As more brokers and agents consider moving away from the collaborative compensation model, many are wrestling with some tough questions, perhaps the most troubling of all: What if the seller only pays a portion of the buyer’s brokerage fee, or none at all?
According to Anthony LaMacchia: Lamacchia Real EstateHe and his agents have seen fights over buyer’s agency fees for years, which highlights the importance of signing a buyer’s representation agreement, which will soon be required by law. National Association of Realtors (NAR) National Commission Litigation Settlement Agreement.
“That’s why all of this needs to be negotiated before the sale closes,” LaMacchia said. “Attorneys, Department of Justice “Everybody thinks this is a good thing for buyers and will save consumers money. But I don’t think any buyer wants to see a house where they have to pay an agent out of their own pocket. So you have to have that conversation when you make an offer and again when the contract comes back. You have to make sure you’re both on the same page.”
While some buyer’s-side agents are hesitant to discuss compensation with their clients, industry leaders say compensation negotiations are no different from other negotiations agents have every day. They’re already negotiating things like the length of the contract, whether sellers can move in early and whether appliances can be included in the deal, said Sharan Srivatsa, president of Real Estate Brokerage. A genuine middleman.
“If the buyer can’t or doesn’t want to pay out of pocket to pay an agent, the buyer may be willing to increase the purchase price and work that into the contract. Alternatively, the seller may agree to a lower price if it means they don’t have to pay a buyer’s agent’s commission, so the buyer has the money to pay the buyer’s agent’s commission,” Srivatsa says. “But most importantly, buyers don’t like surprises, and a buyer representation agreement ensures that the buyer doesn’t get any surprises regarding the amount they owe their agent.”
Although a buyer representation agreement will outline the services the agent will provide and how they will be compensated for those services, the agent should not expect that it will always go that way.
Real estate agents encounter situations all the time where a buyer and agent agree on a 2 percent commission, but the home seller who makes an offer only pays 1.5 percent, said Chuck Cain, a real estate attorney and executive director of the National Association of Realtors. FNF Group Companies.
“Would that buyer’s broker say to the buyer, ‘Well, I want you to cover the other half,’ I don’t think that works very well in the business world. The buyer’s agent will end up giving in and probably covering the difference. They can and have the ability to make the contract pay that amount. That client will never refer them to their friends and may end up getting slammed on Google.”
If an agent isn’t willing to compromise, it can be a regular source of trouble in the industry.
“Conflicts between buyers and buyer agents are inevitable because not all agents are competent, honest or professional, and not all buyers are people with good ethical values,” writes industry analyst Rob Hahn. The infamous R.O.B. Email Newsletter. “Top Buyer Agents who bring tremendous value receive the full contract amount (per Buyer Agent Contract). Unprofessional fools who create more problems than they solve get paid less.”
In Hahn’s view, over time the industry will sort this out, and incompetent agents will be weeded out, receiving little sympathy from good agents when they inevitably take a pay cut for providing substandard service to clients. Still, Hahn doesn’t necessarily expect a surge in litigation over these kinds of disputes.
“In some cases, a buyer will say, ‘You promised me 2.5% commission, but it’s going to cost me more to move and the transmission in my car just died… so… um… how about $500?'” Hahn writes. “Even honest, professional agents are faced with a no-win situation: Do I sue my client, fearing the impact on my reputation and the industry? Or do I hold off and try to get the buyer to back out or close the deal for a significantly reduced fee?”
CEO James Dwiggins said: Next HomeWhile he agrees that such disputes will, and have, arisen, he feels there is a simple solution: If using a real estate agent, buyers should only purchase homes that they can afford to pay for the agent out of their own pocket, if necessary.
“Before the settlement, this was already happening because there were 16 states that required a buyer’s agent agreement,” Dwiggins says. “As it stands, if a buyer wants to buy a house but can’t afford the agent’s fees, they can’t buy the house unless they go along with their offer. If a buyer signs a contract with an agent and says they’ll pay X amount of money, but the seller doesn’t pay that amount, they can’t buy the house.”
