Home Buying Changes in one Month
I take calls every day from prospective clients, and to my surprise most have never heard of the NAR settlement.
Since it impacts the entire real estate transaction (not only in Chicago but nationwide), I must spell it out clearly.
Right now, when I find a home for a buyer in the MLS, the bottom of each listing spells out the buyer agent commission, usually 2.5% of the sales price and sometimes less. This amount was agreed upon between the seller and the listing agent prior to the listing being published, in a legal contract called a list agreement. As the buyer agent, I know what our commission will be if we reach a deal and our buyers know they won’t pay us any money out-of-pocket.
On August 17th, this “co-op commission” will no longer be displayed. That means at the outset, I won’t know if a seller is offering to pay a buyer agent commission and if so, how much. I will need to ask or it is possible some big box real estate companies will publish this information on their own website.
The second big change is that buyer agents must have a written agreement with their buyer agent before entering into a business relationship, which the settlement says begins when showing a home. Among other things, this agreement will spell out how much the buyer agent fee is and how this amount will be collected. In itself, this is not a huge change as many brokerages always required buyer agent agreements, including us.
The big change is that currently, the agreement says we will accept what the seller offers on the listing, usually 2% or 2.5% of the sales price, as our fee. On August 17th, the agreement will basically say the same thing, that the fee is 2.5% or some smaller amount, but we will not know where that is coming from until much later in the process, perhaps during offer negotiations. There might be 3 ways a buyer can satisfy the obligation to pay their agent whatever is agreed upon: (1) the seller could still offer some or all of the agreed upon fee, communicated at showing request or on the list broker website. If this happens, nothing much has changed; (2) the seller does not offer any buyer agent compensation, so the buyer asks the seller to pay it in their offer, probably as a closing cost credit. Negotiating our fee along with the offer on the home could be awkward, unless it becomes common practice; and/or (3) the buyer could pay some or all of the fee out-of-pocket (the least likely in our view).
No one really knows the impact of these changes. Many agents like us think in the end, nothing much will change. Buyers need help and sellers need buyer agents to bring in qualified buyers and close the deal. Sellers are realizing record profits and are in the best position to pay the fee, as buyers are often tapped out after down payments and closing costs. Others think buyer agents go away, that somehow buyers will contact list agents without representation and buy a home alone. This is unlikely as most list agents are wary of random unqualified buyers off the street and the liability associated with trying to help both sides close a deal. Still others think discount buyer agents will spring up, offering arrangements where they are paid a small flat fee for help or even by the hour. No one knows for sure, so stay tuned.