Real estate agents depend solely on compensation via commissions earned only when a real estate transaction is complete. For many, countless hours are spent with potential home buyers in a market that is still challenging with low home inventory and record pricing.
COMMISSION AWARENESS
The industry has experienced a shift in commission awareness. Whereas before home listings agreements defined the arrangements with agents sharing in the commission fees, it was thought to be a benefit that a fee charged by a listing agent would be shared with another agent to work in partnership to help in the selling of a home. Our industry has been attacked by class action lawsuits with billions of dollars paid to home sellers, and attorneys being paid millions for their lawsuits against our employing brokerages. At the heart of these lawsuits was the claim that the then commission arrangement was a violation of the Sherman Antitrust Act.
At the base of this legal action is how commission fees are used or explained to help in the sale of your home.
If you are a homeowner now, remember when you purchased your home, in addition to all the fees, which included a home down payment and extra costs for home inspections and mortgage commitment fees, many were relieved to know that the commission fee was typically paid by the home seller at closing after buyers brought the funding to the closing. Without the funding from the mortgage lender to the buyer, there would be no transaction, and no one would realize payments of fees and above all a home seller would be unable to sell the home.
Commission payments and awareness have been changed as a result of these class action lawsuits. Where a clear explanation of this fee was provided before in the listing agreements, many home sellers still claimed that agents were not flexible in their terms or were unaware of how the commission was used. Class action campaigns saturated homeowners with letters claiming that home sellers could potentially be compensated if they joined in the class action lawsuit efforts by simply completing a form and returning it to said attorneys.
LAWSUIT SETTLEMENT INFORMATION
As a result of the settlement, the commission fee structure has been separated into two fees. Whereas before, a fee was paid to the home listing agency, and this fee was shared between the listing and buyer agency, the commission fee is now identified as two separate fees. Both fees, as before, can be paid by the home seller, but with the clear language that provides the option to push the buyer agency fee to the home buyer if the seller chooses not to help the home buyer. This is more clearly defined in today’s agreements. Whereas before this was negotiable, it is even more clearly defined in today’s contract language and continues to remain negotiable. Home buyers may now include in their offers an additional contingency to request the home seller pay for the buyer agency commission fee, as before this fee was typically included in the home seller listing agreement. So a home seller can now be asked to pay a listing fee to cover the listing’s agent compensation, but can also be encouraged to pay 2% or 3% or a percentage of their choosing to a buyer’s agency, should the request be made in the home offer. In essence, the total commission paid would be the same as before, except that the listing agreement fee references have changed, and there is now more transparency to provide the seller a clear choice of helping the home buyer with the commission fee paid to the buyer’s agency. (NOTE: Commissions are paid to brokerage agencies, not the agents themselves. It is against the law for clients to pay agents directly. Only real estate brokers can pay an agent based on the Individual Contract Agreement between broker and agent. Agents are 1099 Employees of brokerage agencies).
BUYER AGENTS FEE INFORMATION
Furthermore, where as before buyer agents had awareness of how much they could potentially earn on a transaction, the information providing this compensation awareness has been stripped from Multiple Listing Systems across the US, and there can be no mention of this compensation anywhere on the listing. For a buyer’s agent to know if they can be compensated for their services by the home seller, the fee request has to be either an additional contingency on the offer or a separate document identifying the fee request, but in essence a buyer’s agent may not know what their compensation might be until an offer is accepted by the home seller and when the transaction is concluded where payments are then distributed.
When the fee is split in this manner, the homeowner has the added risk of not being able to procure a sale as this separate fee structure, which has been traditionally paid by the home seller, adds an added burden to the home buyer in addition to all the other fees paid. Remember, if you had purchased your home in the past, imagine having to pay an additional fee to get to closing. A buyer’s agent also has the added responsibility of alerting the home buyer that a fee will have to be paid by the buyer if the seller decides not to help in the commission payment structure. However, a buyer can choose not to see homes that also do not help them in paying this fee, thereby leveling the playing field on both sides of the transaction. If a seller decides it is not in their best interest to aid in the commission fee payment to the buyer’s agency, then a buyer can equally decide to move on and submit offers on homes that help them reduce this added cost.
What happens now?
Aside from additional disclosures to accomplish the same task as before, adding additional tasks and overcomplicating the process, agents may still encourage home sellers to cover the cost of the commission fees on both sides of the transaction to help home buyers acquire a part of the American Dream. Buying a home for many will be the single most important purchase in their lives that can potentially provide a large return on investment when they sell. And as homeowners, with all the trivial challenges of homeownership, many still admit that the increase in home equity over the years has helped them experience financial gains. While paying rent may be easier for some, having the ability to regain some of the long-term expenses and equity gains of homeownership still outranks paying rent over the long run.
As a home seller, I encourage you to contact me via email, text, or call, and we can further explain this new commission fee awareness. This new commission awareness clearly defines your control over the commission fee structure as before, but with additional terms and language on home sale contracts. However, in the end, it is the home buyer who has to bring the funding for all payments and fees on both sides of the transaction to be paid.
