Most of the other answers from licensees describe the difference between an agent and a broker. Imagine their surprise when I say what I’m about to say: in my state, ALL real estate licensees are brokers!
The number one rule about real estate law and practice in the US is that it varies widely from one state to another. I prefer to answer questions as they pertain to local law and practice since in other jurisdictions, those answers may or may not be accurate.
Brokers are generally responsible for more legal compliance and are required to face additional training. In my state, we all operate at a higher than expected level because we have the training and licensure to do so.
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Let’s start by saying 1% might be “typical.” Then let’s add to it by saying 0% is also “typical.”
The thing is, you can have three different lenders quote a rate and fees on the same day, and get three different rates and origination fees quoted. This is because the rate and the fees work together. Want the lowest rate? Be prepared to pay more in up-front fees such as origination and/or discount points. Want lower or no up-front fees? Be prepared to pay a higher interest rate which will result in a higher monthly payment.
The reason is simple. Most wholesale loan originators work on commission. They are paid in two ways: yield spread, and fees. The lower your interest rate, the less yield spread the originator receives and the more they have to charge in fees to receive compensation for putting your financing together. The higher your rate, the more they are paid in yield spread and the less they need to charge in fees as compensation.
Yield spread is simply a commission paid by the purchaser of the loan, to the originator. It’s typically a percentage of the loan amount.
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The definition of a market “crash” is that prices will plummet. And they did. In my market, post-crash prices were at their lowest in most areas in 2010 and 2011, and they were 25–50% lower than they were in 2007. Since 2012 prices have now just about doubled.
Housing prices are driven by one very basic economic principle: supply and demand. When supply exceeds demand, prices come down. When demand exceeds supply, prices come up. Absent artificial (government) controls, this economic principle holds true whether you are talking about housing, cars, bananas or bread. It holds particularly true when you are talking about something everyone needs, as opposed to something some people want but not everyone needs.
Everyone needs housing. Rent prices track with the same principle. If more people need to rent than the available supply of rental properties, rents go up. If supply exceeds demand, rents go down.
Housing (shelter) is a necessity and something everyone needs. Therefore, it is more sensitive to short-term economic swings, and is tied largely to local labor markets. When everyone is doing well, more people start buying homes, and this exerts upward price pressure. When more people are unemployed, or earning less, and therefore unable to buy homes, this exerts downward price pressure.
Sigh, I wish everyone understood the theory of basic economics and what drives housing prices. Please, don’t blame your Realtor or society or the seller if that lovely but expensive Tudor you have your eye on exceeds your budget or, if selling, when prices move in a direction that don’t suit you! We don’t control the market, we work as a part of the market to help our clients buy and sell. We are, in fact, the “market makers” of real estate. Our presence simply establishes a reliable system for buying and selling (i.e. matching buyers with sellers) regardless of current price trends. The market itself dictates current prices and the required negotiation strategies to navigate current market conditions. We advise based on our experience of different types of market conditions, but we all wish our clients would heed our advice and better understood the basic economic premise behind it.
As a licensed agent, I have often wondered this about hairdressers. Why do hairdressers need to be licensed?
Licensure for certain professions is done primarily to protect the public from incompetence. Licensure ensures a basic level of competence for a large number of professions. My hairdresser has a license because her work requires her to use chemicals, hot irons, sharp scissors, and other potentially hazardous items. Holding a license and being accountable to the licensing authority helps to ensure the competence of services and safety of customers.
In real estate, we are regulated because a person’s home or investment property is generally the most expensive thing they ever buy or sell. It is a complex legal and financial transaction. Incompetence can be dangerous. People have actually died as a result of incompetent property transfers. That is rare. The more common scenario is loss of money, loss of equity, loss of the property, or legal jeopardy. Anyone who thinks agents can and should be eliminated should spend a day or two at the local real estate licensing board as they review complaints from buyers and sellers who have been harmed by incompetent agents. On occasion, they do revoke licenses when agents haven’t followed the regulations and caused harm to a client. Regulation isn’t perfect, but it does serve to weed out those who do not have the character or competence to be in charge of such a valuable asset as a piece of real property.
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