Microeconomics of buying a home

If you are in the market to buy or sell your home, you need an agent who is a REALTOR® by your side.

When you hire an agent, this professional is paid through a real estate commission, but this commission structure benefits both the buyers and sellers alike.

Seller brokers entering into a cooperative commission agreement with buyer brokers prevents a greater cost burden that would be especially devastating for first-time and low-income home buyers.

If buyers had to pay real estate broker commissions directly, it would add up to thousands of dollars to an already costly transaction.

The typical American household has an average of $8,863 in the bank, according to Bankrate inflation-adjusted data from the Federal Reserve 2016 Survey of Consumer Finances.

That’s barely more than 50 percent of the median down payment on a starter home, which is $15,169 – or 7 percent for first-time home buyers. In 2018, the median down payment for a home was 13 percent for all buyers and 7 percent for first-time buyers, according to National Association of REALTORS® 2018 Profile Home Buyers and Sellers report.

Since most lenders don’t allow real estate broker commissions to be financed, every 1 percent of broker commissions that first-time buyers pay out of pocket would put their home $2,167 further out of reach.

Agents provide clients a wide range of services, including helping you price your home, marketing it, negotiating, and assist with the home sale through the closing.

Buyer’s and seller’s agents typically split the commission. If a home sells for $200,000 at a 6 percent commission, the seller’s agent and buyer’s agent might split that $12,000, and each receive $6,000.

A recent survey found that the typical “for sale by owner” home sold for $190,000, compared with $249,000 for agent-assisted home sales, according to the National Association of Realtors®. That’s in line with a recent survey from Keeping Current Matters that found that homes listed for sale with a real estate agent sell for $46,000 more on average than FSBO houses.

Perhaps that explains why 92 percent of home sellers use an agent to sell their house.

REALTOR® Association of the Fox Valley : 433 Williamsburg Ave., Geneva, IL 60134 : 630.232.2360 : www.rafv.realtor