Real Estate FAQ’S #1

Posted byHugh Harris 905 Comments on Real Estate FAQ’S #1

Hello there

Hugh and Steve Harris of Harris State Wide Real Estate have decided to do a bi weekly post to answer frequently asked questions in the real estate business. In life buying and selling real estate is one of the biggest decisions people make and Harris State Wide believes that the more informed and knowledgeable someone is of the buying/selling process, the smoother the transaction will go. If you have any questions for us or if you would like for Hugh or Steve to explain or elaborate more on a topic please contact us anytime! Our office phone is (906) 828 1099 or email us at hugh@statewide.estate – steve@statewide.estate.

Q: What does contingent or pending mean in real estate?
A: The two terms contingent and pending can be confused with each other and are often used interchangeably. However, the two terms have different definitions and mean two very different things. Contingent in real estate means that when in a contract there is a condition or obligation met before the contract can be executed and the deal closes. Pending in real estate means that a willing and able buyer has made an acceptable offer to a seller of real estate and that the property is under contract. So a home on the market can be both contingent and pending at the same time if the home is under contract and the contract has conditions to be met before closing.

Q: What does a real estate agent do?
A: A real estate agent works with buyer/seller clients and customers in the sale of real property. A real estate agent works as an independent contractor for the real estate brokerage and works on their behalf. Real estate agents typically work as a buyer or listing agent. In some cases works for both the buyer and seller as dual agents or neither buyer or seller as a transaction coordinator. Each brokerage has how their agents handle agency details in their operating agreement and the independent contractor agreement with their agents. The requirements and job outlines of a real estate agent are also detailed and laid out in the operating agreement and independent contractor agreement.

As a buyers agent a Realtor works on behalf of the buyer by sending information, showing homes, negotiating, writing the purchase agreement, coordinating inspections, and much more! A buyers agent is hired by the buyer using a buyer brokerage agreement, a contract establishing agency and the terms of representation. A buyer’s agent is paid in most cases by the seller via brokerage cooperation and compensation. The seller pays the commission from the sale to the listing brokerage and the listing brokerage compensates the buyers/selling agent with a percentage of the total commission.

A listing agent works on behalf of the seller by first consulting with the seller and doing a market analysis of the property. Using this market analysis the seller’s agent is able to determine a range of value of the property using comparable sales and adjustments. The listing agent should also have a marketing plan and a personalized listing plan on how the brokerage will work to sell the property during the consultation. Once the seller has decided they would like to list their property with the brokerage the listing contract is signed by both the seller and the listing agent with the sales price and listing terms detailed in writing in the listing contract. The listing agent and brokerage then advertises, coordinates showings, presents offers, negotiates on behalf of the seller, and moves the deal towards closing by coordinating inspections/appraisals and ordering title work.

Q: How are real estate agents paid?
A: Real estate agents are paid by commission when a property is sold outlined by the listing agreement. Commission is typically a percentage of the sales price, but can also be a flat fee or rate. The listing brokerage has the contract with the seller to earn a commission from the sale. The listing agent then pays a split of the commission with the listing agent. If another brokerage is involved in the sale representing the buyer the listing agent pays the buyer’s brokerage a percentage of the commission earned that is outlined in the listing agreement. This cooperation between brokers is quite common and the percentage of the commission share between the listing and buyer brokerages can be negotiated. Agents are paid as independent contractors and get a 1099 instead of a W2 for taxes.

Q: What is EMD or earnest deposit in real estate?
A: An EDM or also called an earnest deposit is good faith money that is held in escrow for the sale of real estate. The EDM is typically given with the purchase agreement or after the purchase agreement has been accepted and signed by the seller. The money is held in a trust account by the buyers agent or by a title company until the deal closes or if both parties mutually agree to release the funds if the deal falls through. The EDM is considered by many to be money down because it is held until the sale and is subtracted from what is due at closing from the buyer.

Q: How much and what is capital gains tax on real estate?
A: Real estate capital gains tax is a levy assessed on the profit of the sales price on real property after the sale. For example if a home was purchased for $200,000 and sold for $250,000 the profit would be $50,000 and that amount would be subject to the tax. The capital gains tax rate can be 0%, 15% or 20% depending on your income and your tax filing status. The IRS typically allows up to $250,000 of profit to be excluded from capital gains tax if you are single and up to $500,000 if married and filing jointly if you have owned the property two years before the five year period in which the property is sold. This tax can be quite significant so it is recommended to speak with an accountant before making any financial decisions.

Home For Sale Real Estate Sign in Front of New House.

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