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How the Real Estate Industry Works

How does the Real Estate Industry Work?

The real estate industry works because the value of real estate tends to rise. As a result, people are able to make a profit by buying and selling real estate.  Agent and brokers capture a portion of this profit by selling a service to those engaged in a real estate transaction.

Not clear enough? We’ll break it down piece by piece.

What is Real Estate?

Real estate is property consisting of land, the buildings on it, and any natural resources within the property boundaries, such as minerals waters and crops. Real estate can be categorized into four types: residential, commercial, industrial, and land.

Residential properties include structures for domestic residence such as single-family homes, condominiums, townhouses, mobile homes, and vacation rentals.

Commercial properties include structures used to produce income such as offices, stores, hotels, services and other businesses.

Industrial properties include structures used manufacturing, such as factories, warehouses, and research centers. Generally industrial is for the production of goods and commercial is for the distribution of goods.

Land properties include few or no structures such as vacant land, farms, ranches, and reclaimed sites.

What is the Real Estate Market?

The real estate market is all properties available for sale in a given area. Because of large economic forces, there are times when these properties rise in value (or fall) at the same time. This what people mean when they say the market is up (or down).

The housing market is a segment of the real estate market that consists of residential properties only. Trends in the housing market are closely watched because they provide a measure of general welfare.

Because many residential properties are owned by individual families, if the housing market is doing well, we can assume that families are doing well because their net worth is increasing.

What Do Real Estate Agents Do?

Real estate agents help people buy and sell homes by providing expertise on the dynamics of the local real estate market, ensuring any transaction follows local laws and regulations, and negotiating on behalf of their client.

A buyer’s agent represents people seeking to purchase property. A listing agent represents people seeking to sell property. These agents work with their clients and each other to complete a real estate transaction quickly and efficiently.


How Do Real Estate Agents Make Money?

Real estate agents make money by charging a commission for their services that is usually paid out as a percentage of the final property selling price. This commission is split by the buyer’s and seller’s agent and it is only paid out when a sale is complete.

A common commission in the real estate industry is 5 to 6 percent, though some agents will offer some or all of their services for a flat fee.

How the Real Estate Industry Works in the U.S.?

  1.     Homeowner and listing agent enter contract for the sale of the home
  2.     Listing agent publishes the home on the local Multiple Listings Service (MLS)
  3.     Buyer’s agent finds home and inquires about it for potential buyers
  4.     Listing agent provides information and showing
  5.     Listings and buyer’s agent enter negotiations for sale
  6.     Buyers and sellers agree to final price
  7.     Agents ensure the legality of the sale
  8.     Sale closed and commission paid

How the Real Estate Industry Works in Canada?

The real estate industry in Canada works much in the same way as the real estate industry in the U.S. with one major difference being the availability of the Data Distribution Facility (DDF), which allows a property to be marketed for sale nationwide.

DDF works a lot like an MLS except the participating brokers are located across country rather than in a specific state or county like in the U.S.

So that’s how the real estate industry works. Did we miss something? Leave a comment below. Or for more on the real estate industry, check out Real Estate Listing Data Explained.

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  • Golf Grove
    Posted at 02:09h, 05 February Reply

    Amazing post!!!

  • Angel Bogart
    Posted at 21:25h, 22 February Reply

    I’m so glad to know that the real estate business works exactly the same way in the US and in Canada, except for the Data Distribution Facility that allows properties to be sold nationwide. Mom would love this because she’d be able to search for listings of properties in all states and get the respective agents to book her a visit. This country-wide listing would save her a lot of time searching for contacts and leads to her dream home.

  • Angel Bogart
    Posted at 01:20h, 16 March Reply

    I find the idea of Data Distribution Facility really helpful in marketing real estate because it allows properties to be nationally marketed. Should Mom wish to get her homes for sale sold in all states, it would be best she gets them listed by all brokers nationwide. It would surely help her sell her properties fast by reaching her target audience of startup families all through the United States.

  • Vivek
    Posted at 05:29h, 26 March Reply

    Interesting post. We cannot look at the numbers in isolation to the RE industry. The years 2012-2014 have seen the highest inflation challenges faced in our country.

  • Jay Jorgenson
    Posted at 11:41h, 10 July Reply

    I’d be interested to learn more about how a real estate works. It really helped when you explained a real estate is property consisting of any resource within the property boundaries. Thank you for explaining real estate agents help people buy and sell homes by providing information on the local real estate market.

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