Starting on August 17, 2024, the process of buying a home in America has changed significantly. Due to a recent settlement involving the National Association of Realtors (NAR), homebuyers are now required to have a broker's agreement in place before they can view or tour any properties when working with a buyer's agent. These changes have left many people confused, so in this blog post, I'll explain the essentials of the new Buyer's Broker Agreement, what it means for buyers and sellers, and how you can navigate these changes successfully.
The Buyer's Broker Service Agreement (Buyer Representation Contract)
The Buyer's Broker Service Agreement isn't new to the real estate world -it's been around for years but was previously optional. As of now, it's mandatory.
Starting August 17, 2024, all real estate brokers providing services to a buyer must have the buyer sign an exclusive buyer brokerage agreement before touring any homes. The revised agreements include disclosures required by the NAR settlement and several additional changes.
What Is a Brokerage Agreement?
In a word: commitment. A brokerage agreement represents the realtor's commitment to working for the buyer and, in turn, the buyer's commitment to that realtor. Once this agreement is signed, the buyer cannot seek services from another realtor during its term. The agreement is an Exclusive Right to Represent.
Simply put, without this agreement, a buyer cannot view any houses -in-person or virtually - unless it's an open house or done directly through the listing brokerage. Open houses remain public, so you can visit them without signing the agreement, but more on that later.
What's in the agreement?
Duration
The agreement can last as long as you like, up to one year. You can start with a trial period of 1-2 weeks, but eventually, the agreement must cover several months.
Compensation
Compensation is a common concern, so let me clarify how it works. First, it's important to note that compensation has always been negotiable and continues to be so.
The agreement clearly states:
"Broker commissions are not set by law and are fully negotiable."
There are three ways a Buyer's Broker can be compensated:
1. By the Seller
2. By the Buyer
3. By both the Buyer and Seller
Compensation by the Seller
"The Broker shall be compensated by accepting the amount of compensation offered by a Listing Broker or the Seller."
This is the most common arrangement, where the listing broker and the buyer's broker split the commission, and the seller pays all the brokerage compensation to both agents. This remains an option if all parties agree.
Compensation by the Buyer
"Buyer shall pay the broker at closing an amount equal to $xxx. Buyer shall receive a credit towards the payment of the broker's compensation in an amount equal to any payment made to the broker by any other Broker or Seller."
Buyer's agents charge a fee for their services - they don't work for free. If the seller pays this compensation, great! If not, the buyer must cover it. The seller is not obligated to offer compensation to the buyer's broker. If the seller doesn't offer enough or any compensation at all, the buyer's agent can submit a form with the offer requesting that the seller pay the buyer's broker.
Compensation by Both
The buyer and seller can negotiate to split the buyer's broker's compensation in various ways. In any case, the buyer's broker will get paid.
Confusing, I know! But let's keep going.
Compensation Amount and Advertising
There are important rules regarding the amount of compensation and how it is advertised.
Once the compensation rate or amount is agreed upon in the agreement, the buyer's broker cannot charge more than that amount, even if the seller offers more. The broker can charge less but not more.
Additionally, as of August 17, 2024, sellers and listing brokers can no longer offer compensation to buyer brokers or other buyer representatives on the MLS. The MLS must remove all broker compensation fields and information from its portals. However, sellers and listing brokers can still advertise compensation through other channels, such as their websites, social media, and online or print ads. Marketing will now require a fresh approach!
Long story short, it's all negotiable, as it always has been. It's just going to look and sound a little different than it was in the past.
Here is the essence of the agreement in short:
Buyer Brokerage agreement is required
It can be up to 1 year
You can pay your broker in three different ways
Compensation may or may not be offered
What Do These Changes Mean for Buyers?
You Need to Find a Real Estate Agent You Trust
Having spent over 40 years in real estate, I've always recommended working with a trustworthy realtor when buying property. Now, it's essential. Take the time to research, ask for referrals, and interview potential agents. Real estate agents have fiduciary duties to their clients, meaning they must always act in their client's best interests. Choose someone you trust and enjoy working with. If you sign the agreement with an agent and later decide to part ways before the agreement expires, they may still be entitled to compensation for their work, even if you don't buy a house through them. My standard of practice is to allow for a mutual cancellation after two days of executing the Buyers Agreement. I think it is always best to work in harmony, so if it’s not working, then time to move on. The properties that have been shown, either in person or virtually, do fall under a protection period in the Buyer’s Agreement.
Please read all contracts thoroughly and seek advice if you have questions.
Visit Open Houses
In this new reality, open houses are still open to the public, allowing buyers to visit without signing an agreement first. This gives you a chance to get a feel for the property and discuss compensation with the seller's agent. You'll still need to sign the agreement afterward, but at least you'll have a better idea of what you're getting into.
If Unsure, Opt for a Shorter Agreement
If you're uncertain about a realtor or how they will perform, negotiate a shorter-term agreement. Remember, the agreement is a commitment for both parties, and both need to be serious about their intentions.
You can find more information here: https://www.nar.realtor/the-facts/homebuyers-what-the-nar-settlement-means
What Do These Changes Mean for Sellers?
Sellers Are Not Required to Pay the Buyer's Agent Commission, But…
While it's not mandatory, sellers should carefully consider refusing to pay commissions to buyer's brokers. Sellers should expect that the buyer's agent negotiates with their client about what their compensation is going to be and then will ask the seller to pay it.
Embrace Open Houses
As mentioned earlier, open houses will become more important. They provide an opportunity for you to showcase your property, invite potential buyers to view it without an agreement, and allow buyer's agents to meet seller's agents.
Find an Experienced Listing Agent with Strong Marketing Skills
Navigating the real estate market with these changes can be confusing, so working with an experienced realtor who can guide you through the process will save you time and frustration. When evaluating listing agents, ask about their marketing strategy, how they plan to advertise your property under the new rules, and how they'll handle open houses.
You can find more information here: https://www.nar.realtor/the-facts/home-sellers-what-the-nar-settlement-means
It's too early to predict all the consequences of these new regulations or how they will impact the real estate market. However, these changes will undoubtedly reshape how buyers and sellers approach real estate transactions. Whether you're buying or selling, it's crucial to stay informed and work with a seasoned professional who can help you navigate this evolving landscape.
I have the experience and expertise to guide you through these complex changes, ensuring that your interests are protected every step of the way. If you have any questions about the new Buyer's Broker Agreement or how these regulations might affect your plans to buy or sell real estate, don't hesitate to reach out. Contact me today, and let's discuss how we can successfully navigate these new challenges together.
For more information about the new rules, check out the NAR Settlement FAQs Page here: https://www.nar.realtor/the-facts/nar-settlement-faqs
Ta Da!
Aloha,
Jan
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