| How To Beat Real Estate Investment Fees

Posted in Small Business at 9:00 AM by Loftis Consulting

Real estate is one of the most popular ways to spend your money at the moment. The market is perfect for homeowners at the moment because any property you buy is likely to appreciate in value. Rents are also at their highest level in decades so you stand to make a lot of money if you invest in property.














As well as renting them out, you could always consider buying a property to renovate and sell on. The value will shoot up after you do a bit of work on it and you’ll make a quick profit, if you can afford it, that is.

When you’re reviewing your finances, the price of the house itself and the costs of renovating it before you rent it out are only part of the story. There are so many different fees involved with buying a property and they can really push the price up. Not taking these into account means that your numbers might be completely out and you can find yourself short of money. If you end up with a property that you can’t afford to renovate, you aren’t going to make anything from it.

Most people that buy a house are a bit lost when it comes to real estate fees. They don’t know how much it’s likely to cost or who they even need to pay the fees to so they often end up getting a big shock when the bills come through. If you want to avoid that happening to you, you need to get to grips with all of the different fees involved in real estate purchase.


Real Estate Agent Commissions














I guess you already realize that you’re going to have to pay your real estate agent a fee but people often don’t understand how the fee is calculated and who pays it. There is a figure of 6 percent that people often quote as a flat rate that all real estate agents charge but that’s not true. The average fee is actually 5.1 percent but they vary depending on the agent and the property. That number is a percentage of the final sale price of the house so you won’t know exactly how much it’s going to be until an offer has been put in and accepted.

Who actually pays this fee is more complicated than you’d think. Does the buyer or the seller pay, and is the money split evenly between the two real estate agents on either side of the deal? The money comes out of the equity of the house before the money is paid. For example, if you sell a house for $150,000 and the real estate agent fee is 5 percent, that $7,500 comes out of the $150,000 before the seller is paid. That means they end up with $142,500 for the house, but who gets that extra $7,500?

It all depends on the contracts that are drawn up before the sale. In most cases, it does get split down the middle but some contracts will stipulate that one agent gets more than the other. Once the sale has gone through, the process still isn’t over. The money can’t go straight to the real estate agents; it has to go through their brokers first. All licensed real estate agents have to work under a broker and they’ll usually take a cut of the commission before it gets passed on to the real estate agent.

That’s how it usually goes down but there are some real estate agents out there that work for a flat fee. It can be a good way for you to make savings when selling and buying a house if the flat fee is lower than the average percentage fee would be; however, expert investors often warn against these kinds of real estate agents because the service that they offer isn’t usually as good. They’re often making less money than they could be on a sale and the amount of work that they do tends to reflect that.

If you feel that the fees are too high, you can contest them. One of the most common reasons that this happens is because a house sells very quickly. If it’s only listed for a couple of days before somebody puts a good offer in, the real estate agent hasn’t actually done that much work. They’ve taken some photos and listed it, then done one or two showings. That’s not worth the money that they’re going to be getting paid at 5 percent, so it’s often disputed. Similarly, if it takes a long time to sell the house, the amount of money that the real estate agent gets doesn’t reflect the hours that they’ve put in, so sometimes they’ll dispute the fees as well.


Recording Fees

The recording fees, often called stamp duty, are fees that you have to pay to the government when you close a deal on a house. You have to pay the government a fee to create official records of the sale. Without that, you don’t technically own the house because all of the paperwork like the deeds etc. hasn’t been updated. The fees vary from county to county and the authorities also record the mortgage agreements as well so the price depends on the details of the sale. They’re usually worked out by the page so it can change quite a bit but it’s only a few dollars per page so this isn’t one you need to worry about that much.


Mortgage Application Fees

You’ll be paying a big chunk of interest on your mortgage every month, and the mortgage company will charge you a fee for the privilege. Once you’ve found a lender, you’ll have to pay them a one off fee for processing all of the paperwork. You need to be careful because there are a lot of extra fees added that are often called ‘junk fees’. They get the name because they aren’t realistic fees and half the time, they’re just tacked on for the sake of it. Some lenders will even charge you an application fee just for filling out the paperwork, even if they don’t end up accepting it and lending you the money. Document preparation fee is another ridiculous one that they try to sneak in there quite often. It’s supposedly for the cost of getting all of the paperwork together which is absurd because what they’re essentially charging you for is somebody printing some pages off in the office. Wire transfer fees are fairly common as well and if you see them, question them. It doesn’t cost them any money to transfer fees so they shouldn’t be charging you for it. Mortgage companies are very sneaky when it comes to adding those extra charges so always make sure that you go through your bill thoroughly and ask them to clarify exactly what all of the charges are for.


Property Taxes













Property taxes are one of the biggest expenses for homeowners all over the country. There is such a huge variation between the states so, depending on where you are, you could get off lightly. The average is about $2,000 a year but in certain states, it can be up to ten times that amount. The cheapest states in the country are Hawaii, Alabama, and Louisiana with rates coming in at less than half a percent. By the time you get to the top of the list, places like New Jersey are charging nearly 2.5 percent every year in property taxes. You should consider the rate of property tax in a state, and balance it against the value of the property before making any decisions. You might be able to get a cheap house but if it’s in a state with exceptionally high property taxes, those savings will be swallowed up after a few years, and then you’re just losing money. You can also contest the fees if you think they’re too high.


Appraisal Fees

An appraisal fee covers the cost of having somebody come in and value the house for you. You need to do this for a couple of reasons; firstly, you need to know whether the price you’re paying for the house is reasonable or not. If you go in blind, you could be massively overpaying for it. The second reason is that you aren’t going to be able to borrow any money if you haven’t had an appraiser come in first. The property that you’re buying serves as collateral for that loan but your lender isn’t an expert on real estate, they aren’t going to come and look at the house. But they do need to be sure that if you default on the loan, the house will be worth enough for them to recoup their money. That’s why they won’t lend you money without having the house valued first. The appraisal fees will usually be added on with the rest of the mortgage fees but you should be able to find out upfront how much it’s going to be. Usually, they’re somewhere in the region of $300 to $500.

Buying and selling property comes with so many fees on top, make sure you can actually pay them before you start looking for houses.


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