The average person moves only once every seven years, which means that if left unguided, a septennial real estate transaction can be full of perplexity and tediousness. The real estate industry has its own lingo, fee structure and contracts packed with lengthy clauses, confusing concepts, and plenty of legalese. A competent and thoughtful agent will walk their clients through every step of the process. To give you a head start, let’s clear up some of the more puzzling aspects of a real estate transaction.
Let’s start with the head-spinning jargon. While it varies from state to state, there are three kinds of real estate professionals you hear about: agents, brokers, and Realtors. In Colorado, the terms agent and broker are used interchangeably. However, the Colorado Real Estate Commission refers to all real estate professionals as brokers, just with different prefixes.
There are three license levels: Associate, Independent and Employing. A broker with less than two years’ experience is required to work under someone else to learn the ropes (Associate). After the two-year apprenticeship, a broker can either work independently (Independent) or start their own brokerage firm, employing other real estate agents (Employing). Most often, brokers continue on at the Associate level, working with a larger real estate agency.
The third term, Realtor®, is tossed around a lot. A Realtor is an agent or broker who’s a member of the National Association of Realtors – it’s a trademarked term used to describe an agent or broker.
Within a typical real estate transaction, you’ll have two brokers: a listing agent and a selling agent. The listing agent represents the seller in a real estate transaction. The listing agent’s job is to set the price for the home, list the home on the market, bring in potential buyers to see it, and eventually guide the sellers through the sale of their property, all the way to the closing table. (And sometimes beyond!)
The selling agent represents the buyers in a real estate transaction. Now, this is where it may get confusing. Here’s the logic: While the buyer is negotiating the terms of the transaction, the agent representing the buyer is referred to as the buyer’s agent – but once the property is under contract, the buyer’s agent becomes the selling agent. Why? Because the agent has now produced a viable pathway to the sale of the home. These two titles, buyer’s agent and selling agent, are used interchangeably.
Both the listing agent and the selling agent make their money through a commission on the real estate transaction – but who pays this commission can be tricky to explain. Often, agents will oversimplify things and tell the buyer that the seller covers the fees. While this statement is tidy and understandable, it isn’t entirely accurate.
The listing agent (the seller’s representative) and the selling agent (the buyer’s representative) share a commission at closing. While this fee is technically disbursed by the seller, the funds come from the money the buyer pays to the seller. Often, when a seller is deciding on a listing price for their home, they’ll factor in this commission, meaning the buyer ultimately foots the bill at closing.
Now, more about these closing costs. Not to be confused with the buyer’s lending fees – those fees that are associated with obtaining a mortgage – closing costs are items like prorated taxes, title insurance, filing fees, transfer fees, etc. Comparatively, these fees are all standard and fairly nominal, but they do affect the bottom line. These costs are always disclosed to the seller and buyer prior to closing on a document called the settlement statement.
It goes without saying that contracts (and lots of them!) are an integral part of the real estate buying-and-selling process. Colorado is unique in that real estate professionals are required to use State Commission-approved contracts and forms. While this streamlines the process, the contracts and forms themselves can be lengthy and convoluted. For example, the current purchase contract – officially known as the Contract to Buy and Sell Real Estate – is 19 pages long. To stay on top of their game, agents are required to complete 24 hours of continuing education every three years to remain updated on statewide changes.
From agents to brokers, commissions to closing costs and contracts to forms, the real estate process is rife with complicated jargon and confusing transactions. It’s no wonder that 89 percent of sellers use an agent to sell their property! But having a savvy and competent agent by your side will turn an overwhelming process into a smooth and easy ride.