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How a house is sold

Published on July 31, 2024   11 min

A selection of talks on Finance, Accounting & Economics

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0:00
Welcome again to Real Estate Economics. This is talk number nine, and it is the second talk dealing with real estate finance. I am John McDonald, an Emeritus Professor of Economics, at the University of Illinois, Chicago, and an Emeritus Professor of Real Estate at Roosevelt University. Our talk this time is about How a House is Sold where we will be concentrating on the contracts involved and the financing.
0:40
The initial conditions we're going to assume for this routine transaction of selling a house: The owner of an owner-occupied house decides to sell in order to move somewhere else. The owner has an outstanding balance on the mortgage loan that is less than the value of the house, fortunately. The house is to be sold on an open market and "arm's length sale", so there are no special conditions attached or the sale is not to a relative or anything like that.
1:19
The first thing that a seller does is to decide whether to try to sell it by himself/herself or to go ahead and have professional help for that. The professional help involves hiring a real estate broker to provide services that will lead to the sale of the house. In order to do that, they sign a listing contract that specifies several things; the price that the owner is willing to accept, the time period over which the contract will extend, and then the conditions for the commission or fee that the owner will pay to the broker. Now, consideration on the broker's side agrees to provide services that would include hiring a real estate agent to market the property and conduct negotiations with a potential buyer. Now the listing itself can be one of two types. It can be an exclusive listing or an open listing. But remember always that the broker works for the seller. The broker is not working for the buyer.

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