Transaction Costs In The Real Estate Market
There are significant costs associated with the real estate transactions known as “transaction costs” because they are triggered when a real estate transaction takes place.
Brokerage is one of the most known costs associated with real estate transactions. This cost is typically a charge by a broker. The job of the broker is to make the buyer and the seller meet. The broker also has to assist during the period of negotiations and convey the offers and counter offers between the buyers and sellers. The broker has to ensure that both the buyer and the seller are on the same page. To do so, they charge a fixed percentage of the transaction value from both the parties.
Search costs are another commonly known cost that are associated with real estate investing. These costs include money paid to newspapers and magazines to advertise the property. Nowadays, online portals allow sellers to advertise their properties for free. However, serious sellers use the premium paid services offered by these websites. Hence, there may be a cost attached with that too. Apart from that if the owner of the house wants to rent the property instead of selling it, there may be costs associated with conducting a credit check of the potential tenant to determine the credit worthiness of the potential tenant.
Legal and Administrative Costs
The real estate business requires extensive paperwork. This is because the costs of real estate are extremely high. Therefore when any person transacts i.e. buys or sells real estate, they want to ensure that the deal which has been agreed on in person also finds its way to an agreement in black and white. As such, attorneys and lawyers have to be engaged in the process. In fact, real estate transactions tend to be complicated. This is the reason that there are attorneys that specialize in real estate laws.
Across the world, whenever real estate transactions take place, the government usually adds to the transaction costs by taking a portion of the sale proceeds. The statutory costs of real estate transactions are huge and the most visible component of the expenses incurred during the period. As such, they are also the biggest deterrent to buyers and sellers as they make flipping properties difficult as well as expensive.
Most of the housing transactions that are conducted nowadays are financed using borrowed money. As a result, there are some transaction charges that need to be paid to the lender as well. Consider for instance, the processing fee that is charged by most lenders to process the mortgage agreement. This charge is also a substantial sum usually accounting for 0.15% to 0.25% of the property value. This is the fee charged by lenders for the cost of collecting your documents and running a credit check on them to determine your creditworthiness.