Kind of a weird way to start a blog post right? I know! Any yet... it’s relevant and timely.
Now this is a long one, and yet it’s well worth it. Stay with me.
There is widespread panic happening in the industry right now with the changes that took place with the NAR settlement. The new rules/laws went into place on August 17th and they will apply to any and every buyer, open house visitor and real estate agent. Have I got your attention?
So... what are the changes? Put simply, anyone that has a desire to see/visit a property in the state of California will have to sign some form of an agency agreement with a real estate agent prior to viewing a home, or crossing the threshold of a property!
Let me give you a real world example:
You want to visit that home that just went on the market on the corner, and there is an open house this weekend. On the morning of the 17th and every day there after, you will be asked... “Are you working with an agent?” Yes/No, and “Do you have a Buyer/Broker Agreement?”
You’re probably thinking... NO WAY! Ummmmm WAY! This is the absolute truth.
Now... what type of agreement is the agent going to provide you if you aren’t under a current buyer broker agreement? It could be an Open House Non Agency, Buyer Broker Non Exclusive, Buyer Broker Exclusive, for how long, and under what terms, oh and what geographic areas, and for what type or types of property?
Another significant change... the Listing Agreement between the Seller and the Listing Agent will ONLY address the Listing Broker’s Compensation. There is a disclosure in bold print, this is the commission for the Seller’s Agent only! See the contract terms and conditions below:
Let’s change hats - You’re thinking of buying a home in this market. Prior to the 17th of August, a Seller was allowed to offer a “commission” to the cooperating broker, and that commission was published in the MLS. This had been the traditional way of doing business since Orange County was Orange Groves.
The way the Buyer Broker and Compensation Agreement will be written anytime after the 17th allows the Buyer’s Agent to determine what they are willing to work for and what the consumer is willing to pay in exchange for their services. Compensation is not fixed by law... it is and always has been negotiable.
Moving forward the Buyer’s Agent will meet with that Buyer in advance, sit through a consultation, identify what the Agent’s role and responsibilities will be, and they collectively agree how much that Agent will get compensated for their representation. Sounds logical right? This is where the initial panic sets in... as many Agents don’t know how to articulate what they do, or don’t know how to convey their value or their worth. How do I get paid, what do I do, how do I collect payment?
The good news is this, and it’s really good news... the Listing Agent gets to determine his/her value and the Buyer’s Agent gets to determine his/her value! They will secure separate agreements of compensation for whatever they are willing to work for.
Let’s futher clarify... how does the buyer’s agent get compensated moving forward? Generally and professionally speaking, there are three options.
- Option One... The Seller Pays the concession to the buyer to cover the buyers agent compsenation! Jeff... You just told me that the seller can’t pay compensation. Oh yeah... Ok, so what happens in this situation is that the Selling Agent (Buyer’s Agent) calls the Listing Agent (Seller’s Agent) to see if they are open to offering any Buyer concessions. This is not a guarantee or a promise to pay... just a conversation much like the way that commercial real estate transactions are done. If the Listing Agent say yes to the concession, the Buyer can then negotate a concession, and turn around and allocate that concession to go towards the Buyers compensation. Make sense?
- Option Two... Both parties pay! There is a concession from the Seller which is less than what the Buyers agreed upon compensation is on the Buyer/Broker Agreement, that agent can accept that amount, or request that the Buyer bring in the additional funds as agreed. Now what if the Buyer doesn’t have the money and the Agent won’t budge on their agreement? The Buyer simply may not be able to buy that property. Are you following me?
- Option Three... The Buyer pays! The Seller says flat out... THERE IS NO BUYER CONCESSIONS BEING OFFERED. The Buyer gets to decide if they are still ready, willing, and able to move into the negotiations/transaction knowing that they will be the responsible party for compensation to the Buyers agent.
So a quick recap... Three options, 1. The Seller pays, 2. The Buyer and Seller pay, or 3. The Buyer pays. Got it!?!
Don’t worry if you don’t get it as there is still a lot of unknown and uncertainty as to how this will play out in the real world.
- What if a VA buyer has 0 down with limited funds to pay?
- What if the borrower is obtaining an FHA mortgage and needs additional closing costs to get to the finish line?
- What if... my agent goes on vacation, I have a signed agreement and I want to buy a home that day?!?
There are soooo many what ifs.
The good news for you is... We’ve already been working on dozens of options, and work arounds, and we still have best practice education and mastermind meetings taking place behind the scenes such that we will be able to bring our clients the most up to date information and value moving forward.
Don’t be surprised if something changes by the time you read this... They are always moving our cheese.