A guy walks into a bar and says, “I’ll have a beer.” The bartender starts to pour, but the guy quickly interrupts, “Wait. Before you serve it, let’s sign an agreement on how much I’m going to pay and exactly what you’re going to do to serve it.”
The bartender looks puzzled. “You want to sort out the payment details before I even hand you the drink?”
“Yep,” the guy says. “That’s the new system.”
This sounds like the setup to a joke, but in the world of real estate today, it’s no punchline. If you’ve been keeping up with the headlines – “Real Estate Commissions Under Fire!” or “New Rules Shake Up Agent Fees!” – you might think the entire industry has been flipped on its head. But here’s the thing: While the media is busy making it sound like a revolution, the reality is much less dramatic.
There are no new laws here about real estate commissions and, for the record, real estate commissions have always been negotiable and were never set by law. What has changed, thanks to the recent National Association of Realtors (NAR) settlement, are two key things: Buyer agent compensation can no longer be advertised in the Multiple Listing Service (MLS), and agents must now have a signed agreement with their buyer establishing their compensation and duties before showing you any property. Also, just to sprinkle in the technicality disclaimer, these procedural changes apply only to Realtor members and MLSs that choose to adopt the settlement procedures.
In short, it’s less about shaking up the whole real estate game and more about introducing some extra clarity and transparency.
Daniel Moskowitz, Broker-in-Charge, Dunes Real Estate
But what does that mean for you as a buyer or seller? Let’s break it down and see how you can navigate this new landscape like a pro.
For buyers, the changes are a bit like pulling back the curtain on how your agent gets paid. Back in the day – meaning this past July – you might have gone through the whole process of finding your dream home without knowing what your agent’s compensation was or who was footing the bill. Now, things are more transparent. Before you even step foot in a house or do a virtual tour, your agent is required to spell out their compensation and duties in a written agreement. No more guessing games.
How does this affect you? For starters, it puts you in a position to understand your agent’s duties to you while clarifying what your agent is making and your responsibility for any part of that compensation not covered through offerings or the transaction. We will discuss those soon. Here’s where it gets interesting: If the seller is unwilling to offer compensation to the buyer brokerage or negotiate contractual concessions that you could apply toward your transaction, that most likely means you will be paying it out of pocket. But don’t fret just yet – many sellers still offer compensation as part of the deal, which can help streamline things for you. This isn’t a “buyer beware” situation; it’s more like “buyer, be aware.”
On the seller side, things get a bit more flexible. Under the old system, compensation for buyer agents was typically posted alongside the property listing in the MLS. Sellers would often include that up front, like a box checked off on a form. Now, you’ve got options. You can still offer compensation up front, or you can negotiate it later – or even leave it entirely to the buyer to handle.
Sounds like a lot of responsibility, right? It is. But that also means more control, and with the right strategy, that control can work in your favor.
Think of it like this: Offering compensation up front has long been a tried-and-true method for sellers to make their listing more attractive. Why? Well, in our Lowcountry market, you entice 1,700-plus agents to reach out to all their buyer contacts to get your property sold.
Think about it. As humans, we are more inclined to go the path of least resistance. Most buyer agents, also humans, have some hesitation in introducing a property and laying ground rules that the buyer needs to agree to their terms of compensation before opening that door for their buyer. Generally, offers of compensation for at least the past century have simplified the process and helped sellers support getting the buyer through the door, while keeping their focus on the value of your home. And let’s be honest, the more buyers that walk through your door, the better your chances of receiving a competitive offer or having a competing offer scenario.
But here’s where the real estate landscape gets a little more nuanced, especially when financing comes into play and compensation offerings do not cover the terms of the buyer-broker agreement. If the buyer is relying on a mortgage, they’ll need to cover any agent compensation out of pocket since it can’t be rolled into the loan. That’s right – compensation for the buyer’s agent isn’t “mortgageable,” meaning it must be cash on hand.
So, offering compensation up front could make your property more appealing by reducing one more hurdle for buyers trying to budget for their dream home. To the seller’s benefit, the more cash a buyer puts down on a loan, generally speaking, the more purchasing power they have and the higher price they can now afford.
Now, for sellers who are weighing their options on how to handle compensation, there are really three main strategies.
The first option is the traditional method, known as cooperative compensation. This is the setup most sellers are familiar with, where the listing agent offers part of their commission to the buyer’s agent. It has been around for ages because it works. It keeps things simple and minimizes seller involvement in potential legal disputes over who gets credit for bringing in the buyer (procuring cause disputes, as they’re called in the biz). It’s clean, efficient, and keeps the process moving.
The second option, seller compensation, is a bit more direct. Here, the seller pays the buyer’s agent out of their own pocket, creating a direct contract between the seller and the buyer’s agent. It is generally less financial liability for the listing brokerage and gives the seller more control, but there’s also the potential for added complexity. You as the seller might find yourself in an abundance of compensation agreements with buyer brokerages and potentially exposed to legal costs associated with disputes over claims of compensation and performance. If you’re someone who likes to keep things straightforward, this might not be your best choice.
Then there’s the third option: negotiating compensation as part of the overall contract. This approach gives you flexibility, but it can also add a new layer of complexity to the negotiations. Picture this: Instead of just focusing on the price and terms of the sale, you’re also negotiating funds (called “concessions”) that a buyer may partially utilize to compensate their agent at closing.
Historically, compensation has generally been a non-issue during the negotiation phase, but now, it’s one more detail that could complicate things. And, while this might sound like a win for sellers who like to keep their options open, it’s worth considering the more simplified, comparative benefit of offering compensation up front and letting everyone focus on the home itself.
Here’s a fun twist. The latest rules also say that while you can still market concession offerings in the MLS, those concessions can’t be used to replace the former compensation structure. In other words, if you’re offering concessions, don’t count on them to be used entirely to cover the buyer agent’s fees post-settlement. It’s a little bit of a curveball, but it’s all about keeping things clear and avoiding any sneaky workarounds.
So, what’s the takeaway here? At the end of the day, the NAR settlement might have changed some of the technical aspects of how real estate compensation is communicated and handled, but the fundamentals remain the same. Sellers want to sell. Buyers want to buy. And real estate agents are here to help both parties get what they want while making sure everything is done in a transparent and fair way.
As a buyer, it’s about knowing how your agent will deliver value in representation and making sure you understand your responsibility to cover their fees when they achieve your goal. As a seller, it’s now about deciding how best to position your property to attract buyers, and offering compensation to buyer agents is one proven way to do that.
In this new world of real estate, where transparency is the name of the game, knowledge really is power. Whether you’re buying, selling, or just thinking about jumping into the market, the key is understanding the rules and knowing how to make them work for you. With a little planning and the right agent, you can navigate these changes with confidence – and even come out ahead.
Just like at the bar, it’s not just about agreeing on the price before the drink, you’ll want to take a look around. Is this place known for good service? Does the bartender have the support to deliver a top-notch experience? The same goes for real estate. Not all agents or brokerages are created equal.
Before you sign that agreement, make sure the agent – and the brokerage behind them – has the resources, expertise, and backup to really serve you. After all, you wouldn’t want to settle for a watered-down drink, would you?
