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    How Do Minnesota Realtors Get Paid?

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    Most people are aware of the fact that when they use the services of a Realtor to sell their real estate property, as a seller, they would have to give the Realtor a commission if the said real estate property is sold. Did you ever wonder how it can be possible for a Realtor to make money when they represent the buyer for free?

    The answer is simple. Realtors get paid on every transaction.

    This is how it goes…

    When a person decides to sell his property, also known as SELLER, he will ‘hire’ an SELLING AGENT. The Seller and the Selling Agent will get into an agreement about the commission that the Seller will pay to the Selling Agent. The usual commission is 6%.

    The Buyer of the property normally has a Buying Agent. This Buying Agent will get a portion of the commission of the Selling Agent. The usual amount that is given to a Buying Agent by the Selling Agent here in Minnesota is 2.7%. That leaves the Selling Agent with 3.3% of the 6% commission.

    The commission paid to the Selling Agent may seem like a large amount, but there are numerous expenses that a Selling Agent assumes in order to make a sale like the following:

    • Signs posted in the front yard
    • Taking photos of the home
    • Creating and printing flyers
    • Stocking and distribution of flyers
    • Placing the house on the MLS listing
    • Having special features like digital-photo frames
    • Giving neighborhood tours
    • Giving virtual tours
    • Showing panoramic views
    • Internet advertising
    • Print advertising
    • Staging consultation
    • Lockbox home warranty
    • Staffing any open houses
    • Desk fees

    As well as the other related expenses incurred in getting these things and more, will bring a Selling Agent’s amount spent to generate a sale from anything for a couple of hundred dollars to a few thousands, depending on what service that agent will use.

    When it comes to the bottom line, the Selling Agent will be able to only make a profit from the commission that he gets from the Seller after expenses.

    The Buyer’s Agent will have to spend on transportation, communication and documentation. Buying and Selling Agents have to pay a fee for each transaction to the brokerage like Re/Max, Edina, Coldwell, Keller Williams, ect. – that holds their license and also to a broker who can get up to as much as 50% or more of that commission, depending on how the Agent got the client.

    It may seem that being a Realtor is an easy and high-paying job, but after all the commission has been spread out, it is not always the case.

    Here is a quick list to show where the 6% commission of the Selling Agent goes:

    • The Selling Agent works for A Realty and the Buying Agent works for B Realty.
    • 6% Selling Agent – 2.7% Buying Agent = 3.3% Selling Agent
    • 2.7% Buying Agent – B Realty fee – Brokers portion
    • 3.3% Selling Agent – A Realty fee – Brokers portion

    Do You Really Need A Realtor?

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    Why do you have to bother using a Realtor in purchasing a home? Many people think that they will get to save some money in their home purchase if they bypass a licensed real estate agent. Sounds lke a smart idea, doesn’t it? Before you jump in and attempt to make an investment as valuable as a home on your own, there are a few things that you have to be aware of…

    Buying and selling real estate is more than what meets the eye – especially if you don’t have any experience or training in real estate industry. This is the reason why most people use the services licensed Realtor to guide them throughout the rigorous process of buying or selling their home.

    What Is The Difference Between”Realtors” and “Real Estate Agents”

    Many people don’t know the difference between “Realtors” and “Real Estate Agents”. Realtors are duly licensed by the state that they are work in to buy and sell real estate, and are qualified to become members of the Minnesota Multiple Listing Service ( MLS ) Listings.

    Every real estate agent is required to complete certain number of required hours of rigorous real estate training yearly and pass both State and National tests to obtain a license. Realtors have to do more training hours than real estate agents. Realtors have to take more difficult tests. I am quite pleased to announce the fact that I scored a 96 on my test!

    This yearly training and testing has to be done because local and national tax, lending, and real estate laws are always being changed and must be observed to in order to avoid causing financial and legal problems when making a real estate transaction.

    Minnesota and Minneapolis Realtors

    Licensed Minnesota Realtors are members of the National Association of Realtors, also known as N.A.R. I am are required to pay annual-fees and complete even MORE training to be able to hold the expert-title of “Realtor”. In ADDITION to being an real estate agent, I am also a licensed REALTOR.

    N.A.R members are known for their highest business and ethical standards in the real estate industry. The Minnesota Real Estate Team and RE/MAX Advantage Plus are required to become licensed Realtors. Only a select few have made the grade and are part of this group.

    How Do Realtors Get Paid?

    Many people think that they have to pay a commission directly to their Realtor when they purchase their house, but that is not the exactly the situation.

    A Seller will negotiate a commission with the Seller’s Agent. When the Seller gets a Buyer through the Seller’s Agent, the Seller’s Agent receives that commission, which is also used to pay your Realtor.

    The bottom line is that, you – the Buyer, never has to shell out any amount of money when to use the services of a Realtor because they will receive a portion of the Selling Agent’s commission.

    …That is how this real estate industry works. What If I “Represent Myself” AndKeep Half Of The Commission?

    I don’t know of any Seller’s Agents that would be willing to give up a part of their commission that they will get from the seller to give it to a buyer, even if that buyer doesn’t have an agent. This is theoretically possible, but the chance of it happening is quite unlikely.

    Even if you do represent yourself as the buyer, the seller’s-agent will usually end up keeping their entire commission and not sharing it with you – and you will still NOT BE REPRESENTED by your own licensed Realtor.

    Becoming your own Realtor is similar to trying to perform brain surgery on yourself. You can do it but you already know what kind of disaster might happen. Anyway, even if you choose to be your own agent, it sill will not enable you to save money and in the long run, you will end up spending even more.

    When you have an Agent/Realtor do the work for you it will ensure you that your real estate purchase will be completed in a timely-fashion and in legal-compliance with the law.

    It is better that you find a adequate representation with a licensed Agent/Realtor in order to be protect you from being victimized by “less-than-scrupulous agents” who might try to take advantage of you when representing the seller. You need to be aware that people are victimized quite often if they are not represented properly.

    To Cut the Long Story – Short…

    Trying to be your own Realtor is like attempting to do brain surgery on yourself – people who attempt this will get themselves into TROUBLE!

    The best thing to do is to find yourself an competent and experienced Realtor who has a good understanding of the local marketplace. Someone who knows how to expertly negotiate on your behalf – so that you get the best DEAL on the home you want – to AVOID getting ripped-off by the seller’s agent!

    Adding Value to Your Home

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    It is possible to make an average looking home look better and increase its value in the eyes of your potential buyer. By checking around the house to see which parts need minor improvement, you can give your home a ‘face lift’. The better your house looks, the more attractive it will be to a potential buyer. With the minor renovations that you can do, you may be able to sell your house at your asking price or at near your desired amount.

    Here are 5 ideas on how to add value to your home. Take note that every house is different and that you might need to consult with a professional stager. It may cost you a couple of hundred dollars to get a full report of what may be done to make your house as presentable as possible.

    Place A New Coat Of Paint

    If your paint has faded, or has marks for art work that had hung from the wall, spend a little time, money and effort to apply a new coat of paint to the areas needed. You can do it yourself or hire someone in need of a part time job. Paint it white if the space will not look too sterile. Neutral to warm colors are also great.You may want to consider painting the some areas with trending colors to accentuate it or when having to paint a large space.

    Most home improvements stores have paint specialist who can help you find coordinating colors if you don’t know how to pick and choose. If you don’t like the way your old cabinets look, they can be painted or whitewashed. If the kitchen does not look too great, placing in a new door or changing the old veneer may be a bit expensive but will surely bring about a dramatic improvement.

    Change Old Fixtures

    Make an inspection of the drawer and cabinet pulls, faucets and light fixtures. If any of them look old and worn out, it is time to replace them. This will give your house an edge over other competing properties in your category. Your potential buyer has looked at a number of various homes for sale already. If they see your place with beautiful and new light fixtures, new faucets, ceiling fans, and new cabinet knobs and pulls, it would make your home look more attractive than the others that they saw previously. The amount that you spent on changing old fixtures will be worth every single penny in helping you get to sell your place.

    Landscape Your Garden

    A plain yard or having plants that are overgrown has no curb appeal. You can make your garden look a lot better buy doing some landscaping. Try to get an honest opinion for a friend on what the curb appeal of your garden is. This will give you an outsider’s perspective that can help you decide on what garden improvements you can make. If you have the budget, you can hire a landscaper to turn your garden into a showcase.

    You can ask your local gardening store to help you pick out the right plants for your environments. They will know if the plants you like need sun or shade, how often they need to be watered and how much maintenance if you have to give them. If there is no one to assist you, most plants for sale are tagged to make it easier for you to choose what will thrive best in your garden conditions. Here are a few of the common low to no maintenance plant options that work well in the chilly Minnesota climate: Hostas, Japanese Yew, Lilacs, Bayberry, Arborvitaes, Spruce varietals, Dog Wood, and lilies.

    Make Minor Repairs

    If you have lived in your home for quite some time, you know what minor repairs need to be done. If you won’t repair it, as a seller, you are legally required to disclose all those items to the buyer. It is better to fix what you can, like a hole in the ceiling, a creaky door, or a toilet that won’t flush properly.

    These things that need repair might get noticed by your prospective buyer. These little things will give them a reason to bargain or even make them lose interest in your place. If there repair work that you need to be made is rather costly, you can get estimates from at least two handymen and study the difference in quality material cost and their labor fees.Staging Your Home For Showing

    This method is not only a money saving idea but it can also be effective in adding value to your home. Use all items you own to make your home look its best. The first step to take is to see how much clutter you have. You may not be a messy person but if you just have a lot of things it might be a hindrance to the potential buyer from taking a good look at the house. You have to keep in mind you are that your focus is in selling the house, not your things.

    You can start packing up items that are not being used and placing them in a storage area. If your walls are covered with art or photos, it may be time to bring them down and place them aside to neutralize the look of you home. Another way that art and photos can be used is by placing them strategically to give emphasis to high walls, vaulted ceilings or tall windows.

    Open spaces maximizes the optical illusion to make the square footage of the area seem larger that it really is. You can remove oversized or redundant furniture to add to what is the perceived square footage. If you have dark and heavy curtains, it is better to leave them open or remove them if they make the room look dark and smaller.

    Ask a trusted friend or family member to take look at your house and make recommendations so you can make its best to a potential client. If you have rooms that are being used for non-traditional purposes, it is recommended to turn them back into their intended space. For example, if you are using your formal dining room for office space, make it into a dining area again or at least turn it into a neutral-use room.

    Budget estimates:

    Here is an example of the budget that you would need to upgrade an average house. If you are not the “do-it-yourself” type, or don’t have the time or energy to do it, add the cost of labor to your budget. These ideas on how to renovate your home to add to its value can be done easily and does not require a lot of effort.

    New Kitchen faucet : $100 – $200

    New Bathroom faucet : $50 – $100

    New Drawer and Cabinet Pulls : $25 – $200

    New Lighting Fixtures : $15 – $100/each

    New Paint : $100 – $300

    Landscaping : $50 – $1000

    These estimates are the based on the average price of mid-range quality new items that are affordable. It is more practical to use the simple items and it is not necessary to buy designer brands. Checking out online items on sale at EBay or Craigslist might help you get to save more. It is easy for you to make your home look its best even on a limited budget so that a potential buyer will fall in love with it and buy your home.

    For Sale: Homes on the Moon!

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    When the media is constantly droning on about the decreasing value of homes, it’s hard and sometime scary to think about owning a home. It can be a big decision to make and you certainly don’t want to toss around your reputation, credit, and money without precaution. Wouldn’t you feel more comfortable about making an investment into a home if you knew for certain that the value of your home would always be increasing? Of course you would be! That, of course, is not the case. As I always say, there are risks to making an investment in ANYTHING! And it IS true that current home values are below what they were a few years ago.

    However, there have been MANY times in even recent history when you could have said “my home is worth less than what it was a few years ago.” But go back 10, 20, 30 or more years and compare home values then to current home values. Your home (or soon-to-be home) is almost certainly worth MUCH more now. In other words, there ARE ups and downs in the real estate world, but real estate values in the long-run have ALWAYS increased for all but the rarest of places.

    Let’s compare real estate to gold: if it were of infinite supply, it’s value would be almost nothing; since it’s not unlimited, it is valuable. But does that mean that the value of gold never falls for a period of time? Nope! Gold has its ups and downs, too. And just like gold, there is only so much land where real estate can be built. Unless they start building homes on the moon, the scarcity of land is on your side! With this in mind, in the long run there will ALWAYS be increased value to you for holding a portion of the limited supply of the space we have.

    This value is enhanced even more if you can locate areas of even more scarcity (property with shoreline, homes in nice metropolitan areas, etc.) Don’t worry about the ups and downs of the real estate market, over time the ups prevail over the downs due to the scarcity of the precious space you own!

    The Car Debt, House Debt Double-Standard

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    “Housing’s Hidden Undertow” is the title of a recent article written by James R. Hagerty and Ruth Simon of the Wall Street Journal. The article discusses the recent “problem” of home values in decline leading to a situation where more is owed on a home’s mortgage than what the home is currently valued at, which they call being “under water.” I find it very interesting that people have such a different viewpoint on real estate than they do on purchasing automobiles, which leads to a very large double-standard on personal finance practices.

    Say your neighbor tells you he just went to a car dealer and purchased a $25,000 car with a small down-payment and a six year loan. What would your thoughts be? Any financial concerns on behalf of your neighbor? Whether your neighbor knows or cares about it, the moment he takes possession of the new car he ALREADY OWES MORE THAN WHAT THE CAR IS WORTH! And worse, only after at least a few years of pay-down on the loan will the car actually be worth more than what is owed on it.

    Day after day people knowingly purchase vehicles (and other large purchases as far as that’s concerned: TVs, furniture, etc.) that will never again be worth as much as the original price and will only be worth as much as what is owed after debt is paid off. But for some reason when it is mentioned that you owe more on your house than what it is “worth” people start becoming frantic. The article mentioned above gives an example of a family who purchased a home in 2004, even took out a second mortgage to pay off bills when the value was still high, and are now surprised to hear that after the decline in home values they owe more on the home than what it currently is appraised at.

    The article mentions that they “even thought about sending the keys to the lender.” If people turned in their car keys every time they owed more on it than its value, new car owners would drive off the lot and then turn right around to the dealer! And here’s the amazing part: real estate has a proven track record of appreciating in value over time; it’s a known fact that home values almost ALWAYS go up over time and car values almost always DO NOT!

    It is also a known fact there always have been ups and downs in the real estate market but over time the long-term value of homes steadily increases. Admittedly, it could be scary if you have an adjustable-rate loan and you’d like to refinance but you can’t because more is owed than what the home is currently worth (i.e.; a mortgage company will not refinance you); but that’s just a reminder to always be careful when selecting financing and think about the “worst-case scenario.” If you’re “under water” for awhile, put on a snorkel! Keep making your monthly payments and your home’s value WILL go up in value, just give it some time and DON’T THINK ABOUT SHORT-TERM NEGATIVES. Value declines are TEMPORARY, be patient and persistent!

    Take Care When Making 1031 Exchanges Outside of the U.S.

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    As a real estate investor, you probably are aware of the advantages of a 1031 exchange over outright sale of a property. An exchange defers your capital gains taxes, keeps your money working for you, and helps to build equity and maximize your returns. But 1031 exchanges are allowed not only for the good of the investor; by allowing investors to move their capital to the most advantageous investments, section 1031 stimulates the U.S. economy.

    The fact that 1031 exchanges are intended to boost the U.S. economy raises the question of whether one can exchange a property for one located overseas. The short answer is no. The taxes you can save by using a 1031 exchange as appose to selling without one, is a deferment, which indicates that even though you are temporarily pardoned from having to pay federal capital gains taxes, the U.S. government will still expect payment for your capital gains taxes if sell investment property at some point. It is difficult and sometimes impossible for the IRS to collect taxes on the sale of foreign property.

    If 1031 exchanges are limited to the U.S. so that the economy will benefit and the IRS will be able to collect capital gains taxes in the future, then you may be wondering what rules apply to U.S. areas like Guam, the U.S. Virgin Islands, and Puerto Rico. A private letter ruling has stated that the IRS requires a property in the Virgin Islands can only qualify as a like kind property for an exchange with another.S. property if it is income-producing, which is more restrictive than the normal requirements for a like-kind exchange, which merely state that the property must be held for your trade or business or as an investment.

    So if you are considering making an exchange outside of the fifty states (and Washington D.C.), make sure that the replacement property will be considered to be like-kind to the property that you are exchanging it for. In order to be absolutely sure, you may even want to request a private letter ruling on your particular case.

    Investors in the U.S. can save a lot of money by utilizing 1031 tax exchanges to defer all of their capital gains tax on the sale of investment property. A 1031 exchange is like an interest free loan from Uncle Sam..

    How to Get Started Buying Your First Minnesota Home

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    Selecting the right mortgage package as a first time home buyer can be a confusing process, and working with a mortgage loan officer isn’t always the best way to get the mortgage loan that you can afford. One of the biggest mistakes that first time is to sign on the loan that they qualify for, instead of taking a smaller loan that they can actually afford.

    How does this happen? Loan officers will qualify you for a loan based on your income ratio and not necessarily how much you’re prepaid to pay in housing payments each month. If you borrow the entire loan amount that you “qualify” for, it’s likely that your monthly payment will be pushing your monthly budget to the max.

    Setting your own limits for the loan will help you resist the temptation to just borrow up to the limit that your loan officers offer s and help you stay within a comfortable housing expense range based on your income level. Here are some more tips for selecting the mortgage for your new home purchase:

    1. Consider the tax benefits. Some mortgages are ‘interest only’ loans which means you can deduct the entire payment on your taxes for that year. However, loans that are designed with a negative amortization scale won’t allow you to deduct interest from your monthly payment.

    2. Think long-term. If you’re planning on staying in the home for 30 years or more, you will be a good candidate for a fixed-interest rate loan. While these types of loans may have a slightly higher interest rate than ARM loans and other loan products, they will protect you from changing market conditions.

    Still, there are some drawbacks of the fixed interest-rate loan. Barron’s Smart Consumer’s Guide to Home Buying points out that the demands of the escrow account associated with the fixed interest-rate loan may cause your payments to increase.

    3. Inquire about flexible payment options. Some home mortgage loans allow you to make extra payments towards the principal balance without paying a penalty, which means you can start paying down your mortgage when you have extra funds at your disposal. Find out if your loan products offer this type of flexibility so you can start paying down and be free of debt sooner than later.

    4. Look for ways to keep payments low. Even when the lender offers you a large loan, consider cutting back on the loan amount so that you can keep the payments within an affordable range. A low interest rate, long loan term, and the ability to make interest-only payments are a few ways to keep payments as low as possible and within your budget range.

    5. Apply for mortgage insurance. Most first time home buyers do not have a lot of money available for the down payment, which can make a big difference to the loan amount and monthly payments. Mortgage insurance can provide for your down payment, or in some cases, allow you to apply for an attractive loan product without having to make any type of down payment.

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