REAL ESTATE INDUSTRY CHANGES --- 2024 AND BEYOND

There are new practice changes that are being implemented related to the purchase and sale of a home in the United States:

1. Buyer's Agents must enter into a written agreement that clearly discloses the details of the compensation that will be received prior to touring any homes.
2. All compensation will be paid directly by the Seller and/or the Buyer.
3. Offers of compensation to a Buyer's Broker may not be advertised on any Multiple Listing Service (MLS).

In the same way that Sellers have always signed a Listing Agreement to establish employment with their Listing Agent/Broker, now too must a Buyer sign a Buyer Representation Agreement to establish employment with their Buyer Agent/Broker.  Both the Listing Agreement and the Buyer Representation Agreement detail the terms of employment, including (among other things), compensation to the Agent.  The intention behind this is to remove ambiguity about the process and provide total clarity around where all monies will be distributed at close of escrow.

There are two different options for the Buyer Representation Agreement: exclusive or non-exclusive.  In either case, a Buyer has lots of control over the terms of the contract, and a good agent will make sure you understand all of your options up front.

There are four ways in which a Buyer's Agent can be compensated:

1. The Seller pays the Buyer's Broker
2. The Buyer pays the Buyer's Broker
3. A Combination: both the Seller and the Buyer pay a portion to the Buyer's Agent
4. Seller Concession: The Seller agrees to an adjustment to the terms of the Purchase Agreement, in which the Buyer is offered monies that the Buyer, in turn, use to compensate the Buyer's Broker

Great question!  Compensation is paid to the Buyer Agent's Broker.  From there, the Broker takes all applicable fees (usually referred to as "splits") from the Buyer's Agent and disseminates the remainder of the funds.

Fun fact: Real Estate Agents are 1099 employees, which means we must set aside monies from each paycheck to cover the cost of all taxes that are normally withheld on a W-2 style paycheck.

Well, Sellers never had to pay for a Buyer's Agent.  Previously, market forces created the scenario in which Listing Brokers and Buyer Brokers were compensated through the equity accrued by a Seller.  Given this format, (which has existed since the 1990s), the compensation to agents already exists as a portion of the home's sale price.  While some Sellers may wish to try to keep this built-in compensation for themselves, it is extremely likely that market forces will once again be at play and offer a competitive advantage to Sellers who choose to offer compensation to a Buyer's Broker.

Yeah, I know that was a little confusing.  Basically, Sellers have never been required to compensate the Buyer's Broker.  And if they have chosen to offer compensation, the amount has always been negotiable.  Historically, in most cases, Sellers have chosen to offer a compensation due to the competitive advantage it gives them in the market.  (We're talking about economics here, not the supermarket.)  The new industry changes require that all payment is entirely Seller-directed or Buyer-directed.  Overall, this is likely a positive change as it created more transparency about compensation, which creates more efficiency in the market.

The Compensation Agreement Between Brokers (CABB) originates from the Listing side and should be signed by all parties prior to submitting an offer.  Buyer’s Agents request this document through email from Listing Agents and submit it with their offer.

The Seller Compensation Addendum (SCA) originates from the Buyer side.  This serves as an addendum to the Buyer Broker Employment Agreement (BBA) and the Purchase Contract.  A Counter Offer may be used to counter any terms on the SCA.

The SCA is used to make the Buyer’s Agent whole on the delta between CABB and the compensation amount listed on the BBA (if applicable).

The SCA is incorporated into the Purchase Contract in an effort to keep seller concessions separate from Buyer Agent compensation.

Another great question!  Buyer Broker compensation from the Seller is absolutely fully allowed.  The change is that the amount the Seller chooses to offer may not be displayed on the MLS.  The Listing Agent may display this information in any other numbers of ways (e.g. business website, social media, email, snail mail, flyers, etc.) or by phone, either verbally or through text.  The Seller also has the option whether or not to allow the Listing Agent to share information detailing their offer of compensation to the Buyer's Broker.  That choice is ultimately the Seller's and will likely be a key part of their desired negotiation strategy, which will be contractually determined during the Listing Appointment.

Oof!  That is a really tricky question!  The amount that an agent can charge is also driven by market forces.  Each individual Agent may set their own pricing based on their level of skill, experience, and time dedicated to their client, etc..  The amount an individual agent chooses to charge is decided by that individual, and may be modified at any time based on the demand for their service.   It has always been the case that compensations are not set by law and are fully negotiable.  Keep in mind that this is a "you get what you pay for" industry.  When interviewing agents and discussing compensation structure, consider the level of service, skill, and desired outcomes you would expect at different price points.

Yes!  Agents must clearly communicate, educate, and disclose at the earliest moment possible how compensation works in the real estate transaction, including that Broker compensations are not set by law and are fully negotiable.  Buyer Broker compensation must be objectively ascertainable (meaning not open-ended; clearly stated), and the Buyer Broker cannot receive any more compensation than that which is negotiated and agreed upon in writing (through the Buyer Representation Agreement).