Introduction

This week we saw the first instance of something that I fear will become much more common in the months ahead. One of our promising listings received an offer, but within that offer, the buyer’s agent requested a 3% seller contribution towards their buyer agent commission – a fair expectation based on past experience. However, this time the seller countered with zero contribution, shifting the entire financial responsibility to the buyer.

As is often the case these days, the buyer was already stretched thin by the down payment, closing costs, and other home-buying expenses. They were unable to offer any money towards paying their agent and ultimately we’re forced to withdraw their offer and look elsewhere, leaving both parties confused and disappointed.

This situation won’t be an isolated incident. If you’ve been following the news about recent NAR class action lawsuits and the resulting settlements surrounding agent commissions, you’re probably aware that changes are coming to how real estate agents are compensated. This story is just a glimpse into how those changes will likely play out in the real world. In this blog post, we’ll delve deeper into why this is happening, how these shifts will impact sellers like you, and offer strategies on how sellers can avoid having commissions derail their deal. 

Before we begin – This blog post will not be covering the commission lawsuits, rather the resulting effect on home sellers. If you want to learn more about the actual lawsuits please read this article that details everything before reading this one – [LINK] 

The Old Way vs. The New Way:

The Traditional Buyer Agent Commission Model (old)

For the past 30 years, agent compensation has followed a pattern. First, the seller would meet with an agent. Then, sign a listing agreement outlining the total commission to be paid upon a successful sale. Lastly, the listing agent would publicly offer a portion of that commission (typically around 3%) to any buyer’s agent who brought forth a qualified buyer. This is how the “standard 5-6% commission” became commonplace, with each agent generally receiving 2.5-3% of the final sale price, paid directly by the seller out of their proceeds. 

Many sellers had a problem with this because if you stop and think about it, they are being obligated to pay an opposing party aka funding their own opposition. Buyers also didn’t like this due to the fact that they never got to have any say in the compensation of their chosen representation. These gripes lead to multiple massive class action lawsuits that are now the basis of these rule changes seeking to solve these issues. 

The New Buyer Agent Commission Model

Part one of thes rule change surrounds responsibility of payment and the relationship between the parties. Agents will now be required to have a signed agreement with buyers before showing even a single property. This buyer agency agreement, similar to a listing agreement, will explicitly outline the commission amount and obligate the buyer to ensuring that their agent gets paid. The crucial difference is that each party will negotiate their own commission rate with their respective agent, and it will be each individuals responsibility to ensure payment. 

Part two of the rule change states that sellers are no longer required to disclose whether or not they will make concessions towards a buyer’s agent commission, nor the amount they might be willing to offer. Until now the amount the seller was contributing toward buyer agent commission was required to be advertised publicly. Today it will be treated the same as any down payment assistance or closing cost support is – it’s often a negotiable item that isn’t revealed until after negotiations begin.

The Disconnect: Opposing Expectations

For years, buyers have become accustomed to the seller covering their agent’s commission, often without fully realizing it. This led to a perception that buyer agent services are essentially “free.” This thought was so pervasive that NAR was forced by the DOJ to create a rule in which buyers agents were prohibited from marketing themselves as “free” to their buyers.

However, the new reality is that buyers must now directly negotiate and pay their agent’s fees. This can be a shock for many, especially in a market where affordability is already a major issue. Buyers may underestimate the true cost of purchasing a home, expecting sellers to continue to cover this additional expense when they decide to begin house hunting.

On the flip side, sellers will view this as an opportunity to capture additional revenue from their home sale by “saving” on buyer agent commissions. This mismatch in expectations will undoubtedly lead to more complex and frustrating negotiations for all parties.

What This Means For Sellers

In a perfect world, all buyers would negotiate affordable rates with their agents and not rely on sellers to help, but as I have already experienced in the situation mentioned at the beginning of this blog, there are going to be some positive and negative effects on sellers. 

Pros: 

• More Control Over Costs: Sellers now have more direct control over their expenses. They can negotiate their listing agent’s commission separately and potentially save money if they choose a flat-fee service like Falaya. This can lead to significant savings compared to traditional commission structures.
• Transparency: The new model promotes transparency in commission discussions. Buyers and sellers have clearer expectations about who is responsible for paying what, which can streamline negotiations and reduce misunderstandings.
• Innovative Solutions: The changing landscape is encouraging the development of innovative solutions like Falaya’s flat-fee model. This gives sellers more options to choose a service that best suits their needs and budget.

Cons:

• Reduced Buyer Pool: Requiring buyers to pay their agent’s commission directly could deter some potential buyers, especially those with limited budgets or first-time homebuyers who may not have the extra cash readily available. This could lead to fewer offers and a longer time to sell.
• Pressure on Pricing: Sellers might feel pressure to lower their asking prices to compensate for the additional cost that buyers now face with commissions. This could impact their overall profit margins.
• Potential for Misleading Information: Some agents might try to downplay the impact of the commission changes on buyers to secure a sale. Sellers need to be vigilant and ensure they’re working with transparent and trustworthy agents who prioritize their best interests.

The key lies in adapting to these changes proactively, understanding the potential scenarios that may arise, and strategically positioning yourself for success. Let’s delve deeper into some specific advice that could help you have a smooth and successful transaction. 

What Sellers Can Do: Strategies for Success

While these changes may seem a little confusing, sellers can proactively adapt and thrive in this new real estate landscape by focusing on what they can control such as:

1. Being Educated: Knowledge is power. Take the time to understand the nuances of the evolving commission landscape. Discuss the potential implications with your real estate agent, ask questions, and stay informed about any further legal or industry developments.
2. Adapting Your Pricing Strategy: When setting your asking price, consider the potential of having to pay some or all of your buyers commission costs to get a deal done. 
3. Negotiating Flexibly: When you enter negotiations get creative with how you can come to agreement with the buyer. Have an open mind to assisting with rate buydowns, closing cost support, agent commission concessions. Look for ways to provide value to all parties.
4. Offsetting Costs With Falaya: Falaya is at the forefront of this changing market. Our flat-fee model can streamline the process and eliminate these headaches by reducing costs for both buyers and sellers. By allowing sellers the opportunity to save on the listing commission, they can then contribute more toward seller concessions. Sellers can still gain expert guidance and support to ensure a smooth and successful transaction for everyone involved. 

By proactively addressing these changes and implementing strategic solutions, sellers can successfully navigate the evolving real estate market and achieve their desired outcomes.

Conclusion

The evolving landscape of agent commissions is ushering in a new era for the real estate market. While change can be unsettling, it also presents opportunities for both buyers and sellers to adapt and thrive.

For sellers, understanding these shifts is crucial for a successful home sale. By educating yourself, adjusting your pricing strategy, embracing flexibility, and exploring innovative solutions like Falaya’s flat-fee model, you can confidently navigate the changing tides and achieve your real estate goals.

Remember, the key is to stay informed, adapt your approach, and partner with professionals who can guide you through this dynamic market. By doing so, you can not only weather the storm but emerge as a savvy seller ready to make the most of the opportunities that lie ahead.