You're Now Responsible for your Agent's Commission

Starting in August, 2024, new rules from a National Association of Realtors (NAR) lawsuit settlement changed the way homebuyers hire and compensate real estate agents.

by Steve Reynolds, Broker Associate

Attention Home Buyers!

I never had to pay an agent before.

Most home buyers didn't. Prior to August, 2024 you were not required to sign an agreement to pay your agent when you purchased a home.
In most cases your agent was compensated by the seller.*

*Technically, compensation is not paid directly to the agent. Commissions are paid to the brokerage. The brokerage then pays their agent.

Why is this happening?

• The National Association of Realtors (NAR) was sued.
• They lost.
• The plaintiffs and lawyers got a bunch of money.

As part of the agreement, the NAR agreed to change some rules about how the home buying process works.

I Don't Want to Pay My Agent

You're not alone. The new rule has been a shock for both first-time and experienced home buyers. Even though most homebuyers want the experience and skill of a buyer's agent, they don't want to (or can't afford) to pay their agent.

How Do I Avoid Paying My Agent?

1. Shop FSBO's (for Sale by Owner)

3-5% of homes in the U.S are sold as FSBO's. Set your Zillow filters to show only FSBO's. You might get lucky and find your dream home.

If you choose a FSBO you should consider hiring an experienced real estate attorney to assist you. Real estate transactions are complicated. The owner may or may not know what they're doing.

2. Go it Alone

The simplest way to avoid paying for a buyer's agent is to not have one. You can deal directly with the Listing Agent and, in theory, save what you would have paid the buyer's agent.

You will likely go up against an experienced agent representing the seller, so brush up on your negotiation skills and take some time to learn how contingencies work as well as contract deadlines and disclosure requirements.

This approach doesn't automatically save you money since the listing agent may end up keeping "both sides" of the commission.

If you decide to forgo a buyer's agent, consider hiring an experienced real estate attorney.

There May Be A Better Way

If FSBO's and going unrepresented aren't your cup of tea, there is still a way to retain the services of an experienced Buyer's Agent and NOT pay them. At least not directly.

The new rules require homebuyers to agree to pay their agents an agreed-upon commission. However, this rule does not prevent sellers from covering your agent's commission. In fact, early reports indicate sellers are still willing to compensate buyer's brokerages.

How to Hire An Agent AND Not Pay Them (directly)

• Search for Seller-Paid Homes*: Many sellers are still offering buyer's brokerage compensation. Have your agent call the listing agent to inquire.
• Negotiate Closing Cost Concessions: If the seller won’t pay the commission directly, negotiate for closing cost concessions to cover the agent’s fee. This means asking the seller to contribute more towards your closing costs to offset the agent's commission.
• Get Everything in Writing: Ensure any agreement about who pays the commission is documented clearly in your purchase contract to avoid surprises.
• Be Open to Adjustments: Be flexible and open to creative solutions your agent might suggest, such as adjusting the purchase price to accommodate commission costs.
• Find the Right Agent: Choose an agent who is experienced with the new rules and willing to help you find homes where the seller is likely to pay the commission.
  

* NAR has issued guidance to the effect that brokers must present all relevant properties to the buyer, irrespective of whether the seller is offering commission.

In other words, agents are not allowed to "steer" you away from a home just because the seller doesn't offer any compensation. It is your choice whether to make an offer on a home where the seller offers no buyer's brokerage compensation.

And remember, even if the seller doesn't offer a buyer's brokerage compensation, you can still make an offer on the house and ask for closing cost concessions that could free up the cash to pay your agent.

Important!

Tell Me More About Buyer's Brokerage Agreements

You can sign an agreement for as little as 1 day or even 1 house. This type of agreement gives you the opportunity to get to know your agent before committing to a more exclusive, longer-term arrangement.

Showing Agreement

Once you feel comfortable with your agent, you may choose to sign a Buyer's Brokerage Agreement. You can still negotiate the duration and compensation.

Buyer's Brokerage Agreeement

Short term

Long term

Everything is Negotiable

All terms of the agreement are negotiable, including compensation. If you're not comfortable with your agent's terms, you can negotiate or look for another agent who may be a better fit.

What's in the Buyer's Brokerage Agreeement?

Duration of the agreement: Specifies the time frame the contract covers, providing both parties with a clear understanding of the length of their commitment. Generally includes a termination clause that gives both you and your agent the ability to walk away from the agreement under specified conditions, or the agreement terminates automatically at the end of a specified period.

Agent responsibilities: Lays out the duties of the real estate agent, such as searching for properties that fit the buyer’s criteria, arranging showings, and assisting with the negotiation process.

Compensation: Spells out the amount of compensation and how the agent will be paid. It’s important to understand that this is negotiable, and not set by law. Common arrangements could involve the agent receiving a percentage of the purchase price, or a flat fee agreed upon by all parties.

Buyer commitments: Spells out what is expected from the buyer, such as working exclusively with the agent and providing prompt feedback on property listings and visits.

Example 1: You decide to make an offer on a $500,000 home and agree to pay 2.5% compensation to your brokerage. This would result in $12,500 compensation to your broker. Now let's say the seller of the home agreed to pay 2.5% to any buyer's brokerage for securing a buyer for their home. In this case, you would not pay any direct compensation to your agent.

EXAMPLES

Example 2: Same as above, but the seller offers just 1.5% compensation to a buyer's brokerage. You would be responsible for compensating your brokerage the difference between what you agreed to (2.5%) and what the seller offered (1.5%). In this case, you would be required to compensate your brokerage 1% of the purchase price (or $5000). To offset this you may negotiate a closing cost credit from the seller.

Example 3: Same as above, but the seller offers zero compensation to a buyer's brokerage. You would be responsible for compensating your brokerage the agreed upon amount of 2.5% ($12,500 in this example). To offset this you may negotiate a closing cost credit from the seller.

Be transparent with your agent about this. While the seller may not offer your broker compensation up front, that doesn't mean it can't be negotiated into the deal. If the seller doesn't offer compensation, you might:

What If I don't have the cash to pay my Brokerage?

Ask for closing cost concessions from the seller, freeing up the cash to pay your brokerage.

Walk away and choose another home.

Ask the seller to pay your broker directly. Remember, everything is negotiable.

Types of Agreements

Exclusive

Non-Exclusive

• Buyer commits to only working with one agent.
  
  
• Agent is able to devote more time and effort to finding the right property for the client.
  
  
• If you buy a home during the buyers agreement contract term, agent is owed the commission as outlined in the agreement.
  
  
  
  
  

• Buyer can work with multiple agents.
  
  
• If buyer views specific properties with agent, buyer must conduct the transaction using that agent.
  
  
• You are not bound to any one agent.
  
  
• This agreement can lead to increased competition and potential conflicts with other agents working with the same client.

Summary

• Buyers must sign a Buyer's Brokerage Agreement before touring homes. (Exception: Open Houses)
• Compensation, duration and terms are negotiable.
• Buyers must agree to compensation terms with their agent/brokerage, opening up the possibility that buyers will cover the buyer's brokerage compensation.
• Buyers and sellers are still adjusting to these new rules, so talk to your Realtor about the best approach for your situation. Seller may still offer compensation to your agent's brokerage.

Common Terms

Sellers

Buyers

Listing Brokerage: The local brokerage office you choose to work with to help sell your home (Dalton Wade, ReMax, etc.).

Listing Agent: Your agent. They work for the Brokerage representing you in the transaction.

Seller: The person selling the home.

Buyer's Brokerage: The local brokerage office the buyer agrees to work with.

Buyer's Agent: The local agent representing the home buyer.

Buyer: The person buying the home.

Listing Agreement: The contract between the seller and the listing brokerage that spells out terms, responsibilities and compensation.

Buyer's Brokerage Agreement: The contract between the buyer and the buyer's brokerage that spells out terms, responsibilities and compensation.

Stephen Reynolds, Broker Associate

Making sense of these new rules can be difficult. If you're thinking about buying a home and would like to explore the possibility of working together, I'd love to help.

Questions about fees, commissions or anything real estate related?

Stephen Reynolds, Broker Associate

813-505-6796

steve@iownthis.town

Phil Wade, Broker

260 1st Ave S

St Petersburg, Fl 33701

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