September 9, 2024 | 2.5 Minute Read
The major change in real estate commission rules, effective August 17, requires buyer’s agents to negotiate their fees directly with clients. This shift, following a recent federal court ruling, disrupts the previous practice where commissions were split between the seller’s and buyer’s agents.
A Kaplan survey of 300 buyer’s agents reveals mixed reactions: only 20% view the change positively, while 56% consider it a negative development. The remaining 23% are neutral. One agent noted that buyers may struggle to pay both closing costs and agent fees, raising concerns that the new system could deter them from seeking professional help.
I’ve seen firsthand how recent changes are causing confusion among my fellow agents. After listing two of our recent flips, we began receiving showings. The new rule now mandates that buyer agents must have an agreement in place before showing a property.
This agreement can be structured in one of two ways:
Tiered Services: This option offers a range of services at different price points or flat fees, allowing buyers to select the level of support they need. This approach might attract cost-conscious buyers.
Commission-Based Services: In this scenario, the buyer pays a commission based on a percentage of the purchase price. Previously, the seller would cover up to 3% of this commission, but now buyers will be responsible for it.
With many buyers already struggling to cover down payments and closing costs, adding the responsibility of paying their agent’s commission can be a significant burden. While some buyers in competitive, high-priced markets might manage this, others may not be so fortunate.
This issue is evident with our current listings. When a buyer’s agent schedules a showing and then asks if we will pay a commission, it raises several questions:
If we decline to pay a commission, what happens next?
The agent informs the buyer that they can no longer assist with this property and seek other showings.
The agent directs the buyer to negotiate directly with the seller. Now the listing agent has to work with the buyers acting as their own agent. The buyer has no understanding of how to submit an offer and take it through the various steps to close. Should the listing agent now have the burden of advising this buyer? Wouldn‘t this create a conflict of interest? After all, the listing agents sole responsibilities are for the benefit of the seller. This situation could also imply a dual agency role. According to the new rules, the listing agent can not collect a commission exceeding what the seller is paying. Why would the listing agent want to assist the buyer?
The agent renegotiates their agreement with the buyer to have them pay a commission.
Ideally, buyer agents should contact the listing agent prior to showing a property to see whether the seller will cooperate and pay a commission. If the answer is no, should the agent then direct the buyer only to listings where the seller will pay a commission? How does this differ from the past, when buyer agents’ commissions were included in listings, but some agents would not show certain properties based on the lower commission percentage offered? This practice might raise ethical questions or potentially violate state real estate commission codes. Can and will buyer agents do this?
These scenarios bring up more questions than answers.
It appears that these real-life scenarios under the new regulations have not been fully addressed and vetted, and state commissions have yet to provide clear guidance. Only time will reveal how this will all shake out.
As for the buyer agent who showed our property, we agreed to pay a 2% commission and the property went under contract this past week.