If you’ve been thinking of buying or selling a home, or you watch, read or listen to the news at all, you may have heard changes are coming to our industry this month. In fact, these changes take effect nationwide on 8/17, but will start to be put in place here in Central Virginia 8/6. So what are the changes, and how might they affect you?
The who, what, and why…
The biggest change is the “decoupling” of commissions.
What the heck does that mean, anyway?
For decades, real estate commissions have worked this way: An agent would list a home, negotiating and setting the commission with the seller, and a portion (usually half) of that commission would be paid from that listing brokerage to the buyers’ agent and their brokerage.
This year, a class action lawsuit filed against the National Association of Realtors and a few larger players in the industry, was settled. The suit was brought by some home sellers who felt that they had not had any choice to negotiate or change what they were paying to the agent who brought the buyer for their home.
As a major part of this settlement, the National Association of Realtors agreed to change the way buyers’ agent commissions were paid- “decoupling” them from the commissions negotiated by the listing agent and the seller.
Forever (at least during the 21 years I’ve been in real estate), agents have been able to see the buyer’s agent commission that is being offered on a particular home in the MLS (multiple listing service.) Effective 8/6 here in Central Virginia, that will no longer be the case. It’s not that commission won’t be offered. In some cases it will, and in some, it may not. It just cannot be visible in the MLS anymore, effective August 6, 2024.
Now, having said all of that (which I hope makes sense)
Here’s how it might affect you:
Before you are able to view a single home, you will need to sign a buyer brokerage agreement with an agent. This is a change for many people. While buyer brokerage agreements have been “a thing” in Virginia for years, to say that it was a loosely enforced rule is an understatement.
This agreement lays out what the agent is going to do, what you are obligated to do, and hopefully, brings some clarity to how and what we get paid in the process of your home purchase. This fee is, and always has been, negotiable, and there are a variety of options available in the market. It also states quite clearly that you, the buyer, are committing to pay this agent you’re retaining at the end of the transaction. Somehow, and in some way.
HUH?
When you decide you want to purchase a home, you should have a “buyer’s consultation” with the agent you are thinking of working with. You may even interview more than one.
That agent(s) should review not only the buyer brokerage agreement, but also how they work, what they’re going to do for you, and give you clarity on what they charge for their services. This is not new. (For me, at least.)
Here’s the NEW part. Previously, as these agreements were only loosely enforced, and in many cases, signed only after you might be under contract, most buyers didn’t understand that they were liable for that buyer’s agent commission if the seller/listing broker was not paying it. It was also often written to read “buyer’s agent accepts whatever is offered in MLS,” so buyers’ agents didn’t always have to have those icky money conversations with their clients, because they could clearly see the commission on every house in MLS.
So how is this NEW??
The new agreement does not have that option, as there will be no commission listed in MLS. The commission must be discussed and agreed upon before any home is shown. Because while commission has been “paid by the seller” for years, we all know the seller is not paying anyone anything until the buyer actually buys the home. So who’s really paying? Yep. The buyer. (So yes, it seems like it’s changed, but in many ways, for many people, it won’t make much of a difference.)
Agents will not be able to show preference (in theory, at least) to homes that are offering higher commission. I’ve never done this, but I’m sure it’s done.
Does this mean I’m going to have to pay my agent if I’m buying a home??
Maybe. In most, or at least many, cases, there will be all or some commission still offered by either the listing brokerage (as has always been the case) or the seller.
This may be offered in the form of a straight payment of commission, or might be negotiated in the offer in the form of closing costs that you can use to pay your agent.
In the event the seller is paying less than you’ve agreed upon with your agent, you will have the option to either make up the difference or ask the seller (in your offer) to pay more than they’ve initially stated, either directly, or to you through concessions (closing costs).
If the news, etc, has led you to believe that if you are selling, you no longer have to pay a buyers’ agent, that’s both true and not true. The truth is, even before this, you could have offered as little as $1 to the buyers’ agent, so technically, you never “had to” pay a buyers’ agent.
Is that a good idea? Well, It’s probably not the best way to get the most people into your home, because IF people are working with a buyers’ agent, which most still will be, they will have to pay their agent out of pocket if you are not. That means, if they don’t have the cash to do so, they may have to pass on seeing your home.
What if you don’t have the money to pay your agent and the seller won’t contribute/help??
Unfortunately, this will likely be a problem in some circumstances, and one of the concerns I have about the whole situation, especially for first time or low cash buyers. If a seller refuses to contribute, we can always ask them to increase the price to allow for the concessions in the contract to cover your buyer’s agent, but if not, if you cannot pay your agent, you may need to find another house. (This is definitely one reason why most sellers will likely offer some compensation).
“Okay, so if I want to get the best deal on a house, should I just go to the listing agent directly, and represent myself?”
Not so fast. There are a couple of things to remember here. First, and perhaps most importantly, the listing agent represents the seller, first and foremost. They are hired to get the seller the best and highest offer, with the best terms, for the seller. They have no duty to you, other than to be honest (not lie) and at best, facilitate.
It’s also good to be aware that the agent has likely made an agreement with the seller that in the event someone comes in with no representation, they’ll make more money. So your savings, or the idea that you can offer less to the seller because they’re saving money, may not even be a real thing, and you will have had no representation.
“But can’t they do dual agency, and represent both of us?”
Weeeelllll, they can. It’s legal. (For now) But think about it- they’re working for the people who want the most money, and the best terms for them, and now they’re going to also work for the people who want to pay the least amount of money? Hmmmm. (Oh, don’t forget, this is not free, either.)
Here’s the thing: as a dual agent, the agent usually makes more money, but they now can’t advise you, the buyer, OR the seller. What??
If that sounds crazy to you, join the club. Seems like the agent in this scenario is working for no one so much as themselves, right? That’s exactly why I don’t like it, and why I have never done it.
Just want the high points with no yakity yak?
1- Buyers will need to sign a buyer brokerage agreement before they view any home.
2- As commissions are “decoupled,” you as a buyer may have to pay your buyer’s agent, as the seller may not always offer concessions in the amount you’ve agreed on with your agent. Make sure you understand what you’ve agreed to.
3- Yes, you can go to open houses without having a sign an agreement. (That only comes when you have a real conversation about the property.)
4- Sellers will still be able to offer compensation to buyer brokers, and in many/most cases, they will.
My take? This will be a confusing, and likely slightly rocky, time, but change is often where good things happen. When it all shakes out, I do think it will be good for everyone- more clarity, more education, and better service for consumers.
What questions do you have? Let me know.