How about all this new “buzz” about real estate agents settling a big anti-trust lawsuit and now we have a new way buyers’ agents are to be paid?
What does it really mean? Great question! Honestly, I think that will be answered more in the months to come (probably next year or the year after), so we’ll see what it really means as time passes. But for now, it means that you will be presented with new forms to sign before you are able to tour a home with the agent you ask for help. Imagine that! No actually, I’m serious. If you are a buyer, this new change in response to the lawsuit settlement probably affects you the most.
The National Association of Realtors, which is our trade association, has agreed in their settlement that agents will not tour a property with a buyer without first having them sign an agreement that outlines how payments of commission work and give them a chance to negotiate their fee. The Department of Justice and those who brought the lawsuit have it as a priority that buyers will be in the “driver seat” as far as the commission paid to their own buyers’ agent.
How This Affects the Buying Side
They want to make sure that buyers are the ones doing the negotiation for the services that they are obtaining. Therefore, as you approach your purchase in the next season, you should expect a buyers’ agent to explain this process to you and share with you how much compensation they are requesting for the services that they are getting ready to perform for you.
Of course, compensation is negotiable. It always has been, it will continue to be, and it’s never set by law. The change from the past is that in most cases, sellers were encouraged to agree in writing to allow their listing agent to split the commission they paid with a buyers’ agent, in an amount stated in the listing contract. This too was negotiable, and the amount being offered in a split was stated in the MLS listing for other agents to see. Buyers’ agents would usually receive their commission payment from the purchase of the property rather than ask the buyer to pay their fee directly. One of the areas we will be watching to see how it is affected by this settlement is how commission can be paid. This compensation you will be paying your buyers’ agent is not allowed to be in your loan at this time, so it will be cash. You will need to bring that amount as part of your closing costs.
However, you are still allowed the option to request in your offer that the seller pay your buyers agent on your behalf. In this case, if the seller says no, you the buyer would be responsible for compensating the agent representing you. Actually, this has always been the case in the state of Tennessee for many years. So, what can I say? the more things change, the more they stay the same, perhaps?
How This Affects the Selling Side
As far as the selling side, what changes can you expect if you are the seller? Previously your listing agent negotiated compensation with you that included a portion set aside for the buyers’ agent. The list agent was paid and then out of that commission payment, the listing agent’s company paid the buyers’ agent company. This can still be done. However, the heart of the lawsuit settlement is intended to give buyers the ability to be part of this negotiation over what is paid to their agent. Therefore, buyers are being presented with the responsibility of having their own agent paid whether they pay it as part of their closing cost in cash, or whether they are requesting it as a concession from
you as the seller in their purchase offer. You can take one of three approaches, and each choice comes with its own pros and cons:
1) Insist that all buyers pay their own agent. The pro is that you might realize more money with the sale of your property. The con is that your buyer pool is smaller as the buyer has to have more cash to close so the buyer has less money for the purchase overall.
2) Consider each offer and negotiate a buyers’ agent compensation based on the merit of each offer. Pro: you are in the driver’s seat. Con: when agents call to see if you are offering compensation, they will report back “maybe,” so the buyer may not be excited about seeing your property if they are short in cash for closing. If the buyers asks for compensation for their buyers’ agent, they may ask for more than what you would have wanted to give and now you may find yourself countering an offer cutting back the buyers’ agent compensation and the total price as well, leaving disappointed parties on the other side.
3) Predetermine that you are offering a buyers’ agent concession and have your listing agent share that with every agent and every buyer who inquires on your property. The pro here is that buyers and buyers’ agents feel positive toward you and are more relaxed to consider your property. More buyers can afford to close with less cash (remember, buyers cannot put commission in their loan at this time). You can set buyers commission a little lower and they will be excited as it is “sure deal.” The con is that you may have been able to realize more money in sale if you paid no buyers compensation.
In conclusion, time will tell how this effects real estate sales. In the meantime, the best advice I can offer is to stay positive, flexible, and ready to learn! Tennessee real estate is a wonderful asset and makes it all worth it as you enjoy the benefits of land ownership in the years to come!
