Facebook
X
Pinterest
Copy Link
If you’ve scrolled through the media recently and seen much about the NAR lawsuit currently taking place, you may have thought of some questions about what this means for the industry, market, or you personally. As of August 17th, new protocols will be officially put into place with an aim to increase consumer understanding of the options available when using real estate services. We’ve compiled some answers to the most common questions we’ve heard, which can hopefully help you navigate the home buying or selling process with more confidence post-August 17th.
Why would I pay compensation to a Buyer’s Agent if they are working against me as a Seller?
Buyer Agency hasn’t always been around. It actually started in the 1990s after a lawsuit, known as the Edina Realty case, emerged out of what was the “wild west” of real estate. The Edina Realty case, along with many other lawsuits filed by aggrieved Buyers, highlighted the repercussions and conflicts of interest that were inherent in dual agency (one Agent represents both the Buyer and Seller) and underscored the need for change and exclusive representation. Listing Agents then agreed to share a portion of their commission with the Buyer’s Representatives in return for bringing them a Buyer and taking on that workload.
This agreement proved efficient and beneficial for all parties (Buyers, Sellers, and their Agents). Working with a represented Buyer reduces your liability and increases your chances of making it to the closing table. While the numbers and principle of not offering compensation to another Agent may be enticing, a Buyer representing themselves could prove to be inexperienced, difficult to work with, or even fail to make it to closing, thus wasting your valuable time.
In reality, a Buyer’s Agent indirectly helps a Seller by working with the Buyer to ensure a successful sale. Honorable Buyer’s Agents take on the interests of their clients and want to make a deal work with you, the Seller.
But as a Seller, won’t cooperative compensation hurt my bottom line?
Two of the most cited obstacles for home Buyers are not having enough money for a down payment and closing costs, and income. As a significant number of Buyers are already pushing their financial limits to achieve homeownership, they won’t have extra funds to pay for their representation out of pocket. Unfortunately, most mortgage lenders don’t allow commissions to be added to the Buyer’s loan. As a result, this restricts a significant number of Buyers from being able to consider your home as an option for them.
No matter the price point and no matter whether cooperative compensation is an incentive or a necessity for the buying side, offering compensation to a Buyer’s Agent expands the pool of Buyers, while not offering compensation cuts potential Buyers out. More Buyers correlates with more competition. More competition correlates with a higher sales price.
In a Seller’s market, this boost in demand and purchase price could give you a greater return than the potential savings on cooperative compensation. On the other hand, if you’re selling in a Buyer’s market and not offering compensation — but a Buyer can afford to pay their Agent’s commission out of pocket — they may, in their mind, decrease the value of your home to compensate for that amount and offer a lower purchase price.
In the end, offering compensation is a way to market your home as more attractive to Buyers and generate greater demand and a higher purchase price. We will always give you an Estimated Net Proceeds Sheet when you list and receive an offer so you can see exactly how much you’ll make from the sale.
What value does a Buyer’s Agent provide?
History has shown us the dangers that come with Buyers being unrepresented in a real estate transaction, as they inherently become more vulnerable to exploitation.
While finding a home today is as simple as a quick search online, that’s just the start, and perhaps the easiest part, of the home-buying process. The intricacies begin when a Buyer steps foot in a home. Unless they are experienced and educated about market conditions, appraisals, utilities, surveys, contingencies, property rights, insurance, mortgages, neighborhoods, HOAs, repairs, contracts, negotiations, and know what red flags to look out for in a property or transaction, purchasing real estate solo may present itself as trickier and riskier than it sounds. In some cases, Buyers and Sellers are self-sufficient, have the time and are well versed in these areas, so letting an attorney handle the paperwork is adequate. However, many things could go wrong when buying real estate and having the protection of a trained professional could prove worthwhile for such a large transaction.
A good Buyer’s Agent will make the transaction look easy. That’s their job. They are there to be the Buyer’s trusted advisor, project manager, and coach them through the transaction. The best thing a Buyer can do is do their research when hiring an Agent, making sure they are qualified and knowledgeable in the field. The right Agent will make all the difference and save a Buyer more time, trouble, and money than they will ever have to realize.
Why hire a Buyer’s Agent when I can just have an attorney write my contracts and have the Listing Agent or a Showing Agent open the home for me?
If you want an Agent who doesn’t represent you to open a home for you, you must know both of them owe loyalty to the Seller: the Listing Agent by written agreement, and the Showing Agent by legal default as a Subagent for the Seller. The only thing they owe you is honesty and can only disclose material facts. They are not permitted to give you advice as a Buyer’s Agent could.
Attorneys are available during standard business hours and bill by the hour or offer. When the Buyer and Seller are not personally acquainted, educated about the process, and confident in their terms or the specific property, a Buyer can find themselves spending more energy than they bargained for. Having a Buyer’s Agent who will work outside of standard business hours and knows the best terms to use can save a prospective buyer from missing out on properties and opportunities.
If you are not comfortable navigating the buying process alone or simply would like someone doing the heavy lifting for you, forming an agreement with a Buyer’s Agent will allow you to enjoy the benefits of Buyer Representation. Instead of paying for individual services (i.e. showings, contract writing, etc.), you will have someone that’s there, working with and for you, at all times. Most importantly, you don’t pay unless you get results.
Why does my Buyer’s Agent charge what they do? Is it set in stone?
No, there is no set amount for compensation of a Buyer’s Agent, and compensation is and always has been negotiable. Agents may set their own personal, standard rate based on what they believe their knowledge and years of experience are worth. Keep in mind, Agents also have to factor their operating expenses into that rate and don’t get to keep the entire percentage or fee amount they receive. After the Agent’s brokerage takes their split, the Agent still must pay for their taxes, insurance, membership dues, and travel expenses (plus marketing costs for Listing Agents). The remainder is what they get to net as pay and count toward their livelihood.
As a Buyer, you get to decide what kind of service, experience, and guidance you want from your Agent and what you’re comfortable with and able to pay for that. This upfront discussion with your potential Agent will be for both of your benefits and agreed upon in writing via your ‘Buyer Representation Agreement.’
How will my Buyer’s Agent get paid?
Buyer’s Agents can be paid in three ways:
- Through cooperative compensation offered by the Seller
- Through concessions written into the contract
- By you as the Buyer
What if I can’t afford to pay a Buyer’s Agent out of pocket?
If you don’t have the funds to pay your Agent’s fee, you can try negotiating it into the contract as a concession, or you can give your Agent written permission to only show you properties that are offering cooperative compensation.
Will you steer me toward homes that are paying a commission, or one that’s listed at a higher price than another?
No, we will never steer you toward or away from a home because it will benefit us personally. Not only is this illegal, but in our book, it’s not an acceptable way to conduct business. We promise to uphold ethical business practices and abide by our fiduciary duties (Obedience, Loyalty, Disclosure, Confidentiality, Accounting and Reasonable Care) to our clients. This means your best interest is always the priority.
At C21BB, we genuinely want you to find the property that best suits your needs, even if that means it’s listed for a lower price than another option on the market. If you’re concerned about not being able to pay our commission, you can steer yourself by giving us explicit permission to NOT show you properties that aren’t offering cooperative compensation. You are the driver — not us.
What if my Buyer’s Agent and I agreed on a compensation amount, but I found a property I love that’s offering less than that?
If this situation arises, you and your Agent will need to revisit the topic of compensation. You may be able to negotiate, or you may have to pay the difference out of pocket. You can discontinue your agency relationship at this time and proceed unrepresented, amend your agreement, or plan to pay the remainder for your Agent’s continued assistance in the purchase.
What forms will I have to sign?
Before seeing a property in person, Buyers will be required to sign a ‘Buyer’s Representation Agreement’ or showing agreement, along with the ‘Information About Brokerage Services’ form. We recommend preparing for your home search by setting aside some time to speak with an Agent before you start shopping or schedule your first showing. This will allow you time to understand your options as a Buyer, form an agreement you and your Agent are comfortable with, and prepare a plan.
Your Local Resource
If you have any further questions or concerns about the upcoming changes, we welcome you to reach out. We would be happy to have an open conversation about what all of this means and how we can best work together to help you get the most out of your real estate journey. In the ever-changing real estate landscape, we are always just an email, phone call or text away!
