NAR: Buyer Commission

There has been a lot of confussion around the real estate class action legal rulings regarding agency commission.  The reasons the charges were brought to bare, the background of agency representation and how the listing contract affects everyone involved.

How Real Estate Agency Works

It is helpful to understand the basis for the foundations of what is termed “Co-Op Agency” and why it is importnat to have evolved to this model. In a nut shell, co-op agency is a model where the listing agent secures an agreement to market a property for the seller in exchange for a sales commission at closing when the home sells. Within this listing agreement, the terms of the commission are drawn up for disposition of the commission fee paid to include a sharing provision for a cooperating agent to be paid from the selling commission.

EXAMPLE:  Seller agrees to pay 6% commission on closing of the sale of which the listing broker agrees to pay 3% to a buyer’s agent for the procurement of the contract that results in the closing sale.  (Co-operation)

Why is Co-Op Agency Important

There are at least three very specific reasons why this works for both the seller and the buyer, and why it is beneficial to the market of real estate.  In order to frame the following reasons properly think market exposure, legal protection and fair business practices… while conducting the most important transaction most of us will vere be a part of.

  1. FIDUCIARY – The agency relationship requires principal fiduciary in order to protect the interests of the consumer.  Whether seller or buyer, there are a host of terms, timelines and steps in making a successful real estate pruchase. Many of the decisions made involve the need for professional advice and leadership of their agent.  Having the exclusive representation of the agenct to protect each of the party’s needs is vital.
  2. MARKETING – Pricing appropriately, positioning against other homes, photography, descriptions, open house, ad placement – not just the MLS – are all important factors to exposure for selling a property. A currently vital part of the process is attracting other agents with their buyers. The Co-Op buyer agency exposure fueled by commission has been a vital factor in gettinmg the most possible buyers into a home.
  3. CONSUMER PROTECTION –  When purchasing a home with the assistance of a buyer agent breads confidence not only in protecting the buyer’s interest in the process, but also in negotiating fair market value.  Skipping an inspection or appraisal, or inadvertentlay waiving your rights to negotiating around concerns favorably are risks that an unrepresented buyer may fall prey to.

In all these things, imagine going into a legal proceeding where one attorny represents both parties, and the attorney was chosen by the other party.   This is a avery real possibility where some version of co-op agency is removed.  Without co-op agency in place, buyers would likely write a contract using the seller’s agent for a price and terms that is dictated by the seller… in a take it or leave it scenary.  Seem far fetched?   Think again!

Currently, it has been a seller’s market with historically low inventory.  We have seen homes selling over comps and over asking by 5% and more.  As a result, home prices have grown dramatically over the past 5 years.  But that does not mean that the appraisal value or even fair market value will live up to the over-asking price paid.  So, when a consumer goes directly to the selling agent by calling the sign or attending open house, they are at high risk of being handled in such a way as to satisfy the seller alone  – higher price, diminsihed inspection or appraisal leverage, agressive timing, post close occupancy, etc.  In short, the Buyer is at risk.

Will Home Prices Come Down Without Buyer Agency Compensation?

Oh, Heck NO!  This is a lie fueled by misinformed governemennt overeach, naive consumers and media headline grabbing.  Supply & Demand will always be the cornerstone of any free market. Include buyer agency representation, sprinkle in interest rates, factor in rental data, and  add local job market with key economic indicators to see that homes will sell what homes are worth in that market  – the Market Always Dictates Price.  So, how in the world could any derive that homes will become more affordable if sellers save 2-3% on a selling commission fee?

An experienced local agent will help the buyer narrow their focus area, features & price as well as help the buyer understand the fair market value so that they can make an informed decision. If anything, without a buyer agent the buyer will be held over a barrel in this houseing shortage and be forced into buying a home above marekt value or be shut out pf the market.