11/07/2021

1. EARNING
COMMISSIONS

AGENCY REMUNERATION
Remuneration typically involves a commission
established as a percentage of the sale price,
but other options exist in the marketplace.

Commission is a form of payment to an agent in

which the agent receives a percentage of the
value of each transaction that a client orders.
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The sales commission is generally a

percentage of the sale or exchange
price of a piece of real estate.

To facilitate the commission

calculation, it helps to convert the
commission percentage to its decimal
equivalent.
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The method of remuneration is normally set out in the

representation agreement (e.g., a listing agreement
or buyer representation agreement) and may be
calculated as follows:

• A commission based on percentage

of the sale price; and or
• A flat fee.

Commission rate × sale price =

Commission amount
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Example1.
If the sale price of a home is $175,000 and the
commission rate is 7%, convert the commission to the
decimal equivalent, 7% = 0.07 and multiply the
decimal equivalent times the sale price:
Percent × whole = Part 0.07 × $175,000 = $12,250 =
Gross commission
Given a commission rate of 7% and a sale price of
$175,000, the resulting commission is equal to $12,250

NET PROCEEDS
To arrive at the net proceeds that the seller would receive
after the commission is paid, simply subtract the commission
amount from the sale price, (Sale price − commission
amount = Net proceeds) Using the amounts and
commission rate that the net proceeds are stated example
1. $175,000 − $12,250 = $162,750
Given a sale price of $175,000 and a commission rate of 7%,
we have illustrated that the commission amount would be
$12,250 and the net proceeds to the seller after the
commission has been paid would be $162,750.
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SHORTCUT TO NET PROCEEDS

A second method of calculating the net proceeds from the
sale is to take 1 minus the commission rate and multiply that
resulting percentage, or decimal equivalent, by the sale
price. Again, using the sale price and commission rate used
above, the shortcut calculation of the net proceeds is
illustrated in Equation 2.

(1 − 0.07) × $175,000 = 0.93 × $175,000 =

$162,750

As the equation states, take 1 minus 7%, or

1−0.07, and multiply that resulting 0.93 by the
sale price of $175,000, and you get exactly the
same net proceeds of $162,750 that you
calculated
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Commission Splits

When real estate brokers and salespersons

have a cooperating sale with another
brokerage firm, the commission is typically
split between the two firms. That split may be
50-50, with 50% of the commission going to
each firm, or it may be 55-45 with 55% going
to one firm (usually the listing firm) and 45%
going to the other (or selling) firm.
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Graduated Commissions
For transactions involving larger property
values, the commission will sometimes be
calculated on a graduated scale; this is
sometimes called a tiered commission.
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Example 2.
Let’s look at a small office property with a sale
price of $950,000. The broker and seller have
agreed that the commission rate will be 7% on the
first $300,000 of sale price, 6% on the next $600,000
of sale price, and 5% on any sale price in excess of
$900,000. If the building sells for $925,000 what will
be the amount of the commission?

Solution
◦ Commission = ($300,000 × 0.07) + ($600,000 × 0.06) + ($25,000 × 0.05)
◦ Commission = $21,000 + $36,000 + $1,250 = $58,250

◦The average commission rate would be the

total gross commission divided by the sale
price in the transaction.
◦Average commission = Total gross
commission/sale price.
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◦Average commission = $58,250/$925,000 =

0.063 = 6.3%
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Selling Price and Required Net Proceeds

The seller of a home is interested with how much
money he or she will have left after paying the
broker’s commission. This amount is often referred
to as the net proceeds from the sale.

Net proceeds/(1 − commission rate) = Sale

price

Example 3
Let’s say that a seller wants to net $150,000
from a sale, before mortgage payoff and
other expenses, and that he is going to have
to pay a 6% brokerage commission.
$150,000/(1 − 0.06) = $150,000/0.94 =
$159,574.47
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Who is entitled to receive commission?

◦T o be entitled to received commission from a real
estate transaction, an individual must be;
A licenced real estate agent or broker
Employed by buyer or seller under a
valid contract
The procuring cause of the sale

LIST OF ACTIVITIES TO
EARN COMMISSION
Obtain a preliminary title report
Develop a targeted marketing plan
Show potential buyers the property
Hold the property open
Place advertising in appropriate media
Negotiate on behalf of the seller
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2. ESTABLISH YOUR VALUE FROM THE

VERY FIRST CONTACT

Introduction
◦Every real estate professional knows he or she works hard
and provides value to his or her client. Buyers pay less for a
home because of our negotiating skills and are protected
through disclosures and inspections. Sellers get the highest
net proceeds from their houses because of the same
bargaining abilities and reduced liability through
disclosures and inspections. Yet, some brokers discount our
value by implying that all we do is paperwork and, as a
result, that consumers are being overcharged.
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What is value ?
Simply put, value is the benefit
something provides minus what it costs.

You can see from this formula that there are only two ways
to increase value: You can either increase the benefits
provided or decrease what it costs. The choice is up to you.

2A. Basic expectations that most clients have of

their real estate agents
Sellers
Maximizing sales price
Saving them time
Minimizing inconvenience
Receiving regular progress reports from their agent
Saving money when preparing the house for sale
Developing creative marketing strategies
Delivering a competent listing presentation
Giving them the confidence that their agent can do the job
Providing a reasonable listing period
Reducing their liability
Educating them about the selling process
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Buyers
Saving them money by minimizing their purchase price
Saving time in finding an appropriate property
Offering them a wide variety of properties in their price range
Showing them properties in an efficient way
Writing a purchase agreement that accurately reflects their
desires
Negotiating a superior deal
Informing them about inspections that are available
Educating them about the buying process
Providing regular progress reports
◦ By showing how you meet these needs and more, you begin to establish value
in the minds of your clients

2B. SAVE YOUR CLIENTS TIME.

SELLER
Obtain a preliminary title report that shows who owns the property,
what liens are against it, and more
Provide a “For Sale” sign.
Take pictures of the property and make flyers for it
Write a description for the multiple listing service
Place the property into the multiple listing service
Develop a targeted marketing plan
Put the property on the Internet, or your company’s website
Hold the house open for buyers to see
Meet potential buyers at the property at times other than open
house day
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◦Receive offers from potential buyers

◦Make sure that escrow has been opened
◦Arrange for inspections

BUYER
◦Research the market for properties that meet their specific
needs
◦ Contact owners and agents to make sure that properties
are still for sale
◦ Arrange for showings of the properties to clients
◦ Determine the most efficient route to show properties so
buyers aren’t driving in circles looking for the address
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Write offers that reflect the buyer’s needs

Present offers to sellers and their agents
 Arrange for inspections of ratified
properties
Protect the buyer’s interests at all times

End of the chapter

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PROPERTY INSPECTION AND ANALYSIS

COMPUTING AREA AND VOLUME

The ability to do basic arithmetic is one of the necessary skills of an
agent.
Area
The area of an object is the space it occupies on a flat surface or a
single flat level with just two dimensions , namely length and width.
Square area = length x length
Rectangle =width x length
Triangle =height x base x ½
Trapezoid area ={(side 1 +side 2) x height}/2
Circle =pi ( ) x radius², where pi =3.1416 or 22/7
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volume
Volume relates to size in three dimensions- that is ,
to measuring a space with three dimensions.
Volume = Area x Average height

Measurement Problems
Liner measurement is liner measurement. Linear
measures are used fort length or distance. Linear
measures include feet, yards, inches, and miles.
1. Convert one kind of area measurement to another
2. convert from one kind of volume measurement to
another
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SHAPES

EXAMPLES
30
25

20
A 60

D 20
B
Step 25 10

1. Prepare a scale diagram C

15
2. Decide how to break it down into shapes
3. Determine the dimensions of each shape
4. Total the are of the shapes
25
30
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SOLUTION
SHAPE A = 20 X 55 =1,100
SHAPE B= 3.1416 X (10 x10) x ½ =157
SHAPE C= 15 x 25 x ½ =188
SHAPE D= 25 x60 =1500
2945

A C

H
G
F
B

D
E
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Marketing can be defined as the satisfying of

consumer needs and wants by providing
desired products and/or services including the
promoting of those products/services using
various marketing methods, such as print and
electronic advertising
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MOST WIDELY USED DEFINITIONS

The two most widely used definitions of marketing are these:
Marketing is the management process which identifies,
anticipates, and supplies customer requirements efficiently and
profitably. (UK Chartered Institute of Marketing)
Marketing is the process of planning and executing the
conception, pricing, promotion and distribution of ideas, goods
and services to create exchange and satisfy individual and
organisational objectives. (American Marketing Association)

STAGES OF MARKETING
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MARKETING PRODUCTS VS. SERVICES

Do real estate brokerages sell a product or a service? In
reality, they sell both.
 The brokerage and its representatives provide
intangible services to the seller client when marketing his
or her property and yet offer tangible products (sellers’
homes) to buyers

THE FOUR P’S

Marketing is best understood using the four P’s
For real estate purposes, the four P’s
(Product, Price, Promotion and Place) are
adapted to emphasize the dual marketing
roles performed by brokerages, one
directed towards attracting clients and
customers to the brokerage and the other
to promoting listed property.
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THE PRACTICE OF MARKETING –

COMMUNICATIONS

THE MARKETING DEPARTMENT IN ITS

FUNCTIONAL
The ROLE
core functions are the following:
 Marketing research. Seeking, recording and processing all necessary
data about the economy, the market, competitors, and the
effectiveness of sales and advertising programmes.
 Product planning. Determining the product mix and ensuring that the
company’s products are in line with customers’ requirements, including
packaging and pricing.
 Sales. Field selling; selection of distribution channels; forecasting,
budgeting and analysis of sales; sales office administration.
& Advertising and promotion. Advertising, trade and consumer
promotions, point of sale and merchandising material, editorial
publicity and sales literature.
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MARKETING COMMUNICATIONS AND

PROMOTIONAL TOOLS

DEVELOPING COMMUNICATIONS
1 Identify the target audience. In other words, decide who the message should
get to.
2 Determine the response sought. What would the marketer like members of the
audience to do after they get the message?
3 Choose the message. Write the copy, or produce an appropriate image.
4 Choose the channel. Decide which newspaper, TV station or radio station the
audience uses.
5 Select the source’s attributes. Decide what it is about the product or company
that
needs to be communicated.
6 Collect feedback. For example, carry out market research to find out how
successful the message was.
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Communication is always expensive:. It is therefore

worthwhile spending time and effort in ensuring that
the message is comprehensible by the target
audience.
Communications often follow the AIDA approach:
A =Attention
I= Interest
D= Desire
A= Action

This implies that marketers must first get the

customer’s attention. Clearly, if the receiver is
not ‘switched on’ the message will not get
through. Secondly, the marketer must make the
message interesting, or the receiver will not pay
attention to it. This should, if the message is
good, lead to a desire for the product on the
part of the receiver, who will then take action.
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Advertising is defined as ‘a paid message inserted in a medium’. This

definition can be broken down as follows:
• Paid: news about a company or its products is not necessarily
advertising; sometimes a medium (television, radio, newspaper or
magazine) will carry a message about a company in the form of a news
item, but this is not advertising unless the space is paid for.
• Message: there must be some kind of communication intention in an
advertisement, however obscure.
• In a medium: the message must appear in a newspaper, magazine,
billboard
or broadcast medium. Leaflets through doors, company names printed
on Tshirts, and telephone selling are not necessarily advertising (but
they are
promotion).

Advertising is mainly about getting the

consumer’s attention and arousing interest (the
A and I of AIDA). To stimulate desire and action,
marketers often link a special offer (sales
promotion) to the ad.
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Advertising includes any verbal, written or

graphic representation in a newspaper,
magazine, flyer, handbill, billboard, sign or
electronic media such as brokerage and
personal websites.

Advertising is very broadly defined as: “Advertising”

means any notice, announcement or representation
directed at the public that is authorized, made by or on
behalf of a registrant and that is intended to promote a
registrant or the business, services or real estate trades
of a registrant in any medium including, but not limited
to, print, radio, television, electronic media or publication
on the internet (including websites and social media
sites). Business cards, letterhead or fax cover sheets that
contain promotional statements may be considered as
“advertising”
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ADVERTISING
This approach is favoured in such circumstances as the
following:
Product of low unit cost, selling to very many
customers, widely scattered.
 The need to inform many people very quickly – such as
a new product launch, a bargain sale or a special offer.

& Uncertainty as to who is likely to buy, or difficulty in

locating potential customers.

THE ETHICS OF ADVERTISING AND SALES

PROMOTION
An advertisement, except a public notice, goodwill message,
obituary and vacancy shall be presented for vetting and
approval by the Advertising Standards Committee and be
approved by the Food and Drugs Authority before exposure. It
is mandatory for a media house to demand a Certificate of
Approval of the Advertising Standards Committee issued for an
approved advertisement before placing the advertisement.
Details and modalities for advertisements are available in the
Vetting Guidelines published by the Council in the Gazette
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Red Bull Paying Out to Customers Who Thought Energy Drink Would Actually Give
Them Wings
https://www.newsweek.com/red-bull-lawsuit-canada-1455780

THE MESSAGE AND THE MEDIUM

What promotion means
Promotion is communicating with potential
customers.
The word promotion is used here firstly to describe the whole collection of
methods by which the tasks of information giving and persuasion may be
carried out. In the main, these consist of the following:
& Direct
marketing
& Advertising
& Sales promotion
& Personal selling.
& e-Commerce.
& Price as a promotional tool .
& Point of sale and merchandizing .
& Public relations.
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PERSONAL SELLING
Personal selling is also known as face-to-
face selling in which one person who is
the salesman tries to convince the
customer in buying a product. It is a
promotional method by which the
salesperson uses his or her skills and
abilities in an attempt to make a sale.

PERSONAL SELLING
This is an important element in the mix under the following circumstances:
There are relatively few customers and they are easily identified and not too scattered.
 The product needs demonstrating or the benefits of its use need to be explained in relation
to the customer’s personal needs (e.g. life assurance and other types of investment).
& The product has to be specially made or developed to fit the customer’s needs (life assurance again;
also many technical products and products or services with a design element,
such as office furnishing).
& There is a need to establish personal rapport (services such as business consultancy and
advertising agencies).
& The product has high unit value, so that time spent with an individual customer can be
easily paid for by the occasional sale.
The salesperson buys as well as sells (cars, for example, are normally sold against tradeins).
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MAIN STEPS IN THE PERSONAL SELLING

PROCESS

THE SELLING PROCESS

The total selling process can be said to consist of a number of stages,
although not all of them are present, in this order, in every selling
situation:
1. Making the initial contact with a customer.
2. Arousing interest in the product.
3. Creating a preference for the product as against competitors or alternative
uses of the
customer’s money.
4. Making a specific proposal.
5. Closing the sale.
6. Ensuring post-purchase satisfaction and generating future sales.
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METHODS OF SELLING A PROPERTY

There are several different methods of selling a home

PRIVATE
TREATY

INFORMAL
TENDER

FORMAL
AUCTION
TENDER

Private Treaty
The process called “For Sale by Private Treaty” is the method
employed by most estate agents, preparing descriptive details of
the property and quoting a definitive asking price.

The process of selling an asset whereby the deal is privately

negotiated between the seller and buyer, without recourse to an
auction process.

Also referred to as a sale by private treaty or a bilateral

transaction.
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ESTATE AGENTS IN THE PRIVATE TREATY SALE

A real estate agent may potentially help to facilitate a sale or purchase in several ways, such as:
Giving the seller an idea of current market conditions
Advising the seller on when to sell their property, and at what price
Facilitating any marketing/advertising of the property, such as ‘dressing’ the property for
sale
Letting the seller know when an offer has been made and then letting the prospective
buyer know if the offer has been accepted

That being said, a private treaty sale can potentially be made without the help of an agent,

STEPS IN PRIVATE TREATY SALES

An agent will come and appraise the property. They will consider the property’s condition, location, strong and weak
points, suggest a marketing plan and advise seller on the best method of sale.
Seller instruct agent and a written agreement is drawn up between both parties.
Photographs are arranged to be taken and an Energy Performance Certificate and floor plans to be created, where agreed.
The sales particulars are produced.
Marketing of property commences - Through extensive advertising in both regional and national publications, the internet,
Stags website and property portals.
Particulars of the property are emailed/posted to database of buyers with the most active and serious buyers contacted by
telephone.
Viewings are arranged - these can be accompanied, unaccompanied or open house.
Offers are negotiated and discussed with seller/buyer until an agreed price is accepted.
Solicitors are instructed.
The sale is progressed to exchange of contracts and a completion date is agreed.
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ADVANTAGES AND DISADVANTAGES OF

PRIVATE TREATY SALE

Advantages
•Can be the quickest and cheapest method of sale if interested parties respond straight
away to the advertisement/promotion. The agent may already have a list of interested
parties when the property is first put on the market.

•The agent has the greatest control on the selling process

•The seller's privacy can be maintained if required

•If the sale fails, knowledge of the failure can be mitigated by simply withdrawing the
property from the market.

•As the expected selling price or range of the expected selling price is known, the method
is less likely to attract non genuine enquiries.

•The method allows negotiation of price and sale terms.

•An attractive offer may be made which was unknown before advertising/promotion.
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DISADVANTAGES
The agent must be able to determine the expected selling price with reasonable accuracy;
otherwise the correct target market will be missed.

A successful buyer may have been prepared to bid higher in a more competitive environment
such as auction.

If the property is unusual and/or the expected selling price is difficult to ascertain, another
method of sale such as auction or tender should be used.

A binding contract is not established until exchange. Therefore, either the seller or buyer can
be gazumped resulting in monetary loss for the respective party and loss of goodwill by the
agent.

AN AUCTION
An auction is usually a process of buying and selling
goods or services by offering them up for bid, taking
bids, and then selling the item to the highest bidder
or buying the item from the lowest bidder.
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TYPES, METHODS AND BENEFITS OF

AUCTIONS

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TYPES OF AUCTIONS
There are two broad types of auctions across the world:
Absolute auction or auction without reserve
‘Auction without reserve’ is an auction at which:-
(a) goods/assets are sold to the highest bidder without reserve;
(b) the auction does not require a minimum bid;
(c) the auction does not allow competing bids of any type by the seller or an agent of the
seller;
(d) the seller of the goods/assets cannot withdraw the goods/assets from auction after
the auction is opened and there is public solicitation or calling for bids; and
(e) the seller has a bone fide intention to transfer ownership of the goods/assets
regardless of the price realised on auction .
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AUCTION WITH RESERVE OR AUCTION WITH

‘reserve auction’ or ‘auction with upset price’UPSET PRICE
as an auction where:
(a)the seller reserves the right to establish a stated minimum bid, the right to reject or accept any
or all bids, or the right to withdraw the goods from auction at any time prior to the completion
of the auction by the auctioneer;

(b)goods/assets are sold to the highest bidder subject to the reserve price and acceptance of the
highest bid by the seller ;

(c) the owner or auctioneer, or any one person on behalf of the owner or auctioneer, as the case
may be, may bid at the auction; provided notice has been given in advance that the sale by
auction is subject to a ‘reserved’ or ‘upset price’; and

(a) the auction becomes ‘absolute’ or ‘without reserve’ once the reserve price determined by the
seller is reached, and the auctioneer is authorised to sell the goods/assets to the highest
bidder at the fall of the hammer or close of the auction.

SUBJECT TO CONFIRMATION (STC)

Subject to confirmation (STC)’ refers to an auction where:-
(a) the sale of the goods is not complete at the fall of the
hammer or close of the auction because the reserve price
determined by the seller was not met; and

(b) the auctioneer knocks the hammer or closes the

auction provisionally to the highest bidder STC by the
seller within a predetermined confirmation period.
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ADVANTAGES OF AUCTION
With the good advertising/promotion the expected target market will be attracted to
bid against each other.

The reserve price is not disclosed. Therefore, if bidders think the property is worth
more than that determined by the agent/seller then the higher price will be achieved.

The public nature and excitement of the auction event encourages bidders who may
otherwise hesitate to buy.

There is a binding contract between buyer and seller on the “fall of the hammer”.
Therefore, the auction system avoids the odium of gazumping.

The terms and conditions of the contract are known by the buyer who must have finance
arranged beforehand. Usually, 10% is paid on fall of the hammer. This speeds up the sale
process.

The property can sell before auction, so that some of the advantages of a private treaty sale
are possible. The desire to avoid public bidding and competition by an interested buyer may
encourage a good offer before auction.

Inspection times are limited and the selling period is short - about 4-6 weeks before auction.

If the auction fails a sale by private treaty may still be possible by negotiating with the highest
bidder. That is, a likely buyer is found who may not have been available under the private
treaty system.

The seller is allowed one bid to encourage the sale process.

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DISADVANTAGES:
The seller would have been better off with the private treaty system from the
beginning.

The auction system is very public which often discourages sellers who wish to retain
discretion and privacy.

The failure of an auction is public knowledge creating a negative image about the
property and perhaps loss of goodwill by the agent. This is more so when the property
is passed in without a bid.

Some potential buyers are put off by the competitive and emotional nature of an
auction. Such buyers would have responded better to personal negotiations in a sale
by private treaty or tender.

Although the auction system is less dependent on an accurate estimate of the

selling price compared to the private treaty system it can still be undermined
by the setting of an incorrect reserve price.

The costs of an auction is higher a sale by private treaty or tender

There are quite restrictive rules and procedures in the auction system in an
attempt to stamp supposed “sharp” practices.
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SALE BY INFORMAL TENDER

Selling a property by informal tender involves buyers being invited to submit
competitive bids by a specified date. The bids are put forward in a sealed
envelope, so buyers are unaware of what their rivals are bidding. All the
tenders are reviewed with the vendor, who then chooses the most favourable
tender

ADVANTAGES
Same advantages of promotion/advertising of the auction system in attracting the
target market.

Suitable for classes of property that are unusual, large and therefore, the expected
selling price is uncertain.

Less public and therefore, causes less interference with the seller's privacy

Forces an interested buyer to submit his/her highest bid rather than missing out on
buying the property.
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The tender system is most appropriate for leases and agistment agreements where the
terms and conditions are fixed and non negotiable.

Less time wasted with non genuine buyers and enquiries as the system is understood by
the more sophisticated section of the market.

The agent has good control over the sale process.

The highest tender does not have to be accepted.

DISADVANTAGES:
•No public competition and spectacle to encourage competition between interested parties compared to the
auction system.

•The terms and conditions may be known or settled beforehand. However, with an informal tender the tenderer
may stipulate his/her own terms and conditions with the tender price.
•There is no legal binding contract at the end of the tender process and therefore, as with private treaty the
seller can be gazumped.

•If the tender is unsuccessful, the agent may enter into negotiations with the highest tender moving into a
private treaty system.

•Some potential buyers may be put of by a system requiring the lodgement of an offer in writing.

•The tender system is less well known to rural buyers than the other two systems.