Unless you have been boycotting all media lately (I wouldn’t blame you), you have heard that the rules have changed for buyer agent commissions.
I won’t go into details about the class action lawsuits, but you can read more about the National Association of REALTORS® settlement here.
Today’s home buyers should know:
- What are the new commission rules that I need to follow when buying a home?
- Will I have to pay my buyer agent?
- How does this change my closing costs?
- How will the new commission rules affect home prices?
- Is there any way to avoid signing a buyer representation agreement?
What are the new commission rules that I need to follow?
There is only ONE new requirement for home buyers:
Before an agent is allowed to show you a home, you must sign a representation agreement with their brokerage. They need a written agreement before they can act as your agent. Rules prohibit me from publishing California’s Buyer Representation and Broker Compensation agreement here, but the main point is:
In this agreement, you as the buyer establish your buyer agent’s compensation. Before August 2024, this was usually negotiated between the seller and the seller’s broker. Today, the buyer and the buyer’s broker establish it at the beginning of the agency relationship.
Broker commissions have always been negotiable. The big change here is who is doing the negotiating.
These agreements can be exclusive, where you only hire one agent at a time, or non-exclusive, where you can work with multiple agents. Under a non-exclusive agreement, only the particular agent/brokerage who shows you a property and helps you buy it is the one who is due compensation.
And, that’s really it!
Will I have to pay my buyer agent?
Short Answer
A buyer must establish compensation with their agent in writing, but the seller can still agree to pay it.
Long Answer
In a way, buyers have always paid for agent representation. As the only party who brings money to a transaction, the buyer has always paid for everything, either as an extra cost, or included in the purchase price.
Before August 2024, the buyer agent’s compensation was often included in the home’s purchase price. First, the listing broker would negotiate total broker commissions with the seller. Then, the listing broker would indicate the buyer agent commission in the MLS listing. As a result, buyers didn’t think much about it – they knew that sellers would pay their buyer agent’s commission out of their sale proceeds.
Today, buyers have a choice. You can specify in the purchase contract whether or not your buyer agent’s compensation will still be covered by the seller, and included in the purchase price. It is one of many closing costs that you negotiate with the seller in your offer. (Read more about closing costs here.)
How will this change my closing costs?
Your closing costs may or may not change, depending on what you negotiate with the seller.
Buyers often ask sellers for a seller credit when making an offer, or after the home inspection. This is called a seller concession. These concessions can pay for items such as lender points, other closing costs, and property repairs.
Many sellers understand that buyer agents deserve compensation, and they are willing to cover this cost, to attract offers and get the best price for their home.
In the California Representation and Compensation agreement between you and your buyer’s agent, you can check a box specifying that you don’t have adequate funds to pay the compensation. This means that you will ask the Seller to cover this closing cost as a seller concession. If the seller refuses to cover this cost, then your buyer agent may choose to withdraw from the transaction.
On the other hand, if you do have funds to cover the compensation, then there are three possible outcomes:
- In your offer, you ask for a seller concession to cover your agent’s compensation. The seller agrees to pay for all of it.
- In your offer, you ask for a seller concession to cover your agent’s compensation. The seller agrees to pay only part of it, and you agree to pay the difference as a closing cost.
- In your offer, you do not ask for a Seller concession to cover your agent’s compensation. Whatever fee you negotiated in the Representation and Compensation agreement will be added to your closing costs.
How will the new commission rules affect home prices?
Many love to guess, but no one knows for certain how the market will or will not adjust as a result of this change. If most sellers agree to cover the buyer agent’s compensation, then these new rules may have little to no effect on home prices.
Sellers are mostly concerned with their bottom line – how much they will net from the sale. Many sellers understand that most buyers will not have enough cash available to cover the buyer agent’s compensation. They know that historical sales prices have included brokerage commissions, and they expect to continue to pay for both, so long as they’re satisfied with their net proceeds. The only difference for these sellers is that the buyer agent commission is now negotiated with the buyer in the offer, not with their agent prior to listing the property in the MLS.
Is there any way to avoid signing a buyer representation agreement?
Before August 2024, most California buyer agents didn’t ask a buyer to sign a representation agreement before touring homes together. Today, it’s a requirement.
Nationwide, all REALTORS® are required to have a signed Representation and Compensation Agreement prior to working with a client.
I am a member of the California Regional Multiple Listing Service (CRMLS), the largest MLS in the United States. According to CRMLS rules, agents caught showing a property without a signed Representation and Compensation Agreement will pay a $2,500 fine.
There might be buyer agents out there who are risking fines and ignoring the rules, but all of the rule-abiding agents out there will require this agreement before working with you.
Bottom Line
How it’s going so far: While the NAR settlement and new rules have changed the forms we sign, not much else has changed so far. Buyers continue to value their agents, and sellers continue to value buyers and buyer agents who submit good offers. Check out the home buying services I offer to my clients.
As always, contact me if you have any questions.
