If I was a home buyer, after the NAR lawsuit settlement, this is what I would do…
Background info links of the NAR settlement…
https://www.nar.realtor/the-facts/what-the-nar-settlement-means-for-home-buyers-and-sellers
https://www.nar.realtor/the-facts/what-the-nar-settlement-means-for-home-buyers-and-sellers
I was a real estate agent in MA for 17-18 years. The NAR settlement is changing everything about how real estate agents are paid.
Most real estate agents are only paid through commission and only after transactions close. They are independent contractors - not employees of the brokerage firms. Historically, the seller agent’s listing agreement had a percentage commission built into the contract. Say the total commission of the contract was 6%. Within that contract 3% goes to the listing agent and 3% was written in to go to the agent that brought the buyer. Also, the sharing commission for the buyer agent was displayed within the local multiple listing services. If the buyer went directly to the listing agent and the buyer chose not to have representation, then the listing agent would get the whole 6% commission (a savvy seller would negotiate this commission down). One exception to this model is Redfin whose agents are on salary and/or get paid to show houses.
The NAR was sued for this practice of forcing sellers to offer and pay commission of the sale to the buyer agent side both in contract and MLS. From my personal experience offering anything below the local customary percentage to buyer agents, could affect the property being shown and offers. Remember agents are only paid by commissions and money is why real estate agents are real estate agents. My opinion was always, you really cannot force someone to buy a certain home, but you can easily influence people to not buy a certain home.
Now - after the lawsuit settlement, listing contracts cannot specify buyer agent cooperative commission and Multiple Listing Services (MLS) cannot offer buyer agent commission as part of a home listing. A seller can pay a buyer agent commission at the time an offer is made, but a seller is not obligated or forced by custom or contract to do so. For a buyer agent to show a home, the buyer agent must have a contract with that buyer as to how the buyer agent will be paid - “BUYER BEWARE” before signing any such contract. You may be obligated by contract to pay the entire buyer agent commission if the seller chooses not to do so. The NAR and larger brokerage firms have lawyers create boiler plate contracts that can just have the forms filled in. These contracts benefit the brokerage firm always.
I am not active in the real estate sales. My guess is that brokerage firms are trying to keep everything the same and just working around the rules. For instance, buyers are likely being told that when they sign the buyer agent contract to now worry about the fee the sellers will be paying the fee. Understand that the contract probably also says that the you will be responsible for 2.5% or 3% of the home sale price if the seller does not pay the commission. Any document you sign that comes from a real estate agent, should be considered a binding contract-read thoroughly. You are able to cross out any wording that you do not agree with and you can write in clauses.
2 Ways I may use these new rules to my advantage if I was a home buyer
1 SAVY HOME BUYER
If I was an experienced home buyer right now and I knew the location and type of home that I wanted to buy - the follow option I may do:
1) Hire a real estate attorney. Find a real estate attorney to write up any or all offers that I make on a home. Negotiate with the attorney about fees. This attorney will be used for all legal documents associated with the sale of the home until the final closing. This way you would not rely on a real estate agent to represent you in any transaction.
2) Identify home inspectors to use and know the type of inspections you would like to perform on any property.
3) Identify homes to see using any of the many online sites that push the MLS listings onto the public web. Make appointments to see the homes directly with the listing agent or public open houses. Another option would be to enter into a per house or per hour fee with a buyer agent to show you homes. Do not over talk to any listing agent. Keep it to the basics and focus on the house. If the listing agent is extra chatty, likely you can get some good information.
Advantages of this buying process: For a savy experienced home buyer, you put yourself in the driver seat of the process. By hiring an attorney to write all contracts, you should be more protected within the transaction process. Your offer will highly competitive to any seller because there would not be any buyer agent fees associated with the transaction. Which is beneficial in both a competitive market and a declining market where seller margins are going down.
Disadvantages of this buying process: There will not be anyone holding your hand through the home buying process. You should be well versed in the process. There will not be a buyer agent walking you through neighborhoods, standing with you at a home inspection and you may miss out on “quiet” listings that are not published. Also, more money will come out of your pocket to pay additional attorney fees and potential fees to hire a buyer agent to show you homes.
2 First Time Home Buyer
If I was a first time home buyer on a limited budget, I could use the assistance of a buyer agent. Also, I would not be able to afford the buyer agent percentage fee.
1) I would educate myself to the local towns and areas with homes in my price range. Once I found towns within my price range and locations that I would like, then I would do research on the different areas within that town. Focus on things that matter to me such as: schools, parks, recreation facilities, access to highways, restaurants, … anything that you want to know about the general area where you are looking for a home.
2) Financing - find a lender or mortgage broker to get you pre-approved so you know how much you can spend or want to spend on a home.
3) Buyer Agent - Ask friends and families if they had a good experience working with a real estate agent to buy a home. You should contact these agents and have a conversation with different agents. What does a buyer agent do for you? The agent will identify homes that fit your budget and make appointments for you to look at them. A good agent will be able to identify what you like and do not like and help you write up an offer(s) on a house that you would like to purchase. The agent will assist you which each step along the way. Every state varies a little bit in the process - an agent will be helpful getting you to the closing table.
Per the NAR agreement, you will need to sign a buyer agent agreement with an agent. This agreement will be binding based on the time frame of the agreement and likely with any house the agent shows you even if the agreement expires and you eventually buy a house that the agent shows you. It is a contract - it should be read thoroughly and if any part of the contract does not make sense, an attorney should be contacted.
Before the NAR settlement, the seller automatically paid the buyer agent commission. The cooperative commission was part of the listing contract. Now - the buyer agent commission becomes a negotiation point at time an offer is made on a property and the seller can choose to pay the commission or not pay the commission. The buyer agent contract will need to have language that represents how the buyer agent will get paid. If the seller does not pay it, are you the buyer responsible to pay the commission? Do not sign anything that you are not comfortable signing. Seek legal advice if necessary.
4) Home Inspection - a good home inspector is crucial for a first time home buyer. Knowing what actually what you are buying and the work the home needs or may need in the near future will be pertinent to you for moving forward to the closing table. A buyer agent can recommend inspectors or family/friends.
5) Home insurance - this is a large yearly cost. An understanding of both regular home insurance and flood insurance is crucial when looking at homes. If a home is in a flood zone, that will be an additional cost for you. Talk to your insurance agent while you are looking at a home and the insurance agent can give you advice in this area.
Notes: Can a first time home buyer be a “Savy Buyer" the answer is yes, if you are good at research and can get a good handle on the process.
Advantages; having buyer agent advocate for you to confide in and assist can be extremely helpful in the process. The agent also may have information about other listings that are not in the public MLS systems. Getting to the finish line can be grueling - having the go between that is more of a hand holder than a lawyer would be can be comforting and helpful.
Disadvantages: Buyer agents need to be paid and there may be some risk that a seller will not pay the buyer agent. A buyer may be responsible to pay the buyer agent commission. Why clear contracts are important that identify payment and roles. Another disadvantage is if you put an offer in on a house and another offer or offers do not have any buyer agent commission associated with those offers. As a first time home buyer, unless you are paying cash - these types of situations can be difficult for a first time home to “win”.
Disclaimer: I am not an attorney. An attorney should be consulted for contractual advice. Real estate laws and practices vary by state.