Buyer-Broker Agreements: BE a Dragon in this new Game of Thrones
The new NAR rules that rolled out earlier this year centered around the lawsuits and subsequent settlements involving buyer broker compensation. The premise was by predetermining how much of the commissions the seller agrees to pay in the signed listing agreement to the cooperating broker on the selling side, it constitutes some kind of "price fixing". I personally never saw how that applied since the entire conversation was always negotiable with the seller as far as how much compensation they wanted to pay before signing a listing agreement. Nonetheless, that was the legal premise the decisions were predicated upon.
The new NAR rules that rolled out earlier this year centered around the lawsuits and subsequent settlements involving buyer broker compensation. The premise was by predetermining how much of the commissions the seller agrees to pay in the signed listing agreement to the cooperating broker on the selling side, it constitutes some kind of "price fixing". I personally never saw how that applied since the entire conversation was always negotiable with the seller as far as how much compensation they wanted to pay before signing a listing agreement. Nonetheless, that was the legal premise the decisions were predicated upon. As a result, the compensation to a buyer's broker on a real estate transaction can no longer be solicited on the MLS nor in a public solicitation - from BROKER TO BROKER, that is. It is now completely up to the seller not only on how much they are willing to pay the buyer's broker, but IF they are even willing to make a concession towards the buyer's broker compensation. But most important, the dialogue about the whole subject must be between seller to buyer, or seller to buyer's broker, but no longer listing broker to buyer broker.
What does this mean? As a buyer's broker, your compensation is no longer guaranteed to be paid by the seller, unless it is written into the sales contract. As a buyer's agent, can you present a concession towards your compensation with the purchase offer? Of course. But there is no guarantee the seller will either accept it or perhaps want to revise it in a counter offer.
End result? When you hop in that car and make the conscious decision to start going to work showing properties, you need to know that you might not get paid by the seller in full, or at all.
This is where the Buyer-Broker Agreement, which in the past was a minimally used form for decades, now takes on a whole new life of its own.
This is where the Buyer-Broker Agreement, which in the past was a minimally used form for decades, now takes on a whole new life of its own.Ultimately, after the NAR settlement, the obligation to pay a buyer's broker now rests in the hands of the buyer. Hence, we now look at the Buyer-Broker Agreement with a whole new lens as real estate professionals.
Now, here is where my personal opinion comes in as a current broker and real estate professional for 20 years.
If you want to get paid for your time and your expertise, to earn a living, GET A BUYER-BROKER AGREEMENT SIGNED if you are working with a buyer. There is no other way to look at this. You cannot "hope" that a seller will agree to compensating you as it is now legally and completely negotiable for them to do so. Nor should you expect to bully either the seller or seller's agent into submission based on some fabricated "everyone knows the seller pays the commissions" straw argument. To quote Suzi Orman: "Don't do it, don't do it, don't you dare do it"
You do not want to end up in a position where your buyer falls head over heals in love with a property in which you submit an offer on to later find out that the seller is not willing to pay any or part of your compensation. If so, you have only yourself to blame IF you do not have a buyer-broker agreement signed. Pretty much, if that ends up being the case, your buyer, out of necessity, will figure out a way to circumvent you to obtain that property they love and likely need. And honestly, will you blame them? We all need a place to live and they are only looking out for their household and family if that's the case.
It's a discussion that you MUST have with your buyer. You can certainly explain to them how the whole premise of of the buyer broker compensation has manifested with the NAR settlement as the reason for your needing the agreement signed in order to go to work for them.
With that being said, do I agree with the changes in the law? Absolutely not. I don't think the powers that be, when making these changes to our industry, really had the insight to think this one through. It's tough enough for buyers already, especially first-time buyers, to break into the real estate market and be able to afford their first home. Down payments, escrow fees, title fees, lender fees, insurance, taxes, etc. are quite a bit. And now, on top of the usual hardships, they may have to contend with being able to afford the commission for their agent. This will definitely impact the market.
For one, buyers will certainly start to look towards the listing agent to represent them if they are not in a position to pay commission fees. Most listing agreements have some section that addresses the possibility of representing both seller and buyer in the transaction. I am not a fan of dual representation. Not at all. Why? Because it is literally impossible. When you sign a listing agreement with a seller, your fiduciary begins and ends with them. You cannot have a genuine fiduciary to both seller and buyer. It's a recipe for disaster, most likely in the form of a lawsuit for something along the lines of non-disclosure or mis-representation. So much so that I will follow up with a discussion on dual representation and the dynamics behind that in a separate blog post.
Now, with a buyer-broker agreement signed, can you attempt to obtain a concession from the seller for your compensation to help save your buyer some money? Absolutely. In fact, go for it. It shows your buyer you're doing your absolute best for them, yet at the same time respect yourself enough to validate your work because this is what your do for a living. Respect begets respect.
Keep in mind that according to the new rules, the total compensation you may receive cannot exceed that which is stipulated in your buyer broker agreement.
Touch topics are hard. Choices are hard. But it doesn't circumvent the fact that those discussions and choices MUST be made so that everything is above the table and fairly straight forward without bringing any more anxiety into a place where there is already enough. Purchasing and selling homes is a big-ass deal to buyers and sellers. It's a huge part of their livelihoods and well being.
Touch topics are hard. Choices are hard. But it doesn't circumvent the fact that those discussions and choices MUST be made so that everything is above the table and fairly straight forward without bringing any more anxiety into a place where there is already enough. Purchasing and selling homes is a big-ass deal to buyers and sellers. It's a huge part of their livelihoods and well being. Treat it like it is.
To quote one of my favorite lines from Game of Thrones:
"You're a Dragon. BE a Dragon"
Ralph Gorgoglione - Broker / Realtor
Metro Life Homes / BRE #02009317
(310) 497-9407 / (800) 591-6121
Web: metrolifehomes.net
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