Buyer Agent Commission Update
Well folks, as promised, the headline of this newsletter for a while will be about the National Association of Realtors Settlement agreement in the class action lawsuit. Apologies in advance! While this may seem like dry stuff, the way our industry works is shifting in some significant ways, and I want to make sure you hear what it feels like from the “boots on the ground” perspective. Although the new rules don't go into effect until July, questions and concerns are percolating throughout the industry about how they will impact all parties involved in Real Estate transactions. In the past week, announcements have started trickling out about how the new rules will be accommodated in the market.
Many of us realtors have been concerned about the impact of the new rules on buyers who don’t have cash reserves to pay their agent for representation (aka Buyer's Agent commission) in their real estate transactions. Traditionally, the Seller would pay the Buyer’s Agent commission at the close of escrow, and the amount that they would pay was advertised in the Multiple Listing System. This allowed Buyer’s Agents to show properties to Buyers with the assurance that they would be paid for their services and that payment would not have to come out of the Buyer’s pocket. The new rules will prohibit Listing Agents from advertising what (if any) commission the Sellers will pay for a Buyer’s Agent services in the Multiple Listing System.
The new ruling does allow Buyers presenting an offer to request that Sellers pay for their Buyer Agent’s commission. However, it was unclear in cases where the Buyer was getting a loan if lenders would allow the Sellers to grant that request because lenders have strict guidelines about how much total “credit” a Buyer can get from the Seller as part of a purchase. We got good news this week when Fannie Mae and Freddie Mac (the government-sponsored entities that back most mortgages written in the United States) announced that Sellers may pay for Buyer’s Agent commission, and it will not be counted as part of the credits they may need. This means that a Buyer will be able to ask for help with both closing costs–such as interest rate buy-downs, which are common right now–and the Buyer Agent commission. We still have not heard from the Veterans Administration on this issue, but hopefully, they will follow suit.
This announcement was a relief to folks wondering how the new rules would work in practice for those Buyers with less cash on hand at the closing table. I remain concerned that the lack of transparency about what, if anything, a seller is willing to pay for a Buyer’s Agent could cause some inequity. By not knowing the “full price” of buying a property until making an offer, some Buyers may feel reluctant to look at properties at the top of their price range for fear that they will not be able to afford both the house and the Buyer Agent commission involved in buying it. The lack of firm guidelines for implementing the new rules also leaves the door open for Sellers to offer to pay the Buyer Agent commission to one Realtor and not another.
But for now, we know that Buyers can ask Sellers to pay their Agents, and the lenders will not count that against any other credits they may need, which is a win for everyone. Stay tuned as the rules kick in this summer, and we will see how it all plays out in real-time!