisal fees
 Transfer tax
 Title search, recording fees
 Title insurance premium
 Escrow fees
 Prepaid interest
 Other fees, costs
Page 48
Seller
 Abstract or title search fee
 Loan payoff
 Deed preparation
 Sales commission
 Transfer tax
 Closing fees
 Repairs as agreed or cash
 Other fees, costs
Closing Delays
Missing paperwork
Down payment source
changes
Incorrect information
Title defect, pending
judgment or lien
No property insurance
No approval from condo/
HOA board
Unfinished contingencies
Page 49
Required inspections not
done
Invalid powers of
attorney
Move-out date changes
Loan application
rejection
Funds not transferred
Foreign check clearance
The hurricane box
After Closing
Deed filed by the title company
Buyer should obtain an official copy
Mortgage payments
 PITI = principal, interest, property tax, and
mortgage insurance
 Property tax held in escrow, paid by the lender
 Borrower can make addition principal
payments or pay off loan early without penalty
Page 50
Compensation
Brokers and agents paid at closing
Commission (paid by the seller, buyer, or
both) split between listing broker and broker
who brings buyer
“Side” = portion of a transaction
Broker who sells own listing keeps both sides
Page 50
Sources of Compensation
Other, 2%
Paid by
seller,
60%
Page 51
Don't know
9%
Paid by buyer
only, 18%
Paid by buyer
and seller,
11%
Agent Compensation
68%
Commission split
100% commission
17%
Commission plus share of profits
4%
Salary plus share of profits
3%
Salary only
2%
Share of profit only
1%
Other
Page 51
5%
About Compensation
Commissions and fees are negotiable
No standard commission percentage or fee
Firm may set commission rate policies and fees
for its own agents
Should not be discussed outside of the firm
Must be licensed to receive a commission
Compensation does not determine agency
representation
Kickbacks are illegal
Page 53
Referral Fees
Referrals common practice when the
transaction is in a different state, market, or
country, or requires specialized expertise
When the transaction closes:
 Receiving agent pays a referral fee to the
referring agent
 Referral fee is agreed to in advance
Page 54
Agency
Relationships between real estate
professionals and their clients and customers
No agency agreement?
 No one is on your client’s side
 No one is looking out for their interests
Page 54
Who Is the Client? Who Is the Customer?
Agent represents the seller
the buyer is the customer
Agent represents the buyer
the seller is the customer
Agent acts as a facilitator
buyer and seller are customers
Page 55
The agent provides:

Customer service to the buyer

Client (fiduciary duty) service to the
seller
The agent provides:

Customer service to the seller

Client (fiduciary duty) service to the
buyer
The agent provides:
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Limited client-level services for both
according to state law
Duties and Responsibilities
Duties to a Client
 Obedience
 Loyalty
 Disclosure
 Confidentiality
 Accounting
 Reasonable care and
diligence
“OLD CAR”
Page 55-56
Responsibilities to
Customer
 Honesty
 Accounting
 Reasonable skill
 Disclosures of agency and
material fact
“HARD”
Dual and Designated Agency
Conflict of interest
Seller’s representative
brings a buyer for the
home
Buyer wants to
purchase one of the
agent’s own listings
Page 57
Designated agency:
broker appoints agents
to represent buyer and
seller
Dual agency: (If allowed)
buyer and seller must
agree to reduced level of
service
Undisclosed dual agency
is illegal
Transaction Facilitator
 Agent represents neither the buyer nor
seller
 No loyalty to, confidentiality for either
 Acts as a neutral go-between
 Cannot help negotiate price
 Relieves buyer/seller of responsibility for
agent’s actions
 Alternative to designated/dual agency
Page 58
Agency—Top Markets

Designated and disclosed dual agency
prohibited
Transaction facilitator relationships permitted
Designated agency permitted
Disclosed dual agency prohibited
Intermediary relationships permitted
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Designated and disclosed dual agency permitted
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Florida
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Texas
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Arizona
California
Nevada
New York
Page 58