Real estate glossary (A-K) : questions and answers
Go Back To Previous PageThis real estate blog post is longer than usual as we will go through all the Real Estate terms. We thank Scott from www.leanprop.com, who has put this enormous amount of information together. Here is our Real estate glossary! We will go over the real estate descriptive words and phrases, real estate words and phrases.
100% commission brokerage
Takeaways
- A 100% commission brokerage does not charge agents a percentage of each commission. Instead, 100% of each sales commission goes to the
agent. - 100% of brokerages make money by charging monthly or annual fees and per-transaction fees.
- 100% commission brokerages almost always employ agents as independent contractors.
- Fathom Realty and HomeSmart are two popular 100% commission brokerages.
What is a 100% commission brokerage?
A 100% commission brokerage does not charge agents a percentage of each commission. Instead, 100% of each sales commission goes to the agent. Therefore, 100% of brokerages make money by charging monthly or annual fees and per-transaction fees.Why do 100% commission brokerages matter?
100% commission brokerages are options for agents who don’t want to pay for traditional brokerage services. Many agents may feel that the split of other brokerages is high, especially if agents can handle their marketing and technology. That said, many 100% commission brokerages do provide technology, marketing, and other support services. But they may charge for them on a case-by-case basis.What is the difference between a 100% commission and traditional brokerage?
100% commission brokerages charge fees for each transaction or monthly or annual recurring fees. A traditional brokerage usually includes most services as part of its commission split. But many conventional brokerages also have monthly or yearly fees to cover the cost of office space or other services.How does a 100% commission brokerage employ agents?
100% commission brokerages almost always employ agents as independent contractors. Because 100% commission brokerages provide no-frills service offerings, agents often must build their business practices, which favor an independent contractor relationship. Also, the 100% commission brokerage can bring on more agents without worrying about full-time employee costs.What are some examples of 100% commission brokerages?
Fathom Realty and HomeSmart are two popular 100% commission brokerages. Both charge flat-rate per-transaction fees instead of a set commission percentage.Agent search portal
Takeaways
- An agent search portal helps buyers and sellers search for real estate agents. These sites offer data on each agent, including their prior
performance, reviews, and specialties. - Buyers and seller’s agents pay most agent search portals for referrals that turn into sales.
- Homelight is the most popular agent search portal ranked by site traffic.
What is an agent search portal?
An agent search portal helps buyers and sellers search for real estate agents. These sites offer data on each agent, including their prior performance, reviews, and specialties. Customers are often recommended agents based on the type of home they are buying or selling.
How do agent search portals make money?
Buyers and seller’s agents pay most agent search portals for referrals that turn into sales. Some agent search portals charge a fee to agents per lead.What are the most popular agent search portals?
Homelight is the most popular agent search portal ranked by site traffic. But there are several other competitors, including UpNest and LemonBrew.Agent team
Takeaways
- An agent team is a partnership between multiple agents at the same brokerage. Roughly 30-40% of agents are on teams.
- Agent teams often hire separate non-agent staff to support their work.
- Agent teams are as small as two agents and exceed twenty agents.
- Usually, there is a team leader, and sometimes they receive a portion of their team members’ commissions.
- Some brokerages rely on agent teams to recruit new agents directly onto teams.
What is an agent team?
Agent teams sometimes hire separate non-agent staff. These roles include administrative assistants and transaction coordinators. Therefore, agent teams are as small as two agents and exceed twenty agents. Industry data varies, but 30-40% of agents are part of agent teams.How are agent teams structured and paid?
Often there is a team leader who oversees the team. Sometimes the team leaders negotiate their split with the brokerage. Then they provide a different split for their team members. In these cases, the team leader gets a portion of each transaction a team member completes. In other cases, the team shares responsibilities and payments without appointing a leader.What are the advantages of an agent team?
Agent teams help agents pool their resources. This helps streamline tasks, hire non-agent support, and combine branding for marketing. Some brokerages rely on teams to recruit new agents. In these cases, agents are recruited onto a team rather than through the broader brokerage.Automated valuation model (AVM)
Takeaways
- An automated valuation model estimates the price of a property based on data.
- AVM is the commonly used acronym for automated valuation model.
- Major automated valuation models claim accuracy within 2% of the final sales price 50% of the time.
- The most well-known automated valuation model is the Zillow Zestimate.
What is an automated valuation model?
An automated valuation model estimates the price of a property based on data. These models often use a lot of similar data that traditional valuations
use, and data includes public records, prior sales prices, and sales prices of similar homes. Automated valuation models are often used to provide fast estimates at a large scale.
use, and data includes public records, prior sales prices, and sales prices of similar homes. Automated valuation models are often used to provide fast estimates at a large scale.
What is an AVM?
AVM is the commonly used acronym for automated valuation model.Why do automated valuation models matter?
AVMs are influential in modern real estate pricing. Real estate buyers and sellers often rely on data from an automated valuation model, and often they see this data before consulting a person. This is because sites like Zillow often display price estimates based on an AVM. And most home buyers and sellers start their research on real estate portals. As a result, real estate professionals must understand how these AVMs work. Agents often have to advise clients on AVM accuracy and influence. In addition, if the calculation method of an AVM changes, it can have a meaningful impact on home pricing. It’s important to note that AVMs estimate and influence prices, and AVM pricing can anchor buyer and seller expectations.How accurate are automated valuation models?
Major automated valuation models claim accuracy within 2% of the final sales price 50% of the time. On the one hand, this is an impressive accomplishment of modern technology. On the other hand, this might simply be cherry-picking the 50% of properties with more accessible estimates. The remaining 50% of estimates may be way off.What are some popular automated valuation models?
The most well-known automated valuation model is the Zillow Zestimate. But Redfin, Trulia, and Realtor.com have their automatic valuation models.What are some criticisms of automated valuation models?
Most real estate agents have several key criticisms of automated valuation models:- Limited accountability: AVM estimates have no penalty for being wrong, and the accuracy is within 2% of pricing 50% of the time. But misses on the other 50% only hurt agents trying to provide better pricing information.
- Data inconsistency: AVMs rely on data. If they have weaker access to data in specific markets, that can skew prices. An AVM with significant New York data may provide terrible estimates in Minnesota.
- Lack of human judgment: AVMs might be accurate based on housing data and statistics. But more-nuanced components like renovations and marketing impact can be overlooked. Overlapped can favor poor-quality homes, which may need more work but look similar to nicer homes on paper.
What are some examples of automated valuation model software?
CoreLogic, Attom Data Solutions, and HouseCanary all offer automated valuation model software. These services help companies market their AVMs to customers and allow customers to request AVMs on many properties at once. They also typically provide more data and insights than real estate portal AVMs do.Buyer’s and seller’s agents
Takeaways
- A buyer’s agent helps a buyer find, tour, offer on and close on a home
- Many new agents focus on buyers more than sellers.
- An agent representing the seller helps list a home for sale, market the home, and coordinate tours and open houses.
- A listing agent is another name for the agent representing the seller.
- Rental agents are often the same as sales agents, and rental can often represent the seller (landlord) or the buyer (renter).
What is the difference between a buyer and a seller agent?
Most agents work with both buyers and sellers. But they almost always only represent the buyer or the seller in each transaction. The responsibilities of agents change based on which side they are representing.
Agents representing buyers typically help with searching, scheduling tours, negotiating offers, closing the transaction, and supporting their client after the close. Seller’s agents often focus more on preparing listings for sale, marketing listings, coordinating open houses and tours, and supporting negotiations and closings.
What does a buyer’s agent do?
A buyer’s agent helps a buyer find, tour, offer on and close on a home. Many new agents focus on buyers more than sellers. Often a buyer’s agent spends a substantial amount of time helping their clients search for homes and schedule tours at homes of interest.What does a seller’s agent do?
An agent representing the seller helps list a home for sale, market the home, and coordinate tours and open houses. Seller’s agents often spend a large portion of their time helping prepare a home for sale, marketing the home, and coordinating tours and open houses to help a home move quickly at the highest price.What is a listing agent?
A listing agent is simply another term for the agent representing the seller.Are rental agents different from other real estate agents?
Rental agents are often helping with sales as well. But in some cases, they have different licenses or choose to focus exclusively on rentals. Many agents early in their careers focus on rentals. Like with sales, they can help the seller by representing the landlord or the buyer by representing the renter. The responsibilities are typically similar, but the process moves faster, and the value of commissions is often lower.Cloud brokerage
Takeaways
- A cloud brokerage does not have physical offices for real estate agents
- Cloud brokerages provide cloud-based software and services for their agents.
- Cloud brokerage splits are often more favorable to agents than traditional brokerages.
- eXp Realty and Real are two popular cloud brokerages.
What is a cloud brokerage?
A cloud brokerage does not have physical offices for real estate agents. Cloud brokerages provide cloud-based software and services for their agents, which helps work get completed remotely. Cloud brokerage splits are often more favorable to agents than traditional brokerages.Why do cloud brokerages matter?
eXp Realty, a national cloud brokerage, has quickly emerged as a top-5 real estate brokerage by transaction sides. This has created a push from traditional and tech-enabled brokerages to increase their officeless offerings.What is the difference between a cloud brokerage and a traditional brokerage?
Cloud brokerages do not have physical office space, and traditional brokerages almost always have office space. A lack of office space reduces the cost structure of running a cloud brokerage. But it also means that technology and remote service may not be strong enough to support remote work.How does a cloud brokerage employ agents?
Most cloud brokerages employ their agents as independent contractors. They appeal to agents who want the support of a traditional brokerage but don’t care much about office space. Instead, agent fees go towards technology and non-office services.What are some examples of cloud brokerages?
eXp Realty and Real are two popular cloud brokerages. Both have consistent commission splits for all agents, and they both provide technology to all agents to support an officeless structure.Commission Disbursement Authorization (CDA)
Takeaways
- A broker must complete a commission disbursement authorization to receive a commission.
- Commission disbursement authorization forms typically include information on the property, the sales price, the commission amounts, and the
relevant contacts in a deal. - CDA is the commonly used acronym for commission disbursement authorization.
- Many brokerages use CDAs to enforce regulatory compliance and collect documents.
What is a commission disbursement authorization?
A broker must complete a commission disbursement authorization to receive a commission. Commission disbursement authorization forms typically include information on the property, the sales price, the commission amounts, and the relevant contacts in a deal. It may also include checklists and required document attachments that a brokerage needs for each home sale.What is a CDA?
CDA is the commonly used acronym for commission disbursement authorization.Why do commission disbursement authorizations matter?
A brokerage has limitations over what it can tell an independent contractor agent to do. But the commission disbursement authorization is one step where a process is enforced, or an agent won’t get paid. As a result, many brokerages use this stage to implement regulatory compliance and collect documents.Commission split
Takeaways
- The commission split is the fee a brokerage collects from an agent it employs on each real estate transaction.
- The commission split is expressed as the percentage the agent receives (i.e., 80%) or as a ratio with the agent’s percentage first (i.e., 80/20)
- Higher-performing agents often get better splits.
- Some splits become better for agents as they earn more. Other split arrangements may have set dollar limits called caps, and some have both features.
- Modern brokerages like Redfin that have agents as full-time employees do not have splits. But they still pay over 70% of their commissions to agents and agent-related fees.
What is a real estate commission split?
The commission split is the fee a brokerage collects from an agent it employs on each real estate transaction. It is typically expressed as a percentage of the gross commission income that the agent receives (i.e., 80%) or as a ratio of what the agent gets versus what the brokerage receives (i.e., 80/20). Some brokerage charge fixed fees, and others have no splits at all. The commission split also represents the gross margin for the real estate brokerage. This is the total amount of money the brokerage receives after collecting commissions and paying them out to agents after splits.What are the types of commission splits?
Splits can be fixed or graduated.- A fixed split is the same regardless of the agent’s gross commission income. For example, a fixed 60/40 split would mean the agent receives 60% of their gross commission income to generate $1,000 in commissions or $1,000,000 in commissions.
- A graduated commission split changes based on the production of the agent. This means an agent has a particular split up to a certain amount of earnings. This split then changes when the agent earns beyond that amount. Typically splits become more favorable to agents as the agent makes more. This is because the brokerage is generating more margin from that agent and wants to retain them. There is less competition for lower-performing agents, and these agents might not generate enough commissions to cover their costs.
What is a commission split cap?
Some brokerages put a cap on commissions. The cap is a fixed dollar amount that the split cannot exceed. This is fundamentally a variation of a graduated commission. The agent’s total payment to the brokerage is lower as a percentage of their earnings once they exceed the cap. But the math can be easier. Often, brokerages offer an 80/20 split with a $16,000 cap. If an agent earns $100,000 in commissions, they only pay $16,000 to the brokerage implying a 16% split. But if they earned $50,000, they would be below the cap and pay 20%, or $10,000, to the brokerage.What is the average real estate split?
There is no typical real estate split, and Splits can vary significantly by the brokerage. Here are a few examples:- Keller Williams commission split: Varies but typically 70/30 with a cap (Source).
- eXp Realty commission split: 80/20 split with $16,000 cap (Source).
- Actual commission split: 85/15 split with a $12,000 cap (Source).
- Fathom Realty commission split: 100/0 split and $450 fee per transaction for the first 12 transactions; $99 per transaction after (Source).
What is the split for Redfin or other modern brokerages?
Many modern brokerages pay their agent’s salaries, so there is no traditional split to the agent. Because Redfin’s revenue cost includes personnel costs, bonuses, and expenses that agents often cover, you can use their gross margin as a shortcut to determine a split-like number. In 2018, Redfin’s gross margin as a percentage of its revenue on real estate services was 28.5% (Source). Therefore, Redfin pays out around 71.5% of its gross commissions to agents and agent-related feeds. While it’s not technically a split, it’s the closest we can get to that calculation.When is commission splits determined?
Real estate agents negotiate the split with their brokerage when hired. This is usually part of their independent contractor agreement or ICA. Often the split is renegotiated each year or every few years. There is no negotiation process for some brokerages with standard splits, such as eXp Realty.What is a 100% commission split?
Some brokerages offer 100/0 splits to agents, and often these brokerages charge steeper monthly fees or per-transaction fees. This still means the brokerage generates some margins from its agents, but not as a percentage of each transaction.Company dollar
Takeaways
- Company dollar is money a brokerage makes after collecting fees and paying commissions.
- Company dollar is calculated in two steps. Agent commissions are subtracted from total gross commission income, and the agent fees are added to that figure.
- The company dollar is a good metric for assessing how much a brokerage makes.
- The brokerage will lose money if operating expenses exceed the company dollar.
What is a company dollar?
Company dollar is money a brokerage makes after collecting fees and paying commissions.How is the company dollar calculated?
Company dollar is calculated in two steps. Agent commissions are subtracted from total gross commission income, and the agent fees are added to that figure.Why does company dollar matter?
The company dollar is a good metric for assessing how much a brokerage makes. Because gross commission income is paid to a brokerage, it is counted as revenue. But if an agent split is incredibly high, the brokerage may not keep much of that revenue. A brokerage may not make any money from commissions, and some simply charge monthly fees to agents. Company dollar accounts for this possibility. From a planning standpoint, the company dollar helps brokerages budget. A brokerage will ensure operating expenses are below the total company dollar, and the brokerage will lose money if operating expenses exceed the company dollar.Comparative market analysis (CMA) and valuations software
Takeaways
- A comparative market analysis (CMA) assesses properties similar to a home.
- An agent presents this information to a prospective or current client. This helps a seller set the listing price for a home, called the valuation estimate.
- CMAs must be careful to price the home high enough to get the best price but not so high that it stays on the market too long.
- CMA software helps agents compile and present CMAs. But many agents construct CMAs in spreadsheets and text documents.
What is a comparative market analysis?
A comparative market analysis (CMA) assesses recently sold properties similar to the target home. An agent typically presents this information in a packet to a prospective or current client to help set the listing price for a home, called the valuation estimate.What is a CMA?
CMA is the commonly used acronym for comparative market analysis.Why do CMAs matter?
CMAs are an essential step in pitching a seller and pricing a home. Agents must price a house high enough to get the best offer but not so high that it stays on the market too long. There is no universal way to pick comparison homes, called comps. As a result, two CMAs can vary significantly.Where do agents get CMA data?
CMA data often comes from previously sold homes, on-market homes, and companies that provide valuation data. Usually, agents use the MLS to find these, but you can find similar data on public portals like Zillow.What is comparative market analysis software?
Comparative market analysis software helps agents compile and present CMAs. These tools help agents identify similar properties, collect printable packets, and present a digital CMA that updates automatically. The software remains beneficial for showing pricing on active listings, and pricing on these properties may change daily and is not easy to capture in a printable packet.What are some examples of comparative market analysis software?
MoxiPresent, Cloud CMA, and DashCMA are three popular comparative market analysis tools. Many MLSs also have built-in CMA software, and an agent can generate CMA reports from any MLS search in those cases. Therefore, CMA presentation functionality is a built-in feature of some broader agent software tools. For instance, you can compile CMAs in a spreadsheet or text document. As a result, many agents don’t use any CMA software.Days on Market (DOM)
Takeaways
- Days on the market is the way to measure the age of a real estate listing, and it is the days from when a listing becomes active to when an offer is accepted.
- DOM is the acronym for days on the market.
- Low days on the market often indicate a new and competitive home on market.
- Most homes sold are on the market for 3-8 weeks, with the national average close to 30 days.
What are the days on the market?
Days on the market is the way to measure the age of a real estate listing, and it is the days from when a listing becomes active to when an offer is accepted. It also can end when the listing agreement between the real estate agent and seller ends.What is DOM?
DOM is the acronym for days on the market, and DOM is often used on days on the market on the MLS or consumer portals like Zillow.Why do days on the market matter?
Low days on the market often indicate a new and competitive home on market. Homes with high days on the market have not sold for some time and may be less competitive. If the days on the market are lower than they are historically for a location, that area is competitive. Assuming the same sales price, a homeowner would prefer to sell their home faster. Every day a home is on the market, the owner must pay carrying costs associated with the house, and it is also time that the owner or real estate agent must pay to market the home.How are days on the market calculated?
Days on the market are calculated by counting when a home is listed and has an accepted offer.What are the shortcomings of using days on the market?
Because days on the market are so commonly tracked, many agents and owners will manipulate them. They try to wait until the last moment to list a home as active. This could include holding private showings or delaying the time when a home is listed on the MLS. Sometimes agents also delist a home for a few weeks. They then will list it at a different price. This is the same home but will show with the days on market reset. In addition, low days on the market may mean a home was priced too low and left money on the table. There is a careful balance between selling a home for the right price and selling it too fast.What is the average time to sell a house?
Most homes sold are on the market for 3-8 weeks, with the national average being close to 30 days. But this can vary by the home’s price and the market’s competitiveness. Expensive homes may take longer to find a buyer, and homes in slow markets may struggle to attract buyers.Takeaways
- A discount real estate brokerage provides brokerage services at commissions below market.
- Often, discount brokerages focus on reduced rates for listing services
- Many discount brokerages hire agents as full-time employees. This ensures all clients get the same level of service regardless of the commission size.
What is a discount brokerage?
A discount real estate brokerage provides brokerage services at commissions below market. Often, discount brokerages focus on reduced rates for listing services. That said, many models also offer commission rebates to buyers as well.Why do discount brokerages matter?
Agents are involved in over 85% of real estate transactions. But this statistic includes discount brokerage deals, and a growing share of discount brokerage business brings average commissions down.What is the difference between a discount brokerage and a traditional brokerage?
The service offerings of discount brokerages are often similar to traditional brokerages’. But traditional brokerages would argue that discount brokerages cut corners to limit expenses.How does a discount brokerage employ agents?
Many discount brokerages hire full-time agents, ensuring all clients get the same level of service regardless of the commission size. But there are plenty of discount brokerages that employ agents as independent contractors.What are some examples of discount brokerages?
NestApple is the most well-known discount brokerage, offering a 1-2% listing fee service. It is also a tech-enabled brokerage, using technology to drive volume. Companies like Homie offer a flat fee service for home sales, and home also refunds a portion of fees for any client that buys a home with them.Flat-fee brokerages and listing services
Takeaways
- An agent search portal helps buyers and sellers search for real estate agents. These sites offer data on each agent, including their prior performance, reviews, and specialties.
- Buyers and seller’s agents pay most agent search portals for referrals that turn into sales.
- Homelight is the most popular agent search portal ranked by site traffic.
What is a flat-fee brokerage or listing service?
A flat-fee brokerage charges set dollar amounts for specific real estate services. Usually, these services are for sellers, and posting a listing on the MLS is the most common flat-free brokerage service.Who does a flat-free brokerage appeal to?
Many sellers want their homes marketed to agents on the MLS. But they don’t want to pay a full real estate commission. These sellers often elect to use flat-free brokerages. In other cases, a buyer or seller wants to handle most of the real estate process. But a flat-free brokerage helps them pay for necessary support case-by-case.Why do flat-fee brokerages matter?
Agents are involved in over 85% of real estate transactions, but this statistic includes flat-free brokerage deals. This means that agents are sometimes less critical in the transaction than they were. For example, a buyer or seller might use a real estate portal to search for a home or generate a CMA. But they will then use an agent for a single service like posting on the MLS or supporting closings.What is the difference between a flat-fee brokerage and a traditional brokerage?
Flat-free brokerages charge for real estate services at set dollar amounts, and they do not require buyers and sellers to use the brokerage for all parts of the transaction. Traditional brokerages provide end-to-end service and charge a percentage of the total home sales price.How does a flat-fee brokerage employ agents?
Flat-fee brokerages employ agents both as independent contractors and full-time employees. But larger flat-fee brokerages often use agents as full-time employees, ensuring service levels and pricing are consistent for all clients.What are some examples of flat-fee brokerages?
A few popular flat-free brokerages are Savvy Lane, Houzeo, Fizber, and NestApple. Many of these services specifically focus on flat-fee listing packages for home sellers.For sale by owner (FSBO) overview and market size
Takeaways
- A For Sale By Owner is a home that is sold without an agent by the owner.
- FSBO is an acronym for For Sale By Owner. This is often pronounced as “Fizz-bo.”
- There are 420,000 FSBO transactions annually, representing around $84B in total sales value.
- The total number of FSBO listings is often tracked to see how relevant agents are in real estate sales.
- FSBO listings are often a target of seller’s real estate agents looking for new clients.
What is a For Sale By Owner?
A For Sale By Owner is a home that is sold without an agent by the owner. A For Sale By Owner transaction might still involve an agent representing the buyer.What is an FSBO?
FSBO is an acronym for For Sale By Owner. This is often pronounced as “Fizz-bo” and refers to most homes sold without an agent.What is the total market size for FSBO homes?
There are 420,000 FSBO transactions annually, representing around $84B in total sales value.What percentage of homes are sold by owners?
Owners sell roughly 7% of homes. But they only represent ~5% of the total sales value of homes sold.What is the average price of an FSBO home?
The average FSBO home sells for around $200,000.What are the advantages of an FSBO listing?
Owners selling without agents forego the 2-3% listing commission they have to pay. Owners might also feel they will do more work than an agent to sell the home. In other cases, an owner may sell it to a relative or friend and doesn’t require an agent.What are the disadvantages of an FSBO listing?
Unlicensed individuals cannot post their property on agent-facing portals called the MLS, and the owner will have to do all the work of marketing and showing the home. It has also been shown that homes represented by agents sell for more. But that might be confusing causation and correlation. It’s possible that agents do not like to represent homes below $200K, and those homes can be hard to sell without renovations and pay a lower commission.Why do FSBO listings matter?
The total number of FSBO listings is often tracked to see how relevant agents are in real estate sales. FSBO listings are a lower percentage of complete listings than twenty years ago, indicating that real estate agents are essential in home sales. FSBO listings are often a target of seller’s real estate agents looking for new clients. Many agents will reach out to these sellers to offer their services. Typically, they will pitch how they can sell the home faster and for more money than their fees would cost.How do FSBO trends today compare to historical trends?
For Sale by Owner, transactions have been close to historical lows for a few years. And agents are involved in a higher percentage of home transactions than 40 years ago. In the 1980s, FSBO transactions accounted for closer to 15% of all home sales.Fractional home ownership
Takeaways
- Fractional homeownership companies buy a minority percentage of a home alongside homebuyers. This equity investment increases in value with the price of the house.
- Fractional homeownership helps create more buyers in a market. Without this support, many buyers may not have the cash for a downpayment.
- Fractional homeownership companies make money through the appreciation in the value of homes. They often invest in the initial home equity at a discount of up to 20%.
What is fractional homeownership?
Fractional homeownership companies buy a minority percentage of a home alongside homebuyers. This equity investment increases in value with the price of the house. Unlike a mortgage, this investment is not a loan but a percentage of ownership in the home’s value.Why does fractional homeownership matter?
Fractional homeownership helps create more buyers in a market. Many buyers may not have the cash available for a downpayment. Fractional homeownership companies often provide first-time buyers access to the capital they may not get through a mortgage alone.How do fractional homeownership companies make money?
Fractional homeownership companies make money primarily by appreciating the value of homes they invest in before the sale. They often invest in the initial home equity at a discount of up to 20% of the home purchase price to factor in risk. As a result, they are often concerned about the potential appreciation in value for a given home, the riskiness of the people buying the house, and likely improvements that the home buyers will make to a property.What are some examples of fractional home ownership companies?
Unison and Point are both fractional home ownership companies. Some fractional homeownership companies work directly with buyers and sellers, and others provide services to real estate professionals to offer to their clients.Franchise Brokerage
Takeaways
- A franchise brokerage, or franchisor, provides a business system with marketing, technology, and other support executed at the local level by regional operators or franchisees.
- The franchisor provides a national brand with credibility and a proven system. And franchisees pay a fee to the franchisor.
- Over 40% of real estate agents are associated with a franchise.
- Keller Williams and RE/MAX are two of the largest franchise brokerages in the US.
What is a franchise brokerage?
A franchise brokerage, or franchisor, provides a business system with marketing, technology, and other support executed at the local level by regional operators or franchisees. Franchisors help prospective broker-owners quickly stand up a brokerage operation. The franchisor provides a national brand with credibility and a proven system. And franchisees pay a fee to the franchisor.Why do franchise brokerages matter?
Over 40% of real estate agents are associated with franchises, meaning national franchises significantly impact industry practices. But this is also why the quality of one brokerage under the same brand name can vary significantly from region to region.What is the difference between a franchise brokerage and a traditional brokerage?
Different people in each location operate franchise brokerages. Support teams are often not centralized, with each franchisee handling local operations. Traditional brokerages often have a single leadership team and support staff. But they usually have regional or office support as well. This means franchise agents are often closer to local management than the brand.How does a franchise brokerage employ agents?
Franchise brokerages almost always employ agents as independent contractors.What are some examples of franchise brokerages?
Keller Williams and RE/MAX are two of the largest franchise brokerages in the US.Gross commission income (GCI)
Takeaways
- Gross commission income is the total dollars of commission that a brokerage or agent receives. Most brokerages define their revenue as their gross commission income.
- We calculate Gross commission income by multiplying the total sales volume by the average commission rate.
- Often, the gross commission income determines the benefits an agent receives at a brokerage. Agents with higher gross commission income often receive more benefits and better splits.
- Gross commission income does not represent how much an agent or brokerage makes after fees and expenses.
What is gross commission income?
Gross commission income is the total dollars of commission that a brokerage or agent receives. Most brokerages define their revenue as their gross commission income. We calculate Gross commission income by multiplying the total sales volume by the average commission rate. For example, if an agent sells a $100,000 home at a 3% commission, their gross commission income will be $3,000.
What is GCI?
GCI is a commonly used acronym for gross commission income.Why does gross commission income matter?
Gross commission income is an agent or brokerage’s total revenue before expenses. They still have to pay out the remaining fees to their agents and vice-versa for the agents for a brokerage. Often, the gross commission income determines the benefits an agent receives at a brokerage. Many times brokerages give agents with higher gross commission incomes more favorable splits. In addition, agents with higher gross commission incomes may get dedicated offices or desks, support staff, or marketing budgets. Agents with high gross commission incomes constantly receive competitive offers from brokerages.What are the advantages of using gross commission income?
Gross commission income is a good measure of the amount of money a brokerage or agent brings each year. It is fundamentally the money deposited into the brokerage bank account, making it an efficient metric for business performance.What are the disadvantages of using gross commission income?
Many brokerages and agents don’t openly share their gross commission numbers outside their firm, making it a challenging metric to use universally. By contrast, sales volume and sides are often openly reported, and gross commission income does not represent how much an agent or brokerage makes after fees. For example, if a brokerage generates $100,000 in gross commission income but gives 100% of that back to the agent, the metric does not indicate much about the brokerage’s earnings.Home flips and fix-and-flip overview and market size
Takeaways
- A home flip is when an investor buys a house, renovates it, and then quickly sells it for a profit. Fix-and-flip is simply another word for a home flip.
- The average home flip takes about 180 days from purchase to sale.
- Roughly 200-250K homes are flipped each year.
- The total sales value of annual home flips is $500-650 billion.
- The average home flip generates around $60,000 in profit and closes to a 40% return on investment.
What is a home flip?
A home flip is when an investor buys a house, renovates it, and then quickly sells it for a profit.What is a fix-and-flip?
Fix-and-flip is simply another word for a home flip. But it often refers to any loans that home flippers take. Fix-and-flip loans are also called hard money loans or private loans.How long does the average home flip take?
The average home flip takes about 180 days from purchase to sale.How many homes are flipped each year?
Roughly 200-250K homes are flipped yearly, typically representing 5-10% of all homes sold.What is the market size of home flips?
The total sales value of annual home flips is $500-650 billion. The number can vary depending on the strength of the fix-and-flip market in a given year.What is the average purchase price for a home flip?
The average home flip is purchased for around $155,000 and sold for nearly $215,000.How much profit is generated per home flip?
The average home flip generates around $60,000 in profit and closes to a 40% return on investment. But this number excludes the cost of renovations, which sits anywhere from 20-35% of the home’s after-repair value.What are the average rehab costs per home flip?
Home sales market size
Takeaways
- The total value of homes sold in the United States annually is ~$1.6 trillion.
- There is roughly $70 billion in real estate commissions each year.
- Roughly 5.3 million existing homes are sold yearly, and about 700,000 new homes are sold annually.
- Homes priced under $100K account for ~25% of transactions but just 5% of total home sales value.
- Homes priced above $500K account for ~10% of transactions but ~36% of total home sales value.
What is the total market size of homes sold in the United States?
The total value of homes sold in the United States annually is ~$1.6 trillion.What is the total market size for real estate commissions in the United States?
There is roughly $70 billion in real estate commissions each year. This is based on a ~5.7-5.8% average commission and ~87% of transactions, including a real estate agent.How many homes are sold in the United States?
Roughly 5.3 million existing homes are sold yearly, and about 700,000 new homes are sold annually.What is the average home sales price in the United States?
The average price of an existing home is around $265,000. The average price of a new home is closer to $350,000.How many real estate sides occur each year?
There are roughly 12 million real estate sides that occur each year.What percentage of home sales involve a real estate agent?
85-90% of home sales in the United States involve a real estate agent.How many real estate transactions occur per price segment?
The following is a breakdown of real estate transactions by home sales price:- Under $50K: ~600K transactions / 10% of home sales
- $50-99K: ~900K transactions / 15% of homes sales
- $100-149K: ~900K transactions / 15% of home sales
- $150-199K: ~900K transactions / 15% of home sales
- $200-299K: ~1.2M transactions / 20% of home sales
- $300-499K: ~900K transactions / 15% of home sales
- $500-999K: ~480K transactions / 8% of home sales
- $1M+: ~120K transactions / 2% of home sales
What is the total value of homes sold per price segment?
The following is a breakdown of real estate sales value by home sales price:- Under $50K: ~$14.7B in value / 1% of home sales value
- $50-99K: ~$67.1B in value / 4% of home sales value
- $100-149K: ~$112.1B in value / 7% of home sales value
- $150-199K: ~$157.1B in value / 10% of home sales value
- $200-299K: ~$299.4B in value / 19% of home sales value
- $300-499K: ~$359.6B in value / 23% of home sales value
- $500-999K: ~$359.8B in value / 23% of home sales value
- $1M+: ~$210B in value / 13% of home sales value
How to become a licensed real estate agent
Takeaways
- License requirements vary by state. Most states require 60-120 hours of coursework, an in-person exam, and an application that includes the brokerage where the agent will work.
- While coursework can be completed online, the exam is typically in-person.
- It’s possible in some states to get licensed in 2-4 weeks under optimal conditions.
- Getting licensed starts as cheap as $200 but can exceed $1,500 if an agent requires more comprehensive support.
- Becoming licensed does not make an agent a Realtor. Agents must apply for membership, take ethics courses, and pay associated fees to become Realtors.
How to become a licensed real estate agent
The process of getting licensed as a real estate agent varies by state. As a result, the best way to find out how to get licensed is to check with the licensing body of any state. At its fastest, getting licensed can be 2-4 weeks but typically longer. Most licensing processes involve the following steps:- Fulfill education requirement: Most states require 60-120 hours of education. Usually, this amounts to 2-4 classes with a final exam for each. These classes take place at a school approved by the state. Often these classes take place in person or online. Sometimes the final exams need to occur in person or be proctored.
- Pass the real estate exam: States typically have a required in-person exam that an agent must pass.
- Join a brokerage: An agent must be part of a brokerage to receive their license. Many agents find a brokerage to sponsor them before starting the process of preparing for the exam.
Can an agent get their license online?
Usually, the real estate exam must take place in person, so getting a license entirely online is not usually possible. But most real estate courses can be taken online. In some states, the application to become an agent can also be submitted online.How much does it cost to get a real estate license?
The two primary costs of getting licensed are coursework and application/testing fees. Online courses are often cheaper and range from $150 to 300, and In-person classes and additional study materials can exceed $1,000. Exam and application fees are often $50-100. As a result, getting licensed can range from $200 to over $1,500.How does an agent become a Realtor?
Becoming a licensed real estate agent does not make someone a Realtor. They must apply with the National Association of Realtors, take additional ethics courses, and pay fees associated with the National and local Realtor associations.Are there any ways around licensing requirements?
There are two notable exceptions to licensing requirements. Attorneys and people with real estate degrees from traditional colleges are often exempt. In some states, they may still have to take the state exam. In addition, if an agent has a license in another state, they may waive some or all education requirements and potentially the real estate exam. But not all states honor previous experience and education from other states.IBuyer
Takeaways
- iBuyers are companies that offer sellers cash for their homes.
- These companies make minor repairs and improvements to purchased homes. They then list them for sale and attempt to sell the house for a profit.
- The typical iBuyer service fee is 7.5%. But they can range from 5-15%.
- Many iBuyers do not yet generate a profit on each home. For example, Zillow Offers lost $1-2K per home as its operations grew in 2019.
- The average home purchased by an iBuyer is between $200,000 and $400,000.
- The largest iBuyers are RedfinNow, Zillow Offers, Opendoor, and Offerpad.
What is an iBuyer?
iBuyers are companies that offer sellers cash for their homes. These companies make minor repairs and improvements to purchased homes, list them for sale and attempt to sell the house for a profit. In addition to the appreciation on the home sale, iBuyers make money by charging a service fee to the seller.What is the average iBuyer service fee?
The typical iBuyer service fee is 7.5%. But they can range from 5-15%. iBuyers may also charge the seller for repairs or costs related to the closing.How do iBuyers make money?
iBuyers can generate profits in three ways. First, they capture the appreciation in the sales price of a home they purchase. Second, they charge a service fee to the seller. Finally, they make money from added services to the buyer or seller. This can include helping the seller find a new home or hiring a service provider.How much money does an iBuyer make per home sale?
Because iBuyers are new, there is still no industry-standard profit per home. Many iBuyers are still refining their growth strategy and operations, and many iBuyers do not yet generate a profit on each home. For example, Zillow Offers lost $1-2K per home as its operations grew in 2019. But in initial tests in 2018, it did generate a small profit for each home.What is the average sales price of a home sold to an iBuyer?
The average home purchased by an iBuyer is between $200,000 and $400,000. iBuyers often focus on homes that are affordable in the market. These homes require minimal renovations to be ready for sale, and they are usually not priced high enough for the competition from top listing agents. That said, it’s likely that iBuyers will move to higher price points as they refine their business models.Why do sellers use an iBuyer?
Sellers who work with iBuyers are typically most concerned about speed, and iBuyers will make an offer to buy a home within 24 hours. By contrast, an agent may have to market a home for over 60 days before selling it.Why shouldn’t sellers use an iBuyer?
Sellers concerned about the sales price of a home are not great candidates for iBuyers. Real estate agents have a strong incentive to maximize the sales price of a home, and they receive a larger commission and a better reputation with sellers. iBuyers have an incentive to pay the lowest possible price. That said, it’s also possible an iBuyer can still produce a better financial outcome for a seller. It may provide a competitive offer in the right market. It can also limit renovations, carrying costs, and concessions fees.How are iBuyers different than home flippers?
A common misconception is that iBuyers are glorified home flippers. But iBuyers focus much more on move-in-ready homes requiring minor improvements. Home flips are purchased well, substantially below the listing price. And they need significant renovations. Many of these homes are purchased in foreclosure. The average investment in a home flip is around $35K. By contrast, Zillow Offer’s average renovation cost in 2019 was closer to $15K.Who are the top iBuyers?
The largest iBuyers are RedfinNow, Zillow Offers, Opendoor, and Offerpad. Tech-enabled brokerage Redfin owns RedfinNow, and Zillow Offers is owned by the real estate portal Zillow.Independent brokerage
Takeaways
- An independent brokerage is owned and operated by one entity. All marketing, technology, and support are handled by one company.
- Franchises were often necessary to provide systems, marketing, and advice. Technology has helped independent brokerages scale to new markets without requiring local operators.
- eXp Realty, Howard Hanna, Compass, and Redfin are some of the largest independent brokerages in the country.
What is an independent brokerage?
An independent brokerage is owned and operated by one entity. All marketing, technology, and support are handled by one company.Why do independent brokerages matter?
Over 40% of real estate agents are associated with a franchise. But technology is allowing more independent brokerages to emerge. Franchises were often necessary to provide systems, marketing, and advice. Technology has helped independent brokerages scale to new markets without requiring local operators. This has been particularly visible with cloud brokerages and tech-enabled brokerages.What is the difference between an independent brokerage and a traditional brokerage?
Independent brokerages are an example of a traditional brokerage, and they are owned and operated by a single entity with centralized support systems.How does an independent brokerage employ agents?
Independent brokerages typically employ agents as independent contractors. But some new tech-enabled models have broken away from this trend, sometimes hiring agents as full-time employees.What are some examples of independent brokerages?
eXp Realty, Howard Hanna, Compass, and Redfin are some of the largest independent brokerages in the country. Many top independent brokerages are also cloud brokerages and tech-enabled brokerages.Independent contractor agreement (ICA)
Takeaways
- The independent contractor agreement (ICA) in real estate is the document that establishes the working relationship between the brokerage and an agent.
- Typically, the independent contractor agreement clarifies commission splits and broader business practices.
- Negotiating the independent contractor agreement usually coincides with discussions about changing commission splits.
What is an independent contractor agreement?
The independent contractor agreement (ICA) in real estate is the document that establishes the working relationship between the brokerage and an agent. Typically it clarifies commission splits and broader business practices.What is an ICA?
ICA is the commonly used acronym for the independent contractor agreement.Why does the independent contractor agreement matter?
Most importantly, the ICA is often negotiated with commission splits and agent incentives. As a result, dealing with the independent contractor agreement is usually done to change the commission split between the brokerage and agent. More broadly, the independent contractor agreement establishes working practices between the agent and the brokerage. This can include office practices, processing payments, and non-compete clauses, among other terms. It also elaborates that the agent is an independent contractor, not a full-time employee. This usually means the contract’s language is designed to clearly show an independent contractor relationship as defined by state and federal law.Key real estate agent statistics
Takeaways
- There are roughly 2 million licensed agents, and about 1.35 million are active.
- The average active real estate agent supports seven home sales transactions annually across buyers and sellers.
- The average agent generates roughly $51,200 in annual commissions. After expenses and before taxes, they take home about $37,000.
How many real estate agents are there in the United States?
There are around 2 million licensed real estate agents in the United States.How many active real estate agents are there in the United States?
There are roughly 1.35 million active real estate agents in the United States. In contrast, 2 million professionals have real estate licenses and only around 1.35 million pay for the Realtor’s association membership. While this isn’t a perfect measure, it’s safe to say that only agents doing at least a deal or two annually find it worthwhile to pay for a membership in the Realtor’s association. Many agents maintain a license but do not work on transactions actively.How many homes does the average real estate agent sell each year?
The average active real estate agent supports seven home sales transactions annually across buyers and sellers.How many home sales involve a real estate agent?
Over 85% of the homes sold in the United States involve a real estate agent.What is the average agent’s gross commission income?
The average agent generates roughly $51,200 in annual commissions.What is the average agent’s take-home pay?
After brokerage expenses and other costs, the average agent takes home roughly $37,000 before taxes.Key real estate brokerage statistics
Takeaways
- There are around 105,000 real estate brokerages in the United States.
- The average brokerage employs just under 20 licensed agents. But when adjusting for active full-time agents, the number is closer to 13.
- The average brokerage makes around $670,000 in gross commissions and $100,000 in gross profit.
How many real estate brokerages are there in the United States?
There are around 105,000 real estate brokerages in the United States.
How many agents does the average brokerage employ?
The average brokerage employs just under 20 licensed agents. But when adjusting for active full-time agents, the number is closer to 13.
How much revenue does the average brokerage make?
The average brokerage makes around $670,000 in gross commissions.
How much profit does the average brokerage make?
The average brokerage generates around $100,000 in profit after paying splits to agents. But a brokerage may still have many other expenses related to operations. And it may also capture additional revenue from agent fees and other business lines.
Written By: Georges Benoliel
Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.
