A few weeks back, I wrote a blog about how to spot listings where the seller was willing to pay a buyer's agent a fee. Here is the link, if you haven't read it yet. Basically, if the seller is willing to consider a VA Loan, you can assume that they are willing to pay a buyer's agent commission, because that is required under the VA Loan rules.
Recently, I joined a new brokerage, Segue Real Estate Group, and my broker and some of the principals of the brokerage were kind enough to invite me for a meet and greet with my new colleagues. During this meeting, I shared my thoughts on the NAR settlement, and took questions from my fellow agents. Obviously, this settlement changes the way that business has been done in the residential real estate world significantly. (Commercial brokers and agents have been operating under these same rules for as long as I know.) I figured I would share my thoughts on how to operate going forward under the settlement.
How to do Business as a Buyer's Agent
Buyer's agents are the people most affected by the terms of the settlement agreement. Prior to the settlement agreement, a buyer's agent could look on the local MLS and see exactly how much the seller was willing to pay as a commission to the buyer's agent. Usually, but not always, this was around 3%. After the settlement, that information is no longer available on the MLS or any similar sites like Zillow.com or Realtor.com. Now, the onus is on the buyer's agent to request a commission from the seller.
Maybe biggest change for buyer's agents is actually something that should have been standard practice always. Buyer's agents cannot claim that their services are free, or come at no cost to the buyer (NAR Settlement, Section H, paragraph 58, subsection vii). This was always a dishonest statement, because the buyer's agents' fees came out of the closing costs, which, with the exception of a VA Loan, are paid by the buyers. Now, if you do tell your buyer that your services do not cost them anything, you have agreed to represent them for free, with no compensation expected or allowed. DO NOT DO THAT!
Instead, buyer's agents need to explain to their client's how they provide value to the transaction. Buyer's agents also need to explain that their fee for their services is either X% of the sale price or X dollars. Explain that you will try to get the seller to pay that fee, but if they refuse to pay your fee, it is up to the buyer to pay your fee at closing.
How Listing Agents Can Act Moving Forward
One of the things I didn't expect when I walked into my meeting was hearing that sellers were under the impression that since they didn't have to pay the buyer's agent a fee, they should only pay half of what they used to. A seller not being required to pay the buyer's agents' fee has always been the case. A seller was always free to only pay their agent's fee. In fact, if they can find a listing agent that will work for free, they don't have to pay anyone. Normally, this is known as a For Sale by Owner.
As a listing agent, you owe it to your client to explain why it would be in their best interests to pay the buyer's agent a fee. First, if the buyers are going to have to come up with their agent's fee on top of the normal closing costs (cash), it is unlikely that most buyers will be interested in their home. Also, explain that buyer's agents have an important duty in the transaction by coordinating the with the title company, the mortgage company, and meeting deadlines that are critical to successfully closing the deal. If your seller is still not convinced, explain that it is highly unlikely that a non-buyer's agent deal will close. (Obviously, highly sophisticated buyers, like investors, can probably still close, but that limits the number of available buyers.)
My suggestions is for listing agents to let buyers and their agents know that you are willing to pay a fee. Obviously, I have mentioned advertising that you will accept a VA Loan. However, there are a couple of other ideas that I have had. First, on your yard sign, you can put a statement on there saying, "Seller will Pay X% Commission!". You can even post it on Facebook. Also, in the documents section of the MLS, you can write offer requirements to all prospective buyers. In those requirements, you can mention that seller will not consider an offer with MORE THAN 3% commission to the buyer's agent. That would let buyers and their agents know that the seller will consider an offer with a 3% buyer's agent commission, and it should still be in compliance with the NAR Settlement.
Conclusion
It feels like a brave new world for real estate agents right now because of the NAR Settlement. However, nothing much has really changed. Some lawyers got paid (congratulations), and the world is still spinning. The only thing that has happened is that agents are now required to explain why they add value to the transaction, instead of just expecting a 3% commission. Good agents have always done this, and they have actually added value to the transaction. Bad agents wash out quick. If we all treat each other with respect, everything will be just like it was before.
Thank you for reading my blog. I am a lawyer first, and a real estate agent second. I do real estate litigation, but my focus is personal injury law. If you or someone you know has been injured in an accident...
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