The changes that go into effect as a result of the NAR settlement are quickly approaching, but what exactly does that mean if I'm buying a home - or getting ready to buy? We're here to clear up the confusion and simplify what is happening and what is about to change.
One of the biggest changes that will begin on August 17th is the requirement for written buyer agency agreements. Luckily, this is a practice that we have been consistently doing for many years. In Maryland, the buyer agency agreement, specifically called "Exclusive Buyer/Tenant Residential Brokerage Agreement" specifies the buyer, the broker/agent, and the gives buyer's authorization for the agent to represent them in the acquisition of a specific type of real property. Also specified in the agreement are the terms, such as beginning and end date, termination provision, and most relevant to this discussion is Section 8, Broker Compensation.
In the past, many agents have completed the blanks in this section with a phrase such as "commissions are paid by seller" or "offer of compensation by listing broker," as it has been standard practice for the seller to compensate both listing and selling brokers. However, this is no longer the case. Sellers MAY or MAY NOT decide to compensate buyer agents, which is a separate discussion they will need to have with their listing agent [see our blog post: "I'm Selling My Home: What Changes on August 17th?"]
But now, it is no longer assumed that the seller will be paying both commissions, so you will need to discuss with your buyer agent the terms of compensation once you begin working with them.
What does exclusive buyer representation mean?
Exclusive buyer representation means that you have an agency agreement (not a contract) with your real estate agent or broker, who fully represents you and your interests in the search for and purchase of your new property. Among many other responsibilities, your agent owes you the fiduciary duties of obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care. [Revisit our blog from 2019, "Why You Need a Buyer Agent" for more on this topic].
When you sign a buyer agency agreement, you will need to discuss how your agent will get paid, which leads to the next question.
How are real estate agents paid?
Just about all real estate agents are 100 percent commission-based, with the exception of some limited-service or "flat fee" brokers. We as agents, nor the brokerage we work for, receive any type of compensation until a sale is closed. Then, once the sale has closed, the brokerage receives payment and distributes a percentage of that payment to the real estate agent who facilitated the transaction.
Your agent owes you the fiduciary duties of obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care
So how will this work now? A few options:
1. The seller of the property you are interested in has offered to pay a commission to the buyer’s broker.
2. The seller has not offered to pay a commission to the buyer’s broker, but we include that requirement as part of the offer you make on the property.
3. The seller will not agree to pay a buyer’s broker commission, in which case you would be responsible for paying the buyer broker.
*Please note that commission amounts are not set by law and are fully negotiable.
As your buyer agent, we will help you make informed and educated decisions. For example, we will prepare a comparative market analysis to help you assess the market value of any particular property in which you are interested. That market analysis will also help us negotiate the purchase price and terms most favorable to you. As your broker we can recommend other professionals you may need for the home purchase such as home inspectors, lenders, attorneys, insurance providers, movers, painters, and other local support. Having a dedicated professional to advocate for you throughout the home buying process is a very worthwhile investment for you as you make one of the biggest purchases in life.
Q: Is it required for a seller to offer a commission to a buyer’s broker?
A: It is common, but not required. Many sellers recognize the value of offering a commission to buyers’ brokers and offer to contribute to pay some portion of the buyer broker compensation. Sellers know that buyers benefit from having their broker commission paid by the sellers out of the sale. Sellers also often see the value in having a buyer be represented because the transaction is likely to go more smoothly and close on time. You should understand that while the seller may be paying the commission, my duties as an agent run strictly to you. The seller’s payment allows you to use your cash for a larger down payment or other purposes, because most buyers are not able to finance the brokerage commission as part of their mortgage.
Q: If the seller of a property that I identified for you is not offering a commission to the buyer’s broker, then what happens?
A: In that event, and because we have a signed buyer’s representation agreement, there are a few options:
1. You can make a purchase offer subject to the seller agreeing to pay the buyer’s broker’s commission.
2. You can negotiate a hybrid where the seller may pay part of the buyer’s broker’s commission, with you paying the balance.
3. You as the buyer would pay the full commission, as discussed and previously agreed upon with your agent.
It's worth mentioning that we believe most sellers will take the advice of their agents and continue offering buyer agent compensation, since it is in their best interests to do so, but of course only time will tell.
As always, reach out to The O'Hara Group anytime will more questions on this complex issue - we are always here to help!
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