Selling Condo to the Tenant

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Selling Condo to the Tenant

Key Takeaways

  • Involving an agent in a house/condo sale after the seller already has an offer in hand might prove vital to the overall process since there are several other procedures before closing.
  • Agent commissions are entirely negotiable, as there are no fixed federal or state laws governing real estate agent commissions.
  • Sellers generally pay between 5%-6% of the property's price as agent commission.
  • Unless the seller requires it, the buyer does not need to provide a pre-approval letter.
  • Mortgage companies/lenders typically contract a home appraiser to determine the property's worth and evaluate the soundness of the investment.

Introduction

This report provides insights regarding whether a house/condo seller should enlist a real estate agent if the property does not need to be marketed or shown, including the agent's commission rate, pre-approval decision, earnest money handling, and property appraisal. While it is not a legal requirement for a seller to enlist the services of a real estate agent after finding a buyer, most real estate professionals and experts recommend it due to the intricacies of selling a property. Further details of the insights are available below.

Agent Commission Rate

  • Selling a house is not always a straightforward process involving a simple transaction from the buyer to the seller. Thus, enlisting an agent in a house/condo sale after the seller already has an offer in hand might prove vital to the overall process since there are several other procedures before closing.
  • It is important to note that agent commissions are entirely negotiable, as there are no fixed federal or state laws governing real estate agent commissions.
  • According to a real estate expert with American Realty, Jackie Davis, sellers can negotiate the commission rate with their agent.
  • However, a Bankrate estimate indicates that sellers generally pay between 5%-6% of the property's price as agent commission fees.
  • If the seller has already found a potential property buyer, real estate professionals recommend informing the agent and inquiring whether and how they would like to handle the sale.

Pre-Approval Decision

  • Mortgage pre-qualification and pre-approval are quite different in that the former helps the buyer evaluate potential lenders in terms of estimated loans. In contrast, pre-approval is a more comprehensive process that provides a more credible, albeit not irrefutable, account of accessible funding from a mortgage lender.
  • Neither the buyer nor seller can count on pre-qualification as proof of funding, as the lender might provide a lesser loan than the pre-qualified amount.
  • .Getting a pre-approval letter can thus be critical for any property sale for the seller, buyer, and real estate agent.
  • For sellers, it prevents time wastage and provides some credibility regarding the buyer's ability to afford the property. However, it is not a necessity or requirement of the process.
  • Failing to obtain a pre-approval letter before initiating a purchase offer could also lead to time wastage for the buyer and real estate agents.
  • Also, buyers who enlist the services of real estate agents obtain a pre-approval letter more often (83%) than those who do not (67%), indicating that most real estate agents recommend it. However, unless the seller requires it, the buyer might not need to provide a pre-approval letter.

Other Issues

  • Real estate professionals generally consider enlisting a real estate agent even if the seller already got a buyer as a smart move, considering the processes involved, from writing offers to closing the sale.
  • Finding a buyer is a significant aspect of selling a property. However, it is not the only one. Other procedures often include negotiating the price and terms of sale, earnest money handling, property appraisal, and closing.
  • The following are some issues in the sale process that might benefit from having a real estate agent:

Earnest Money Handling

  • Considering that a buyer's intent to purchase a property is not legally binding, the seller would need to establish the contract in writing. Depending on state and local laws, the seller might need to provide several forms, including Residential Purchase Agreements or earnest money agreements.
  • Real estate agents can handle the buyer's earnest money - typically 1%-2% of the purchase price deposited in an escrow (third-party) account such as a real estate company, pending the sale closure.
  • After closing, the earnest money serves as part of the buyer's payment for the property. However, if the buyer chooses not to continue with the purchase, the seller might be able to claim that earnest money.

Property Appraisal

  • Real estate agents can advise sellers regarding a suitable listing price for a property. However, this informed opinion is not official like the value provided by a home appraiser.
  • It might be useful to obtain an adequate property value from a professional if the buyer is getting a mortgage to pay for the property because mortgage companies/lenders typically contract a home appraiser to determine the property's worth and evaluate the soundness of the investment.
  • If the appraiser's price matches that of the seller or is higher, the sale will scale through without any hitches.
  • However, the lender will not loan the buyer any amount beyond the appraisal value, i.e., if the appraisal value is lower than the agreed sum, the buyer would have to pay the difference in cash, or the seller might need to reconsider the sale.

Research Strategy

We leveraged industry reports from Realtor.com and Opendoor to provide the requested information. As there is no definitive information regarding deductions or processes to calculate an agent's fees precisely, we provided data to inform the decision to hire a real estate agent or not. Our findings also indicated a typical price range for real estate agents, stating that the final agreement is between the seller and the agent.
Lastly, we did not find information specific to agent fees for condo sales and thus provided general information for home sales. However, we assumed the data to be relevant to all types of home property sales, including condos.




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