Net-Net for Buyers & Sellers

Chances are you’ve heard about the $418M NAR Settlement that is the culmination of a lawsuit brought over the transparency of Realtor compensation.   Here is the net-net on how the changes (implemented on Aug 17) will affect buyers, sellers and their agents.

First, the most important statement of all:   Commissions are not set by law and are fully negotiable. They always have been, and these changes are for the purpose of making this concept more transparent to the consumer.

Second, a home’s value is determined by what a ready, willing, and able buyer offers and a seller agrees to.  Again, negotiations.

Third, no consumer who values the service provided by real estate agent of choice would ever expect that their agent will provide their professional knowledge and services out of the goodness of their heart.  When representing the Buyer, real estate agents get paid for our services at the completion of the transaction.  In the past the amount we were paid was determined by the seller and shared up front on the MLS listing.  In fact, as a member of the MLS previously, you could not even list your client’s property without some indication of compensation.  

That is one of the changes.  Agents can no longer see upfront on the MLS what compensation is being offered by the seller, if any.  In order to show properties, Buyer’s Brokers need to do two things:

1. Get, in writing, an agreement that the Buyer is ultimately responsible for paying their agent’s compensation.  The amount is totally negotiable between the Buyer and Buyer’s Broker (or their authorized agent) and must be in writing PRIOR TO SHOWING THE FIRST HOUSE.
2. To begin contract negotiations, the agent needs to find out from the Listing Agent what compensation (if any) is being offered by the seller.  Offering to pay the Buyer’s Broker is a strategic move on the seller’s part.  The seller doesn’t have to and is encouraged to consider paying it in the transaction.  A savvy Buyer’s Broker will negotiate the agent compensation as part of the transaction, allowing the Buyer to keep their cash reserves.

What remains the same is consumers can still expect that Brokers representing Buyers, just like those representing Sellers, will get paid.  It is now a matter of a conversation, in advance of showing homes, that will be taking place (as opposed to agents taking for granted that they’ll get paid whatever the seller is offering). Please plan to sit down with your real estate agent to have this compensation conversation prior to seeing the first house.

The net-net of what’s changing for the consumer is simply a mindset change.   I mentioned above that a home is only worth what a buyer and seller agree to.  Essentially, the buyers have always paid the broker compensation as they bring the money to the transaction, and it is a line item in the transaction. Now the savvy agent will work more closely with the Buyers (especially first-timers) to make sure that part of the transaction is understood, and both parties are aware of where the funds originate.  As before, it could be cash at closing, included in what is financed, or it could be considered a concession from the seller.

Regardless, it’s important for the consumer to know the value of having a savvy, knowledgeable agent in their corner to guide them through the transaction. 

Avoiding costly transaction and negotiating pitfalls … still priceless.

 
*Buyer’s Broker is used in this blog to recognize that all compensation funds are paid to, and collected by, the Broker and are thereafter distributed to the Agent actually doing the work.