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Who Pays a Buyer's Agent Commissions When Buying a Home?

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Real Estate Agent with Value Added Service, 602-620-2699 SA5376460000

For decades, the answer to this question has been "the seller."  But in reality the seller's agent and the buyer's agent commissions have always been included in the price of the home.  So technically, the buyer has been paying real estate commissions for both sides of a real estate transaction - for decades.   

When a home sale closes, commissions for the buyer and seller agents , seller closing costs,  prepaid taxes, insurance and HOA fees are deducted from the seller's proceeds.   So in essence the buyer paid a higher price, but the costs were deducted frm the seller proceeds.

With the recent lawsuits, there have been many misleading headlines.  Some have said that there has always been a standard commission.  It's understandable because everyone thinks we earn a certain percentage, but nothing could be further from the truth.   Real estate commissions have always been negotiable.   Some agents have used the word "free" to describe buyer's agents commission, which isn't accurate either.  

Other headlines have stated that real estate prices will drop.    How?  A home seller isn't interested in dropping their prices just because a lawsuit took place. They may decide not to pay a buyer broker, but that doesn't necessarily mean they want to sell for a lower price than their neighbor.   A home seller wants the most they can get when they sell their home.   

Eighteen states have already passed laws that will make it illegal for a real estate agent to show a home without a buyer signing a Buyer Broker form.  The form stipulates how much a real estate agent will charge a buyer should the seller decline paying a buyer broker commission.  Arizona has a Senate Bill pending on this same topic.  When passed into law, it won't matter if an agent is a member of the National Association of REALTORS® (and thereby use the title "REALTOR®) as the law applies to every real estate agent or REALTOR® showing a home.  

August 17, 2024 is the effective date changes will take place.  Buyer Broker Agreements must be signed by Buyers; MLS's will stop sharing the % or fee a buyer broker may earn on residential real estate listings.  

So how will a buyer's agent know if a seller is paying a commission?  Since one of the stipulations of the lawsuit is to stop sharing buyer broker commissions in MLS's, a buyer's agent must contact each listing agent prior to showing a home and ask if they are paying "seller concessions, which might include commissions."  Heck, an agent has to set up appointments anyway to see homes so just add that one more step and you're good to show homes.  

Buyer Broker Agreement to be Revised

What happens if a seller doesn't want to pay a commission and a buyer wants to see that home?   An agent is obligated to show the home regardless of who is paying a commission.   The buyer is made aware that a seller will not pay for the buyer broker commission and the buyer can decide if they want to see that particular house since the buyer would be paying their own agent the agreed upon commission stipulated on the Buyer Broker Agreement.

What happens if a seller is paying a higher amount/percentage than the agreed amount or percentage on a buyer broker agreement?  The buyer receives the extra commission at closing!   

What happens if a seller is paying less than the percentage/amount that the buyer agreed to on the Buyer Broker Agreement?  The buyer will pay the difference between what the seller is offering and the amount agreed to on the Buyer Broker Agreement.  The buyer will be made aware of that difference before even seeing the home.  

It might seem likely that if a seller doesn't pay a commission, a buyer might move on to another home that is similar and is paying a commission, so the buyer can save that commission fee.  Then doesn't it seem plausible that sellers might continue to pay buyer broker concessions/commissions?   

If a seller is not receiving showings, they might consider if paying a concession that includes commissions might be a good idea and increase their showings and likely a real estate sale.   

But remember, a real estate agent is duty bound to show any home that a buyer wants to see, commission or not.  So ultimately, the buyer will decide if they want to see a home, not paying a commission, but must pay it themselves.  

Bottom line, a buyer MUST sign a Buyer Broker Agreement to know what a Buyer's Agent will charge and the buyer will decide if they want to see a home not paying a commission.  The buyer is made aware of the commission charge up front and they will ultimately decide if they will select a house that is or is not offering seller concessions that also include commissions paid for by the seller.  MLS's will no longer show commissions payable to a Buyer's Agent.  

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Ed Silva, 203-206-0754
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

The industry is in a state of flux, but all that really happened is the awareness to buyers of the possibility of having to pay an agent's commission to ensure they get treated properly with their purchase.

May 18, 2024 09:47 AM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good morning Jan,

A great explanation of our industry that is in flux. Open Houses will be interesting..so many details to be ironed out and it sure it will take awhile!

May 18, 2024 10:07 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices California Properties - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Jan Green - Scottsdale, AZ  yes I have heard about the VA nevertheless the veterans will still get the short end of the stick using a small example of $3000 commission on a 20 year or 30 loan becomes quite large, Endre

May 18, 2024 12:15 PM
Kat Palmiotti
eXp Commercial, Referral Divison - Kalispell, MT
Helping your Montana dreams take root

Well laid out post about the way the process will work for a buyer's agent commission!

May 18, 2024 12:35 PM
Kathy Streib
Cypress, TX
Home Stager/Redesign

Hi Jan- can you imagine how confusing it's going to be for the buyers and sellers. The savvy professional agent will find ways to make it easily understood and for all parties to walk away with a win-win situation. 

May 18, 2024 12:54 PM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Veyr true Ed Silva, 203-206-0754 !  Making sure that agents color within the lines is the name of the game!

May 18, 2024 01:18 PM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Yes it will Dorie Dillard Austin TX .   Time will tell.  The 2 day ABR course I took this week was taught by the Pres of one of our associations, so first hand information for our state. 

May 18, 2024 01:19 PM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Very true Endre Barath, Jr. and that was my first concern, along with those who can't afford buyer commissions.   Mortgage pros tell me that they are working on a program to include commissions in mortgages.  We shall see. 

May 18, 2024 01:20 PM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Thank you Kat Palmiotti .  As I've stated in other comments, I took a 2 day ABR course taught by the President of one of our Associations.  She's a dynamo and was uniquely insightful thanks to her position in the industry.   It will be interesting to see all of the fine print later. I've seen glimpses of the forms to come.  More paperwork - ugh!

May 18, 2024 01:22 PM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

That is the hope Kathy Streib and for agents NOT to try a work around.  I'm hopeful that when the dust settles, it benefits everyone.

May 18, 2024 01:22 PM
Kathy Streib
Cypress, TX
Home Stager/Redesign

May 18, 2024 05:19 PM
Jan Green - Scottsdale, AZ

Thank you so much Kathy Streib !  I appreciate you!

May 20, 2024 09:01 AM
Brian England
Ambrose Realty Management LLC - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

Having forms that cover all of the legal stuff is certainly a benefit that I appreciate.

May 19, 2024 06:22 AM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

Mass Media has made a mess of our Brokerage Fees ( Commission) . I have Sellers waiting until July to put their house on the Market; so they can get the reduced commission that their Newspaper ( apparently some still read these ) said they would get !..

May 19, 2024 07:53 AM
Leanne Smith
Dirt Road Real Estate - Golden Valley, AZ
The Grit and Gratitude Agent

A very detailed and yet simple explanation of the results of the current settlement results. As the end of the day, the buyers will potentially lose more than the sellers not gain more per all the hysteria in the media

May 20, 2024 06:55 AM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Definitely Brian England .  Some forms will be deleted and some will have major overhauls.  Having volunteered on the SPDS committee, before I can only imagine how hard everyone is working to meet the deadline to get MANY forms updated.  Bright minds for sure!

May 20, 2024 08:55 AM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

That's crazy Michael J Perry! 

 

Indeed Leanne Smith .   Yet another reason for agents to be well informed.  Home sellers that think they'll be saving thousands need to be sure and hire an educated agent who understands the results of the lawsuit and potential repercussions.  When the dust settles, buyers, as you point out, won't benefit as much as sellers think they'll benefit. 

May 20, 2024 09:00 AM
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

Our world is changing but we will adapt and survive.                                     

May 25, 2024 04:01 PM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Yes indeed John Juarez !  There will be laws to make sure agents stay in their lanes.  It will be interesting to see how this all shakes out. 

May 25, 2024 06:12 PM
Elyse Berman, PA
LoKation Real Estate - Boca Raton, FL
Boca Raton FL (561) 716-7824

Interesting Jan Green - Scottsdale, AZ .  It will be interesting to see what happens when the dust settles

May 26, 2024 02:43 AM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Yes it will.  I'm pretty sure I have a good handle on it.  The VA is temporarily allowing veterans to pay our commissions, but will know more soon.  

May 28, 2024 05:40 PM