As more brokerages and agents contemplate moving away from a cooperative compensation model, many are grappling with some tough questions, the most vexing probably being: What do I do if a seller is only willing to contribute part of the buyer broker’s fees, or none at all?
According to Anthony Lamacchia, the broker-owner of Lamacchia Realty, he and his agents have seen disputes over buyer broker fees for years, highlighting the importance of having a signed buyer representation agreement, which will soon be required by the National Association of Realtors’ (NAR) nationwide commission lawsuit settlement agreement.
“That is why all of this has to be negotiated before the sale comes together,” Lamacchia said. “The lawyers, the Department of Justice all think this is going to be better for buyers and save consumers money, but I don’t know any buyer who will want to see a house where they are going to have to pay their agent out of pocket. So, you need to have the conversation again at the time of making the offer and then again when the contract comes back. You have to make sure you are on the same page.”
Although some buy-side agents are weary of discussing their compensation with clients, industry leaders say that negotiating compensation is no different than any of the other negotiations agents regularly engage in. They’re already negotiating how long a contract lasts or whether a seller can move in early, or whether appliances can be included in the deal, said Sharran Srivatsaa, the president of The Real Brokerage.
“If the buyer can’t or won’t come out of pocket to compensate the agent, maybe the buyer is willing to increase the purchase price so it gets worked into the deal. Or maybe the seller will take a lower price if they don’t have to pay any buyer agent fees, so then the buyer has money to pay buyer agency fees with,” Srivatsaa said. “But the most important part is that buyers don’t like surprises, and buyer representation agreements ensure that buyers don’t get surprises in what they owe their agent.”
Though buyer rep agreements will lay out the services an agent will provide and the compensation for those services, agents shouldn’t expect it to always work out like that.
Agents will inevitably encounter scenarios where the buyer and his/her agent agree on a 2% fee, but the seller of the house they put an offer on will only commit to paying 1.5%, said Chuck Cain, a real estate attorney and executive at the FNF Family of Companies.
“Is that buyer broker going to turn to that buyer and say, ‘Well, I want you to pick up this other half percent?’ I think in the business world that doesn’t work very well. The buyer’s agent is going to end up bending to them and probably eating the difference. They could make them stand up to that amount contractually and they have the ability to do so. That client is then never going to refer friends to them, and they might even end up with some ugly Google reviews.”
If an agent is not willing to compromise, it could be a regular source of drama in the industry.
“Conflicts between the buyer and buyer agent are inevitable. Because not all agents are competent or honest or professional. And not all buyers are upstanding ethical people,” industry analyst Rob Hahn wrote in his NotoriousROB email newsletter. “Top buyer agents who bring a ton of value will get the full contracted (per buyer agent agreement) amount. Unprofessional morons who create more problems than they solve will find their compensation reduced.”
In Hahn’s view, over time, the industry will work this issue out, with agents who are incompetent filtering out and getting little sympathy from highly skilled agents when they inevitably see their compensation cut after providing a client with sub-par service. Still, Hahn does not necessarily anticipate seeing a wave of lawsuits over these types of disputes.
“In some cases, the buyer will be like, ‘I know I promised you 2.5% for this, but man… my moving expenses are way more, and my car just blew the transmission… so… uh… how’s $500?’ Even honest and professional agents are going to be facing a no-win situation then: sue a client with what that means for reputation and sphere? Or suck it up and let the buyer walk or close the deal at the vastly reduced rate?” Hahn wrote.
While James Dwiggins, the CEO of NextHome, also believes disputes like these will inevitably arise, and on occasion already do, he feels there is a simple solution: if using an agent, buyers should only purchase homes where they could also afford to pay their agent out of pocket if necessary.
“Before the settlement there were 16 states that required buyer rep agreements, so this was already happening,” Dwiggins said. “As it is, if the buyer wants to buy the house and they can’t afford the representation fee on it, then they can’t buy that house unless they can make it work with the offer. If they sign that agreement with an agent saying they are going to pay X amount, and if they can’t get a seller to pay that amount then they can’t buy.”
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