Understanding the changes to Buyer broker agreements
Some changes are coming to the home buyer agreement and the availability to view commission and/or service fees in MLS. As actively searching clients I wanted you to feel prepared for these changes that are coming August 7, 2024.
I've put together a list of top questions with answers that I have fielded from some of you or that my broker has brought up. I have also included some additional resources for you to read through if you'd like to better understand why these changes have been made.
Reframing the way You think about Buyer's Agents:
This change can feel overwhelming and scary. I wanted to reframe the way many are viewing this change and cut through the legal jargon to a more simplistic view of how a Buyer's Agent should be viewed moving forward.
The Gist: You are hiring a service provider to help guide you through your homeownership process, including the legal contract, negotiations, and the transfer of the property.
The Parallel:
Working with a buyer's agent to represent you in a home purchase is similar to you selecting an attorney to represent you in court. You are retaining a service that solely works for you.
Why is this important? If you were to use the same counsel to represent you and your opponent in court it would be hard to tell who the lawyer was really working for. You wouldn't know if you were truly getting the best advice for YOU or if some of what they were suggesting was really benefiting the opposing party. The same goes for having your own Realtor represent you in a purchase to negotiate and work on your behalf.
When you retain an attorney you agree to the legal services and fees from your attorney. However, that attorney can make their legal fees part of the repayment in damages from the opposing party if you win.
The Buyer Broker Agreement is similar; you agree to pay your agent to represent you; if you request it, they can negotiate the service fee into the purchase contract to be paid by the sellers.
I know many of my first-time buyers are thinking that this change will significantly impact their required cash to close and hinder their ability to purchase a home. However, the seller can still pay your agent, we just need to negotiate it as part of the purchase instead of assuming it will be taken care of.
Read on to learn more.
FAQs About the New Buyer Broker Agreement and Agent Compensation
What does the Buyer Broker Agreement do?
First, the Buyer Broker Agreement (BBA) solidifies you as a client of mine and allows me to provide substantive information about a property to you.
Second, the BBA outlines the compensation or service fee to be paid to the agent you are working with (currently me.)
Can you show me homes without a Buyer Broker Agreement?
No, I cannot show you properties without a Buyer Broker Agreement in place.
What if I do not want to sign a Buyer Broker Agreement?
Unfortunately, I am not able to show you homes, nor is any other Realtor able to show you homes, without this document in place. It is now a nationally required document from NAR, our national licensing board, and RAR, or local licensing board.
You may choose to be an unrepresented buyer. This would mean you are responsible for making your own showing requests with the listing agent, negotiating your own terms, and managing the transfer of the property yourself.
Who is responsible for paying my agent?
You, the buyer, are responsible for paying your agent unless you negotiate the payment into your purchase contract with a seller.
How is the payment of compensation different now from what it was?
Previously: there was a blanket commission offered to a buyer's brokerage from a listing's brokerage. This was outlined and openly shared in MLS.
Moving Forward: the agreement of compensation is no longer between cooperating brokers but between the client and the agent, in this case the buyer and the agent. There will no longer be a field listing a previously agreed upon compensation amount in MLS.
Can a seller still pay my agent’s service fee/commission?
Yes, the seller can directly pay the compensation to the agent if requested by the buyer and added as a term in the contract.
A seller may also offer Buyer Concessions upfront in the listing on MLS, which can be applied toward paying the buyer’s agent’s commission if outlined in the terms of the contract.
How does this change affect me, the buyer, and my cash out of pocket?
Compensation to agents is now considered a closing cost on each side of the transaction (buyer and seller) instead of just the sellers side.
The compensation to your agent may be negotiated into your offers to sellers, similarly to a closing cost credit or any other term of the purchase agreement.
If the compensation cannot be negotiated into the purchase contract the buyer remains responsible for the compensation to their representation aka the agent.
What if I cannot pay an agent?
You can choose to be unrepresented and contact the listing agent directly of a property you’d like to see. This makes you responsible for managing your own transaction and negotiating all terms yourself.
Will this change affect the pricing of homes?
We will all be walking this path together as a new transition, both sellers and buyers, so it is uncertain if this will change the pricing of homes. There will need to be some consideration made on a home’s price based on whether the seller is offering any concessions (aka buyer credits) upfront and those are included in the price or if the price is strictly for the home.
As the industry becomes more ingrained with the policy changes we will have a better answer to how the pricing of homes will be adjusted.
What should I do to prepare for this change?
First, set up a meeting to chat through any concerns about the changes with me. You can schedule that call here.
Second, set up a call with your lender to run new scenarios for your closing cost:
Scenario 1: Closing costs with a seller covering the compensation to your agent.
Scenario 2: Closing costs with you covering the compensation to your agent.
Third, if you are just starting your home search and are not yet working with me or another agent you should interview agents to find the best fit for you.
Where can I read more about this change and why it was made?
You can read more about the changes and the reasoning behind them here.