FAQ’s About Real Estate
Understanding How Agents Are Paid
- The income agents receive for representing buyers and sellers in a transaction is paid as a commission which is typically a percentage of the purchase price of the home.
- Agents usually are not employees. Therefore, the only compensation they receive is their commission.
- Agents receive a commission payment only after a transaction closes. If buyers and sellers do not close on a transaction, the agents do not get paid a commission. There are some exceptions that can apply to sellers who cancel a listing.
- If the property is listed on the MLS (Multiple Listing Service) most often the commission is paid by the seller to his listing agent, who then splits the commission with the buyer’s agent after closing.
- In most cases, both agents split their portion with their brokerage. Because agents are Independent Contractors and not employees, they pay for their own expenses out of the income they make. Typical expenses are: computers, cars, cameras, telephones, referral fees, advertising, education, taxes, social security, medical insurance, etc.
- In some cases, a buyer may compensate a buyer’s agent directly, but at no time can an agent receive compensation from more than one party without disclosing it to all the parties.
When real estate professional work with buyers and sellers, “agency” relationships are established. There are three kinds of agency relationships:
- Buyer’s Agent: represents the buyer during the home buying process. The buyer’s real estate professional (agent) has a fiduciary responsibility to represent the buyer’s best interests including reasonable care, loyalty and confidentiality.
- Seller’s Agent: represents the interest of the seller and has fiduciary responsibility of reasonable care, loyalty, confidentiality and disclosure to the seller. A seller’s real estate professional (agent) works to assist the seller in locating a buyer and negotiating a transaction suitable to the seller’s specific needs.
- Dual Agent: represents the interests of both the buyer and the seller, during the same transaction. A dual agent has responsibilities to both buyer and seller and must act in the best interest of both parties.
A 1031 Exchange is a way of structuring a sale of certain kinds of property so that the seller’s profit or gain is not currently taxed. Instead, the property that is sold is replaced with another “like kind” property. If the transaction is properly structured, the seller’s profit or gain is deferred to a future date.
For real property exchanges under Section 1031, any property that is considered "real property" under the law of the state where the property is located will be considered "like-kind" so long as both the old and the new property are held by the owner for investment, or for active use in a trade or business, or for the production of income. (Source: Wikipedia)
Section 1031 of the U.S. Internal Revenue Code allows investors to defer capital gains taxes on the exchange of like-kind properties. 1031, or tax-deferred, exchanges hold great advantages for both investors and REALTORS®.
One of the things NAR (National Association of Realtors) does is publish a “Field Guide to 1031 Exchanges” which can be found at this link. You will find that this has a great deal of information to assist you in understanding real estate and exchanges.
Home Warranty Program
Prudential Montana Real Estate has is working with the First American Home Buyers Protection Corporation to provide home sellers and buyers a home warranty plan. This can give home buyers an assurance knowing that many of the home’s major systems and appliances are covered. For home sellers the benefit can be a competitive edge for a faster sale, bargaining power to sell at a higher price or after-sale protection. Please contact a Prudential Montana Real Estate agent or visit http://homewarranty.firstam.com for more information.