The Ultimate Guide to Real Estate
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Real estate has been a linchpin industry in virtually every society that has ever existed. It’s an economic staple that we rely on to keep the free market moving and roofs over our heads — but despite its importance, a lot of how real estate works remains a mystery to most.
So to help anyone interested, invested, or working in real estate, we’ve compiled this comprehensive guide on the fundamentals of the industry — a resource to give consumers clarity and real estate pros insight for more effective, successful professional efforts.
Here, we’ll cover topics, including:
What is real estate?
Real estate is defined as the property and buildings on a specific piece of land. It also includes the air and underground rights above and below the land, respectively. The term ‘real estate’ means real, or physical, property.
The 4 Types of Real Estate
As a physical entity, real estate includes four different categories of property: residential, commercial, industrial, and land.
1. Residential
Residential real estate includes new construction and resale homes. The term most commonly refers to single-family homes — including condominiums, townhouses, duplexes, and vacation homes.
2. Commercial
The term “commercial real estate” refers to places of business — like shopping centers, strip malls, hospitals, colleges, hotels, and office space. Commercial real estate also tends to cover apartment buildings, as their owners generally use those spaces to make money.
3. Industrial
Industrial real estate includes manufacturing buildings and warehouses used for research, production, storage, and product distribution.
4. Land
Land includes working farms and ranches. It also refers to vacant land, such as undeveloped land and land on which homes or buildings are being assembled.
There’s no universal standard for how all four of these categories are treated. Each comes with its own regulations, purchasing processes, and — in many cases — types of real estate professionals qualified to be involved in a given sale.
Let’s take a look at those various types of real estate pros and their place in how the industry functions.
Who’s Who in Real Estate
A real estate transaction is rarely straightforward — it usually doesn’t involve a buyer and an agent just shaking hands, closing a deal, and parting ways. There are generally several people involved in that process. Here’s a look at some of those specialists.
Different Types of Real Estate Agents
The Real Estate Agent
The real estate agent acts as a liaison between buyers or sellers and the industry itself. They’re responsible for finding potential property, listing property, negotiating prices, and much more. While some agents work with both buyers and sellers, most specialize in one or the other. This is because the responsibilities of each are very distinct.
The Seller’s (Listing) Agent
The seller’s agent works exclusively with people selling real estate, such as a home or office building. They’re also called a “listing” agent because they list property under their name and brokerage for others to find.
Listing agents are usually tasked with several responsibilities, including (but not limited to):
- Helping determine the selling price of the property
- Listing and marketing the property
- Managing open houses and showings
- Answering questions from potential buyers
- Guiding the negotiating of the sale price
- Coordinating the sale and closing process
For residential sales, listing agents typically make 3% of the gross sale price, paid by the seller(s) — who pay another percentage to the buyer’s agent. For example, listing contracts written are for X% with X% offered to the cooperating agent.
The Buyer’s Agent
On the other hand, the buyer’s agent works with people looking to buy real estate. They’re responsible for finding potential property, organizing showings and walkthroughs, negotiating on behalf of their clients, and assisting during the purchase and closing process.
Buyer clients typically don’t pay for working with a buyer’s agent. If they successfully organize a real estate transaction, buyer’s agents make 3% of the gross sale price — also paid by the seller.
Real Estate License
Any individual interested in assisting buyers or sellers with the lease, purchase, or sale of real estate has to be licensed. Each state has its own specific requirements for obtaining that permission — typically including duration of education, testing, and fees.
The Broker
The real estate broker is considered one step above the agent. Think of a broker as a rectangle and an agent as a square — a broker is an agent, but an agent isn’t a broker.
Although the rules vary from state to state, brokers typically have more education and licensing than agents. Because of this, brokers can form their own real estate brokerage and hire agents as salespeople.
The Mortgage Lender
The mortgage lender is a financial institution that gives you money to fund your mortgage loan. When purchasing real estate, it’s encouraged to get pre-approved for a loan before touring and bidding on real estate. Real estate buyers will likely work closely with a mortgage lender before looking at homes or property.
The Appraiser
The appraiser works independently of the buying and selling party to determine the value of a property. The appraiser is typically chosen by the mortgage lender as it’s in their best interest to get the fair and accurate value of a home or building. The property must appraise for the agreed-upon contracted sales price for the lender to grant the loan.
From conducting a room-by-room walk-through to reviewing exterior and interior conditions, the appraiser does most of their job on-site and reports back to the lender.
The Inspector
Whereas appraisers are hired by lenders to determine the monetary value of a property, inspectors are hired by potential buyers to determine the structure, safety, and possible defects or damage in a home. It’s a lengthy process — inspectors are responsible for reviewing hundreds of items when looking over a building.
The Closing Attorney
The closing (or transactional) real estate attorney is simply an attorney who specializes in real estate law. They are sometimes referred to as a “closing” attorney because that’s when most buyers or sellers encounter them — at closing.
Real estate attorneys help buyers or sellers understand the legal documents with which they’re presented throughout the real estate process.
Each of these individuals is a vital part of the real estate process. Next, we’ll see that process in action step-by-step.
How does real estate work?
Depending on the type of property and people involved, the specific steps within each real estate transaction might fluctuate a bit. But for the most part, the majority of transactions look the same.
For the sake of continuity and simplicity, we’re going to use a residential transaction to outline the real estate process. Commercial and industrial transactions follow a comparable process, but the residential process is likely the most relatable among consumers.
We’ll cover both the seller’s and buyer’s perspectives below.
1. Hire an agent
When someone decides to sell their home, the first thing they might do is hire a listing agent (unless they decide to sell it themselves as a For Sale By Owner)
Historically, clients have found their listing agents through personal recommendations or a local advertisement in a newspaper or flier. Nowadays, some sellers find their agents digitally — using resources like social media, online advertisements, or sites like Zillow or Trulia.
Listing agents typically give a listing presentation. This pitch will also highlight how they’d price and market your home, what their commission structure is, and other competitive advantages. This helps clients decide which agent is the best fit.
When someone decides to buy a home, they might do one of two things — secure a buyer’s agent who can help them discover and shop for property or start shopping for property themselves, choosing to hire an agent after they’ve found a property they like.
There’s no right or wrong way to go about hiring a buyer’s agent, although an agent might introduce you to potential properties you might’ve not otherwise found on your own. Interviewing and securing a buyer’s agent at the beginning of the real estate process can be much more rewarding than simply letting the listing agent take care of both sides. Buyers can benefit from representation, too.
2. List/View the property
As a seller, the next step would be listing your property so potential buyers can find it. Here are the steps for listing and viewing your property.
- Determine the price of your home. Your real estate agent can help you calculate this using your home’s location, condition, amenities, upgrades, and the price of similar properties. Agents will compile a comparative market analysis (CMA) to help you understand how and why your home is priced the way it is.
- Enter your home into the Internet Data Exchange (IDX). The IDX is a platform that your real estate agent has access to. It brings together real estate listings from all over the country. It enables members of the multiple listing service (MLS) to share and market their properties to other agents and potential buyers.
- Market your home. Whether they invest in traditional methods or list your home on other real estate websites, these marketing tactics will increase the exposure of your property to other agents and buyers.
- Hosting open houses and showings with buyers. Open houses and showings give potential buyers a first-hand look at your home. These in-person experiences also allow buyers to ask questions and express concerns — saving both parties time and energy in the long run. Some agents may opt to create real estate videos and virtual staging opportunities for your home, too.
Some sellers opt to sell their homes themselves, which is referred to as For Sale By Owner (FSBO). FSBOs theoretically save sellers commission money (since seller clients pay both the listing and buyer’s agents), but in turn, they don’t get access to CMAs, the IDX, or any agent knowledge or marketing. In some cases, FSBO sellers may pay a cooperating commission to the buyer’s agent working with whoever buys their home.
As a buyer, this step would involve researching and viewing properties. Some people use sites like Zillow or Trulia to find potential homes within their price range while others rely on their agent to discover property and schedule showings.
Typically, a buyer will attend an open house to get a feel for a property and its location, condition, and amenities. Then, they’ll schedule a dedicated showing with their agent (or the listing agent) at which they’ll walk through the property and ask more specific questions.
Recall how we mentioned that buyers should be pre-approved for a loan before searching for homes. Why? Because if a buyer views a home they want to buy, they should be prepared to place an offer on the spot, especially in a highly competitive housing market.
If someone were to view a property they liked and then seek out a loan pre-approval, the process could take weeks. No seller would wait that long if they had other offers.
3. Close on the property
Let’s say you’re selling your home, and someone wants to buy it. What happens then?
Well, firstly, the potential buyer would place an offer on your home. This offer could be exactly at asking price, below, or above — depending on how competitive the market is and how quickly you and/or the seller want to close. Then, you’d consider the offer, consult with your agent (if you have one), and accept or deny. There could be a little back-and-forth, or both parties could immediately agree and immediately sign a sales contract.
If you, as the seller, had entered into an agreement with a right-of-first-refusal clause, you’d have to let that potentially interested party view and make an offer on your property before any other parties. Right-of-first-refusal clauses are typically written into contracts between family members, tenants, landlords, and in the case of a homeowners association.
As the seller, the next few steps don’t directly involve you. At this point, the buyer would submit their earnest money, order an inspection of your home, and work with their mortgage lender to secure an appraisal and set up their mortgage. You might have to address any concerns or questions during this period, but for the most part, you sit back and wait.
The next time you see the buyers will be at closing. A home closing is basically a fancy term for when the property title is transferred, the down payment is made, and the seller and buyer’s names are signed a bunch of times. After closing, you’d hand over the keys and be on your merry way … albeit thousands of dollars richer.
Let’s flip the script and say you’re buying a home.
We already know you’ve made an offer that’s been accepted, and you’ve signed a sales contract. What happens now? Well, the bulk of this process involves you making sure the house is exactly what you want to purchase — and you have to do all of this within the timeline spelled out in your contract.
First, you’d submit your earnest money. This tells the seller, “Hey, we’re serious about this purchase.” FYI, earnest money is not your down payment — that goes to your mortgage lender. It’s held until closing and is credited to the buyer.
Next, you’d order an inspection to see if there are any repairs that should be done before closing. The party responsible for the repairs is to be negotiated between the sellers and buyers. At the same time, you’d alert your lender that you’re under contract and begin the paperwork to secure your loan.
After the inspection is complete, you and your lender will order an appraisal to ensure the value of the home matches your offer and mortgage. You’d research and order home insurance (often required by lenders), and schedule your utilities and closing. At closing, you’d bring proof of your mortgage, home insurance, and any required documentation to assume the home title and sign all required documents.
Voila! The home is yours!
Real Estate Marketing Strategies
So, we’ve covered the real estate process from the perspective of both buyer and seller. What about the real estate agent? Agents and agents-to-be, we haven’t forgotten you. This section is dedicated to one of the most important parts of your job — marketing your homes and yourself (and your real estate business).
Pause. What do you mean by “myself”?
Well, being a real estate agent is sort of like being your own entity. You may represent a brokerage or larger firm, but for the most part, you have to sell yourself as an agent, knowledge base, negotiator, marketer, financing guru, and industry know-it-all. Your clients will rely on you for one of the biggest transactions (both financially and emotionally) of their lifetime. You have to be, in their eyes, the best.
Better yet, the more you market yourself, the more you inherently market the homes and properties you represent. It’s a win-win!
Real estate is a unique industry when it comes to building a marketing strategy. Some industries and businesses focus solely on digital marketing methods, while others invest in traditional tactics like postcards and billboards.
In real estate, you’ll likely do all the above. For the most part, the majority of agents don’t define a target audience for their marketing strategy — they simply want clients and buyers. The wider the net, the more people they’ll attract, and the more revenue they’ll bring in and homes they’ll sell.
(Note: This target audience strategy is not typical of most businesses. In most cases, defining a targeted buyer persona for marketing is the way to go.)
So, let’s talk about the different ways you can market as a real estate agent. We’ll break it up by type of marketing and discuss both inbound and outbound methods.
1. Digital Marketing
The world of digital marketing is seemingly endless. Does this mean you should invest in each and every marketing opportunity? Not quite — especially if you’re a new agent. Start out with a few of these strategies and then expand as your commission allows.
Website
A website builds awareness around your personal brand as an agent and markets the homes you have for sale. More buyers and sellers are online than ever before, so if you’re not online, you’re missing out on revenue and clients.
Having an online presence as a real estate agent also speaks volumes about your legitimacy and how seriously you take your job. At the minimum, it should have information about yourself (including a stellar bio), how to contact you, and any homes you’re currently selling.
Blog
Running a blog is another way to attract clients, build trust with visitors, and prove your real estate expertise. Also, the mystery and complexity of the industry can play to your advantage. Your visitors and clients will inevitably have questions and your real estate blog can hold the answers.
Consider making your blog part of your website. This will keep visitors on-site and further market yourself as an agent. When you start your blog, post as often as you want, but however often you choose, be sure you can keep a consistent cadence. Need ideas? Pay attention to the questions your clients are asking or perhaps blog about a home that you’re selling.
Social Media
Did you know that over 74% of agents use Facebook and LinkedIn to market their businesses? Social media is pretty much a non-negotiable in the real estate world, and there are plenty of ways to leverage social media for your marketing. A dedicated page on Facebook can help you connect with potential clients, market your homes, and share your blog content, and an Instagram account gives you a place to share those high-quality real estate photos.
Social media is also a great way to connect with clients personally. As an individual marketing yourself, it’s important to create personal, emotional connections in an effort to get business. When it comes to buying or selling a home, clients don’t just need to know that you can do your job, they need to know that they can trust you, too.
Email is another great way to market to clients, regardless of their demographic or stage in the buyer’s (or seller’s) journey. Whether they’re actively looking for a new home or you simply have their email address from an online form, email can help you stay connected and top-of-mind.
One great way to do this is through an email real estate newsletter. Newsletters are easy, templated tactics that also allow you to get creative with your content. In your newsletter, you can include current homes for sale, client testimonials, fun personal facts, and local events.
Paid Advertisements
There are pros and cons to paying for advertisements, whether about your real estate business or your current properties. If you do choose to pay for advertisements, such as social media ads, banner ads, or even native ads, be sure you’re targeting the correct geographical locations (since you’d likely not work with clients hundreds of miles away).
Consider paying for ads on local interior design sites or family-oriented blogs — or even on your own personal real estate blog. That way, you can know your advertisements are being seen by valuable audiences.
2. Traditional Marketing
In the real estate world, traditional marketing methods are hardly outdated. This is for a few reasons.
Firstly, real estate is a heavily location-based industry. While it might not make sense for an e-commerce business to market in local magazines or on bus benches, it would for local real estate agents looking to work with people in the area. Secondly, traditional marketing methods can be more cost-effective and produce a greater ROI, especially when marketing locally.
Test out a few of these strategies and see what works best for you.
Business Cards and Postcards
Business cards are another non-negotiable for real estate agents. Between open houses, local events, and simply running into people on the street, you’ll likely always be in need of a business card that has your phone number and email address. Real estate business cards also give you a chance to show your personality and stay top-of-mind with potential clients.
Postcards, on the other hand, are super effective for marketing homes for sale. Not only is there ample space for photos and text, but real estate postcards are also easy to pass out, cheap to mail, and quick to read.
Direct Mail
Direct mailers may seem old-school, but they’re actually quite effective in the real estate industry. In fact, direct mail open rates are up to 90% in 2021.
Whether you mail postcards, personal flyers, newsletters, or other content, direct mailers are a great way to target a specific neighborhood or area in your city. It’s a tried-and-true method that can work alone or in tandem with other strategies.
Local Advertising
You can advertise locally in a few different ways. For one, you can pay for local advertisements in magazines, newsletters, bus benches, and billboards. Secondly, you can leave your postcards and business cards throughout your target area, or partner with businesses that will advertise for you for free.
On the other (more creative) hand, consider contributing to local magazines or running a column of your own. This follows the same inbound methodology that blogging and guest posting do, except it targets your neighbors and local clients. It also gives you a chance to build trust with readers and potential clients.
Lastly, door-knocking is another way to build awareness and market to people in your area. Door-knocking is another tried-and-true method of drumming up leads and marketing yourself and your properties for sale.
3. Word-of-Mouth Marketing
Word-of-mouth (WOM) marketing is the most effective tactic for real estate agents. That’s why we’ve made this its own section. Collecting testimonials from past clients is crucial to your business and marketing strategy.
Reviews and Recommendations
Whether you’ve worked with one client or 100 clients, always ask for referrals and recommendations. As you finish with each client, ask for a few sentences about your service and performance as an agent, and request that they submit their testimonials to sites like Yelp, Zillow, and Realtor.com. You can publish these testimonials on your website, too.
How can you ensure solid reviews? Be a great real estate agent. It’s as simple as that. Provide amazing service, do your best work, and make a great impression on clients. Consider going above and beyond with a gift at closing, so your clients will remember you.
Real estate is a prime example of how current and past customers are your very best marketers. By treating each client with exceptional service, you can ensure referrals for years to come.
Real Estate Resources
Whether you’d like to learn more about real estate, you’re interested in becoming an agent, or you’d like to improve upon your business, we’ve got you covered.
If you’d like to prepare for the real estate exam, read:
If you’d like to learn more about real estate, read:
If you’d like to get into real estate, read:
If you’d like to improve your real estate business, read:
Get Real with Real Estate
Real estate is a tricky, complex industry, but it’s nonetheless vital to our economy and lifestyle. Whether you’re someone interested in buying their first house or you’re curious about real estate as a career, it’s important to understand the real estate process and the roles both consumers and agents play in each transaction.
Real estate is an industry that plays by its own rules. As technology, incomes, buying habits, and lifestyles change, real estate will only become more complex and exciting. It’s your job to stay on top of it.
Editor’s note: This post was originally published in January 2019 and has been updated for comprehensiveness.
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