Understanding the changes to listing agreements and agent commissions
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 and compensation:
This change in compensation sharing can feel like a big win for sellers at first glance, but don’t start spending your “extra” proceeds just yet.
The process of buying a home has become more and more complicated over the years. In Virginia, where we are a Buyer Beware state and put the responsibility on the buyer to do their own due diligence prior to purchasing a home, it can be a lot of steps and boxes to check - especially for someone who has never bought a home before.
In reality, buyers still need to hire their own representation and you, as sellers, will want them to do so. The Purchase Agreement is written more heavily in favor to protect the Purchaser. To make sure the buyer of a property understands what they are committing to do by writing a offer its in everyone’s best interest to have an experienced party represent them and aid in their purchase process.
This keeps the buyers from misunderstanding/misinterpreting the contract or its terms, their obligations or your obligations, and decreases the likelihood of buyers getting cold feet and terminating the contract.
The fact is though, the majority of buyers cannot likely afford the amount of cash required upfront to complete a downpayment, pay their closing costs, and pay their representative’s commission. While the commitment to pay a buyer’s agent is now agreed upon by the buyer and not the seller, it is important to consider the fact of buyers’ limits on cash will likely result in a request for their representation’s fees to be covered as part of the purchase; similar to the way they negotiate in closing costs assistance from the seller.
FAQs About the New Listing Agreement and Agent Compensation
What are the changes to the listing agreement?
The compensation to the Buyer's Agent is no longer determined prior to a contract being presented.
The compensation to a buyer’s agent is not done through a cooperating brokerage but is paid at closing directly from the responsible party determined during the Purchase Agreement.
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 as part of the Listing Agreement and openly shared in MLS.
Moving Forward: the agreement of compensation is no longer between cooperating brokers but between the client and the agent. Buyers have agreements with their agent the same as sellers have agreements with their agents for compensation. There will no longer be a field listing a previously agreed upon compensation amount in MLS.
Is a compensation amount listed in MLS?
No, there is no longer a compensation amount listed in MLS or on any third party website that advertising the listing.
How does this change affect buyers?
Buyers now will need to sign their own version of a Representation Agreement known as the Buyer Broker Agreement. They can negotiate the compensation with their agent.
Do buyers have to use a Buyer’s Representative/Agent?
No, buyers may choose to be unrepresented.
The updated Listing Agreement compensates for this possibility and has a potential for a different compensation agreement with your listing agent/brokerage.
Are listing agents now responsible for showing the property to buyers?
If a Purchaser decides to be unrepresented by a licensed Realtor® in a transaction then the listing agent will likely take on the responsibility of showing the property themselves or having a representative from their brokerage show the property. In either case the representative would be from the brokerage that represents you, the seller, and would be working for you.
Can a seller still pay a buyer’s representative’s service fee/commission?
Yes, the seller can directly pay the compensation to the buyer’s representing brokerage 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.
There cannot be a direct mention of commissions paid to agents within the MLS or any third party site.
How does this change affect me, the seller, and my net profit at closing?
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 the buyer’s representative may be negotiated into offers to sellers, similarly to a closing cost credit or any other term of the purchase agreement.
All contracts should be considered on the whole of the terms and net numbers calculated per the individual offers.
What if I a buyer cannot pay an agent?
Buyers may choose to be unrepresented and contact the listing agent of a property directly.
This makes the buyer responsible for managing their own transaction and negotiating all terms themselves.
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.
Do these changes affect me if my home is already listed?
Yes, if your home is listed for sale but not under contract you will need to sign a new listing agreement that outlines the new terms.
Do these changes affect me if my home is already under contract?
No, if your home is already under contract your listing agreement stands in its original form.
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, if you have an active listing that is not yet under contract you will need to sign a new listing agreement to show there is no longer a shared compensation agreement to other brokerages.
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.