The Department of Justice, MLSs nationwide, and the NAR have "agreed" (via lawsuit) to changes in buyer-agent compensation. Here's how it effects you.
If you are a seller:
1. A buyer-agent can NO LONGER show any properties without a signed buyer-agency contract. That contract will specify what the agent will do for the buyer, how long that contract will remain in effect, and how much that agent will be paid. Very much like a listing contract. All of us are in the same boat here. Here is the buyer agent contract that Gibson Sotheby's International Realty will use.
2. How long will the contract last? We don't know what will become the norm, but I would say 90 days. If a buyer is just starting out with an agent, it would be possible to "date" them (i.e. have a short contract term) for a chosen short timeframe. If they purchase any of the properties they have seen with that agent, they will be *legally obligated* to purchase it with them for 90 days after that showing.
3. Will buyers always be paying buyer broker compensation? NO. Sellers will have the option to decide if they are willing to offer compensation as part of the price, and how much. However, as part of the DOJ settlement, they are not permitted to advertise number in MLS. Buyer-agent compensation from sellers included in the price will now be specified in offers to purchase. It will be up to the seller to choose the offer that nets them the most money and is most likely to get them to the closing table, meaning the cleanest offer. Just like it does now.
3. Will the buyer-agent be able to collect more than the fee stipulated in the contract if the seller is willing to include the buyer-fee? No. If the buyer has signed a contract at 2.5% and the seller has agreed to include compensation of 2.5% to a buyer agent in the selling price in the offer, the buyer agent cannot collect more than the 2.5%.
3. Buyer-agent compensation can no longer be displayed in MLS under the terms of the DOJ settlement. One of the suits centered around sellers being "forced" to pay buyer-agent commissions. Whatever you think about that, MLS cannot legally do it. So ironically, with no specific offer of compensation in MLS, there is now less transparency. Some sellers may still attempt to publicly offer compensation, but we warn you that are exposing youselves to possible lawsuits or prosecution. DOJ is looking to make examples. Gibson Sotheby's will protect our sellers and agents by complying with the terms of the settlement.
In our new listing contract, we will not include a specific buyer-agency fee, but we will include the language: “Seller may be willing to provide Buyer with financial incentives in the form of closing cost credits or other compensation. This is meant to signal the Seller’s willingness to consider all offers. Seller will be free to accept or reject any offers based on price, terms and conditions not acceptable to the Seller." That language will be placed in MLS as well.
Additionally, if you are making a specific offer of compensation or closing credits, an unrepresented buyer could claim those for their own. Nice, huh? So not a good idea.
4. Who has been paying the buyer agent commission for all these years? It's a misconception that the seller has been "paying" the fee. Not to split hairs, but yes, it came out of the gross proceeds. The buyer brings all the money. They pay everything that is on the settlement sheet, and that money gets disbursed to the seller, the banks, the listing broker, the attorney, and everyone else. The listing broker disbursed the commission to the buyer-broker. The commission has been included in the price, so the buyer was able to finance it. In most cases, depending upon the listing, I would have split the commission equally with the buyer-agent.
5. So who will pay as of 8-12? The difference essentially is that the buyer agent fee will not be baked into the price, unless the seller is willing to include some or all of it as part of the transaction as they do now. Otherwise, as of next week, buyers will not be able to finance the buyer-agent fee. There are possible workarounds, such as seller-provided closing costs (may vary with lender) but if the seller is not including the fee, buyers more than likely need to write a check to their buyer-agent at closing. Which, If they purchase a $1,000,000 property means that they will need to cut a check for $25k (if 2.5%) to the buyer brokerage. This would be on top of the down-payment. Obviously, that will cut down on your available audience. Sellers will need to decide what their best course of action is when reviewing an offer. Once again, it seems obvious that the negotiated terms will include the highest net (whether or not there is a fee involved) and the terms that are most likely to get the transaction to the closing table.
6. What about if the buyer is unrepresented by a buyer-agent? An additional consequence of this is that there will be a coterie of buyers who will try to do this themselves rather than having the guidance of an experienced agent such as myself who's done this hundreds of times. That means that many of these buyers will not know how to handle a transaction, or how to defuse the various pitfalls and solve the problems that come up in these transactions, or even how to solve problems in their own best interest.
For sellers, you want a buyer agent involved. Not only do they bring you the buyer, but they have a fiduciary relationship with their client, the buyer, based upon trust in their skills and abilities, and they will be able to guide and advise their client, which a listing broker really cannot do (Their fiduciary responsibility is to you). Whereas that buyer may be sort of a loose cannon without having guidance, their agent will be able to help keep the transaction running. That's just a small part of the reason you as a seller or a buyer want an experienced buyer agent involved. It takes skill and time to keep these transactions on the rails and there is additional risk of liability to both the seller and the listing agent if the listing agent needs to work directly with the buyer. Even the smoothest transactions have potential minefields. As a listing agent, I am very sensitive to the quality and experience of the buyer-agent, and working directly with buyers on my listings is something that I'm wary of. The listing agent has the obligation to get the best price and best terms for the seller. Period.
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