Changes in the way Realtor fees are determined should save consumers billions in real estate commissions. For the first time ever, buyers can negotiate the fee of their buyer agent. If brokerage fees are lower, more sellers will be able to afford to sell and the pool of homes for sale should increase.
In the past, seller brokers shared their fees with buyers’ brokers. When competitors “share” fees it is the same thing as collusion and it causes fees to be higher than they would in a free market. It was an unnecessarily complex practice that made it nearly impossible for buyers to negotiate the fee of their own agent and cost home sellers hundreds of billions of dollars in inflated commissions. It allowed listing brokers to set the buyer broker fee artificially high and since listing brokers are buyer brokers half the time they benefitted from these unfair fees. The new rules will empower buyers to negotiate these fees and put them in a better position to buy the house that they desire.
And remember, buyers do not need to come up with the buyer broker compensation out of pocket. It is now standard practice to ask the seller for a credit to pay for the buyer agent. For the seller, this works out great because instead of paying a buyer broker 3%, they might only owe a small flat fee to pay your buyer agent (structured as a seller credit to the buyer). Buyers who want their offer to be more appealing to sellers will now have a huge incentive to negotiate with their buyer agent and ask for a seller credit.
Here are CAARE’s suggestions to help consumers take advantage of the new rules when negotiating fees.
Advice for Sellers:
Do not offer money directly to buyer brokers. When sellers offer money to buyer brokers, it presets buyer broker fees higher than they should be. And if the buyer has negotiated a lower fee with their buyer broker, it could result in the excess brokerage fees going to your listing agent instead of you. There is no good reason to offer money to buyer agents other than to artificially inflate the fees that brokers charge. Plus, Realtors just lost a major lawsuit for offering money to buyer brokers on the Multiple Listing Service. The case was about artificially inflating fees, and not so much about the Multiple Listing Service. Please avoid agents who suggest you continue with the practice of offering money to buyer brokers.
Do not offer money to buyers upfront. If you offer money to buyers, you will be giving up an important negotiating position. You do not know how much the buyer has agreed to pay their buyer broker. If you offer too much money to the buyer, the buyer may have lender restrictions that prohibit them from benefitting from your offer. The better practice is to offer nothing and let the buyer request a seller credit. If the buyer has negotiated the fee with their buyer broker, that seller credit could be far less than the amount you were going to offer. Let the buyer make the first move.
Advice for Buyers:
Negotiate the fee you will pay your buyer broker. This fee should be a flat amount that reflects the work you expect your agent to do. Avoid agreeing to a commission based on the purchase price. Your agent should be focused on getting you the best deal, not benefiting from you paying more.
Request a seller credit. When making an offer, ask the seller for a credit to cover your buyer representation fee (whether you use a broker or an attorney). If you negotiate a fee of around 1%, you will likely save the seller about 2% in commissions. Plus, if your offer only includes a 1% seller credit and a competing buyer asks for 3%, your offer becomes more attractive, increasing your chances of acceptance. Additionally, Fannie Mae, Freddie Mac, and the VA have all confirmed that concessions used for agent compensation do not count towards your concession loan limit, giving you even more flexibility in structuring your offer.
Avoid buyers’ agents who let you “skip homes.” Some brokerages include a clause in their agreements that asks if you want to skip homes that don’t offer upfront compensation to buyer agents. They wrongly tell you that you will need to pay their fee out of pocket. This is inaccurate and is a way for them to unfairly discriminate against sellers who don’t engage in price-fixing buyer brokerage fees. There is no reason to skip homes, because any offer you write will likely include a request for a seller credit to pay for your buyer representation fees. And if your request for a seller credit is denied, you can walk away from that offer with no harm done. In other words, there is no risk to you or the agent to writing offers on homes that don’t offer a buyer broker fee. In fact, homes that don’t offer a buyer broker fee are better situated to benefit buyers and sellers. Many sellers may not offer compensation upfront, but that doesn’t mean you can’t negotiate it in. If you skip homes just because they don’t list a fee, you could miss out on many great options within your budget where you could have negotiated your agent’s fee.