Buyer’s agents provide valuable expertise, market knowledge, and guidance, helping house hunters make informed decisions. Their role is crucial to the entire real estate industry, as they help buyers navigate the complexities of the market, ensuring a smoother and more successful transaction.
For about the past forty years, buyer’s agents have typically been compensated through commissions paid by the seller as part of the closing costs. This negotiated commission, usually a percentage of the sale price, was disclosed in the MLS listing.
However, the settlement agreement offered by the National Association of Realtors (NAR) earlier this year fundamentally shifted this decades-old cooperative compensation commission structure.
With change comes uncertainty but also opportunity, especially for buyer’s agents navigating these massive transitions. We’ll examine what this means for agents below, but if you’re already considering changes to your client contracts, download our free strategy guide, which includes templated language for your buyer-broker agreements.
The NAR settlement and buyer agent commission
The settlement leaves many agents, especially those serving buyers, worried about how to ensure fair compensation for their hard work, years of experience, and specialized knowledge. We’re going to break down all three major changes coming as a result of the NAR settlement and examine how they affect buyer’s agents.
No buyer commission disclosed on MLS
The first and most striking change is the prohibition against disclosing cooperative compensation through the MLS. A seller can no longer offer to pay a buyer’s agent’s commission as part of the listing information on the MLS.
So what does this mean for buyer’s agents and their commission? Hopefully, not that much. It’s likely buyer’s agents will continue to receive a percentage of the sale price of a property in exchange for their work. The change is where and how this commission is negotiated. If a seller chooses not to offer a buyer commission (which sellers have always been able to do, even before the settlement) buyer’s agents have other strategies for structuring their compensation, which we discuss below.
Buyer-broker agreements required
The second major change in the NAR settlement requires agents to have a buyer-broker agreement in place for every transaction. Almost half of all states and many brokerages already had this prerequisite in place.
The buyer-broker agreement requirement actually benefits buyer’s agents, as it provides a transparent opportunity for compensation negotiation between the buyer and buyer’s agent via contractual obligation. An agent can clarify that buyers will be responsible for their compensation if a seller does not agree to pay.
If you’re not already using a buyer-broker agreement, start now. If your brokerage doesn’t have a template you can use, check with your state’s real estate commission or Realtor association. Remember that any legal real estate contracts, amendments, and addenda you use should be reviewed and approved by your brokerage or legal counsel.
MLS subscriptions not mandatory
MLSs can no longer require agents to pay a subscription to access listing information. This is pretty straightforward and is an attempt by NAR and governing agencies to increase transparency in real estate listings. It also supposedly creates a more level playing field for those who do not want to buy or sell via the traditional listing channels, mitigating potential antitrust violations.
What happens to buyer agents now?
The good news is that these changes will allow great buyer’s agents to truly shine. Those who can articulate and demonstrate their value will have no problems finding buyers who need fair representation.
The real change comes in how buyer’s agents are compensated. Instead of the seller advertising their proposed commission to the buyer’s agent through the MLS, buyer’s agents’ commissions will be negotiated through other channels and with multiple parties.
Still, buyer’s agents have to be pretty nimble in this new environment. A buyer’s agent commission might come from a fixed percentage deal on one property, but that same agent might also have experienced investor clients who’d rather pay a flat fee for certain services. The ability to be agile and flexible and adopt a comp model that suits the situation is key to buyer’s agents’ success in a post-NAR settlement environment.
Three buyer’s agent compensation models
We have outlined three compensation strategies that agents and brokers can incorporate in their business. Each strategy entails distinct advantages and disadvantages; however, the overarching objective remains: to ensure the viability of buyer’s agents amid evolving market dynamics. A majority of agents will opt for a hybrid approach, incorporating multiple comp models, thereby fostering client satisfaction and cultivating substantial opportunities for business expansion.
Fixed percentage compensation model
In this compensation structure, agents negotiate payment based on a fixed percentage of the final purchase price. This strategy results in greater transparency for all parties and offers the highest potential to negotiate a percentage close to what has been the norm. However, there is always a risk that in negotiating to make a deal happen, concessions are made that could affect the agent’s commission.
Here are the three ways that a fixed percentage of the property sale price can compensate you for your work as a buyer’s agent.
1. Seller pays buyer’s commission
As we’ve discussed, nothing in the settlement forbids sellers from providing the buyer agent’s commission, as they have traditionally done. While that proposed commission cannot be disclosed on the MLS, it can still be negotiated between parties. Once finalized, it requires a signed agreement from the seller (separate from your buyer-broker agreement).
2. Seller pays buyer’s commission through negotiated concession
If you don’t want to go through the hassle of getting a seller to sign an agreement to pay, you could secure your negotiated percentage by building a seller concession into your client’s offer. The offer would stipulate that the seller will cover the costs of the buyer’s agent (like they might for closing costs). The buyer will then pay you through their financing.
3. Buyer pays buyer’s agent commission at closing
This strategy is the cleanest, but needs to be negotiated and then carefully outlined in the buyer-broker agreement. Include wording that ensures you get paid even if the deal falls apart through no fault of your own.
Download our template to use this buyer’s agent commission strategy in your broker-buyer agreement.
Flat-fee compensation model
Charging buyer clients based on the levels of service you provide is the most straightforward strategy. In this case, the buyer pays their agent a set fee or rate based on a menu of services. This strategy could appeal to veteran buyers who only need bare-bones representation. It also offers buyer’s agents the ability to scale their business with more clients, albeit at potentially reduced service levels and slimmer rates.
This fee should be negotiated based on the buyer’s pre-approval amount and the length of time outlined in the buyer-broker agreement. It’s important to emphasize that the fixed price would be paid at closing or, if there is no home purchase, at the end of the term of the buyer-broker agreement.
You could also execute this strategy based on an hourly rate. In either case, it is imperative to outline what services you will perform in the buyer-broker agreement.
Combo buy + sell compensation model
If your clients are ready to buy a new home and sell their current one at the same time, you’re in a unique position to negotiate compensation. In this strategy, your clients agree to pay a higher commission on the sale of their property after you provide buy-side services.
An agent might feel like this means doing two jobs for the price of one, but in many ways, it is a win-win strategy. The buyers get representation from an agent they know and trust, and the agent has room to negotiate solid compensation in exchange for time, effort, and expertise.
Buyers Agents + Luxury Presence
Buyer’s agents make the industry stronger by empowering and advocating for those purchasing property. These changes present an opportunity, and for those who are called to help buyers, expert marketing strategies position you as a trusted advisor who understands the nuances of buying real estate.
Ready to ensure your real estate marketing is working hard for you? Book a demo with Luxury Presence today and discover how our cutting-edge marketing solutions can help you attract high-end buyer clients and close more deals.
