The side of a transaction most impacted by this settlement will be buyers. And the timing could not come at a worse time for buyers with elevated interest rates and continued rise in housing prices due to supply and demand. Buyers will be the party that will maneuver these changes initially until this all settles out.
The first requirement on the buyer side of real estate transactions that changes with this settlement is that buyers can no longer work with an agent to preview listings without FIRST, engaging the agent they wish to hire through a formal engagement contract. Buyers have always engaged with the agents they work with it just customarily was not an agreement that was entered into until after the buyer was successfully under contract on a property. Going forward, MLS participants (Realtors/Real Estate Agents) can no longer show property to a buyer without this engagement first being established.
The premise of this is to ensure buyers understand what risks there are under this new business model regarding their agents compensation and how it is paid. There are several ways compensation can be paid to the buyer’s agent. The listing brokerage could pay the compensation, the seller can pay the compensation, or the buyer can pay the compensation. Or some combination of the above. So, what are scenarios of how this all plays out on the buyer side.
There are several options buyers will explore and find themselves in. One is a scenario where buyers will be represented in the transaction by an agent and the seller will offer full compensation to the buyer’s agent. This will look much like how transactions play out currently for buyers.
A second scenario could play out where the buyer working with an agent wishes to purchase a home where the seller may pay a portion but not all the agent’s compensation. In this scenario, the buyer could be responsible for making up the difference between what their agent’s compensation is and what the seller is offering.
A third scenario could be a buyer working with an agent and purchasing a property where the seller is not paying any compensation. This scenario would result in the buyer being responsible for paying all the compensation for their agent or making a decision to find another property to purchase.
A final scenario would be a buyer that decides they wish to cover the compensation of their agent without having to worry about the complexities of how it plays out in the transaction. This buyer might use this as leverage when negotiating the price with the seller.
Regardless of the scenario, each transaction is unique and requires the experience of an agent to properly educate and guide their buyer through this new landscape. A lot of complexities that are beyond the scope of this blog.
The intent of the settlement was to bring transparency of buyer agent compensation and how it is paid for purchasers of real estate. This, as mentioned in previous blogs, effectively can reduce the compensation expense of a real estate transaction on the seller and potentially place some or all of the compensation burden on the buyer for the services they receive. It also gives buyers control over the setting of those compensation fees and direction to their agents on how to request the payment of that compensation.
Now more than ever, savvy buyers will rely on the value of an agent, their knowledge, experience, negotiation skills, counsel, transaction management, and legalities and are willing to compensate their agent if the seller does not.
Realtors are still your best asset for protecting and preserving your real estate and the generated wealth creation coming from your home.
