Have you heard about the changes to how everyone in America buys or sells real estate? If you’re planning on buying a home anytime in the future after August 17th, 2024, you need to listen to this. There is a lot of misinformation out there, so I’m going to give you the truth, read the contracts to you, and explain how this whole thing works. So make sure you stay to the very end. Knowing about these changes and how to navigate them could save you from paying a ton of money to a real estate agent in error.
The Old Way: How Real Estate Commissions Were Handled
Previously, when a seller listed a house with a real estate agent, if the seller chose to offer compensation to a potential buyer’s agent, that amount was entered into the MLS for all agents to see and displayed on all websites including Zillow, Realtor.com, etc. The amount offered to a buyer’s agent was never set in stone, typically ranging from 1% on the low end to 3-4% on other listings if the seller was trying to incentivize a buyer or buyer’s agent.
- Seller's Choice: The seller got to choose how much was offered and paid the commission through their listing agent to the buyer’s agent.
- Commission Splits: If it was a 6% listing split between two agents, the listing agent would collect 6% and pay the buyer’s agent half of that, or 3%. It didn’t have to be split evenly; it was whatever was agreed upon in the listing agreement between the seller and the listing broker.
- No Buyer’s Agent: If there was no buyer’s agent, the listing agent was entitled to the full 6% commission unless the contract said differently.
The New Changes: Post-Lawsuit Settlement
Starting August 17th, due to the lawsuit, the National Association of Realtors will no longer allow offers of compensation to be published on the MLS. Sellers can still offer compensation to an agent representing a buyer, but it cannot be advertised in the MLS and will be up for negotiation with every offer.
- Transparent Compensation: Previously, the amount to be paid to a buyer's agent was agreed upon between the seller and listing agent at the time the listing was signed and displayed in the MLS for everyone to see. Now, that compensation amount, if any, is less transparent, can change depending on the offer presented, and will be handled through negotiations.
- Buyer’s Agreement: Before any buyer can visit a house with a real estate agent, they will have to sign a form that specifies how much the agent is getting paid. Technically, it says that if the fee is not or cannot be paid by the seller or listing broker, the buyer is required to pay that fee to their agent. In addition, if this number is lower than what the Seller intended to pay than this number trumps the Sellers commissions. (Do not short your agent friends!) Fortunately there is a MODIFICATION to Commission Agreement available to change these figures throughout the relationship.
- Formalized Relationships: Buyers, just like sellers, now have to sign a contract with the agent representing them. This document formalizes the relationship and specifies the agent’s commission, just like sellers have always done.
Types of Buyer-Agent Contracts
There are two types of contracts approved for consumers to sign with an agent, each with different consequences:
The Showing Agreement:
Think of this as the "We are Dating" agreement. Typically has a shorter timeframe and states that the buyer is hiring the agent showing the house to represent them for that specific house. You can sign this form with multiple agents for different houses, but you can't sign it with multiple agents for the same house.
- Multiple Property Addresses: You can add multiple property addresses on the form and sign this form with multiple agents for different houses if you don’t want to work with one person exclusively. However, you can’t sign that form with multiple agents on the same house; otherwise, you may be obligated to pay both agents out of your pocket.
- No More Random Showings: This agreement prevents you from requesting a showing from a random agent from Zillow or another website, having that agent show you the house, and then buying it with another agent. If you do that, you are potentially obligating yourself to pay the agent that showed you the house the commission that was spelled out in the agreement. It’s important to understand what you’re signing as a consumer so you don’t get sued.
You can’t sign that form with multiple agents on the same house otherwise you may be obligated to pay both agents out of your pocket. This seems fair to me.
No longer will people be able to go to Zillow or whatever other website you want to use, request a showing, have someone open the door for you, and then go have someone else write up the contract. If you do that, you are potentially obligating yourself to pay the agent that showed you the house the commission that was spelled out in the agreement. It’s important to understand what you’re signing as a consumer so you don’t get sued.
We help people all the time that inquire online see homes. It’s a way to get in front of potential clients, they get to see how we work and we get to interview or “try out” for the job of being your realtor. If you like us, you can hire us to keep helping you, if not, there’s no obligation to work with us on any other homes besides the one we showed you.
If you already have an agent you’re working with or want to use, that agent needs to be the one that shows you the house. You don’t get to just use a realtor to open doors for you, then ghost them and have someone else represent you and get paid. Again, you’re opening yourself up to a potential lawsuit by doing this.
The Exclusive Buyer’s Agency Agreement:
Think of this as the "We are Married" agreement. This is a long-term commitment that specifies the type of property and area your agent is helping you with. It states:
"If Consumer contacts or is contacted by an owner or a real estate licensee who is working with an owner or views a property unaccompanied by Broker, Consumer will, at first opportunity, advise the owner or real estate licensee that Consumer is working with and represented exclusively by Broker."
Further, it specifies whatever fee you and the broker agree to work for and states:
"Broker’s compensation is earned when, during the term of this Agreement or any renewal or extension, Consumer or any person acting for or on behalf of Consumer contracts to acquire real property as specified in this Agreement or defaults on any contract to acquire property. This compensation is for Broker’s services for Consumer. Compensation received by Broker, if any, from an owner or owner’s broker for services rendered to Consumer will reduce any amount owed by Consumer per this paragraph."
That part is important. You can direct your agent to include in your offer that their commission be paid by the seller. The seller, if they really want to sell, can still choose to pay the agent’s fee. If you’re a seller and you get three offers all for the same price, all asking for the fee to be paid by the seller, your choice is to either pay the fee and accept the best offer, or not pay the fee, put that cost on the buyer, and risk the buyer potentially walking away from the sale.
- No More Random Showings: This agreement also prevents you from requesting a showing from a random agent from Zillow or another website, having that agent show you the house, and then buying it with another agent. If you do that, you are potentially obligating yourself to pay the agent that showed you the house the commission that was spelled out in the agreement.
If you start working with an agent and decide you want to fire them, even before the expiration date on the contract, you absolutely can. Nobody is forcing you to work with an agent you no longer think is best for you. But it’s important to know what the agreement says again, so you don’t get sued.
This contract has a protection period that protects the agent in the event you cancel it early. It says:
"Consumer will compensate Broker if, within 30 days after Termination Date, Consumer contracts to acquire any property which was called to Consumer’s attention by Broker or any other person or found by Consumer during the term of this Agreement. Consumer’s obligation to pay Broker’s fee ceases upon Consumer entering into a good faith exclusive buyer brokerage agreement with another broker after Termination Date."
This means you can’t hire an agent, make them work and show you houses, and then cancel the contract and buy something they showed you with another agent. If you truly don’t think the agent is working in your best interest and you decide to fire them, you can, but you’d need to prove you did so in good faith and sign another agreement with a different agent.
The contract goes on to further say that the agent is due their commission even if you cancel the agreement if:
"Consumer contracts to acquire any property which, prior to the early termination date, was found by Consumer or called to Consumer’s attention by Broker or any other person."
I’m not an attorney, but I can see it being argued that being called to the consumer’s attention could simply mean being emailed over to them. If you, as the consumer, are acting in good faith, there is nothing to worry about, but the document is clearly worded to discourage people from acting in bad faith and trying to go around people’s back and cut them out after hiring them. Listing agreements for sellers have similar verbiage, so these aren’t new ideas; it's just a new concept for buyers that makes them similar to sellers.
*** There is an additional Modification Agreement to make changes to either of these agreements should the need arise. So as a Buyer, you do not need to feel as though you are locked in and can easily change commission structures to match what the Seller has agreed to cover.
Important Considerations for Buyers
- Agent Selection: The agent you choose to represent you matters. Experienced agents can save you thousands by noticing hidden defects or issues during the inspection. They can also help negotiate credits from the seller for important repairs.
- Avoiding Legal Issues: Understanding what you’re signing is crucial to avoid potential lawsuits. If you sign an agreement with an agent, ensure you honor it or understand the consequences of terminating the agreement early.
- Confusion and Open Houses: With these new changes, there will be a lot of confused consumers and agents and open houses may become a series of confusion, Open Houses are still okay for interested parties to go and view. But to move forward with a purchase on that home you will need an agreement with the agent you choose to represent you . Being alert and understanding these changes will help moving forward.
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Q: Do buyers have to start paying for the services of their Realtor® now as a result of this settlement?
A: The most common practice was for a seller or seller’s broker to completely cover the cost of the buyer broker’s compensation.
To say buyers now have to start paying for the services of their buyer’s broker is a misconception; it is likely the seller and the seller’s broker have already accounted for that cost in determining an acceptable sale price for the subject property, and therefore the buyer was already paying the cost of their buyer's broker compensation through a slightly higher sales price. Now with the NAR settlement changes, it doesn't eliminate commission sharing between brokers altogether but it's more accurate
to say the buyer's broker compensation may not be advertised on the MLS.. But, with that said, Should you as the buyer sign a Buyer agreement with a higher percentage than what the Seller has agreed to pay for a Buyers Broker commission, then you could be liable for the difference. It is important to work with an agent that is prepared to negotiate this difference in commission in either a Modification Agreement to Buyer agreement or to negotiate a Seller Credit into your offer. -
Q: Does this affect Sellers?
Nothing will change for a Seller if they continue to offer a Buyers Broker Commission. But what if they choose to not offer a Buyers Broker Commission?
Potential Buyer Resistance: Buyers may look to pass on homes who are not offering a Buyers Agent commission if they feel they may have to come out of pocket or they cannot afford the Buyers Broker Commission. This could be particuraly difficult for people that finance and have to also budget for closing costs and fees.
Market Perception: Properties that offer lower commissions might be perceived as less attractive by buyer's agents. This perception can impact the property's marketability and may lead to a smaller pool of potential buyers.
Increased Time on Market: With fewer showings and potentially lower offers, the property may stay on the market longer. A longer time on the market can sometimes lead to price reductions or other compromises that sellers might not want to make.
Conclusion
These changes mean that buyers need to be more proactive and informed about their relationships with real estate agents. Choose your agent carefully, understand the contracts you sign, and work with an agent who can provide value beyond just opening a lockbox. If you have any questions about these new forms, what they mean, and how they affect you, don’t hesitate to reach out. We’d love to interview for the job and show you why you should hire me.
