Flippers: A perfect example of my earlier point
Flippers: A Perfect Example Of My Earlier Point OfferPad Incentivizes Realtors On May 7th, I wrote a post to help Sellers understand the pitfalls, THE
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In recent months, we’ve seen settlements totaling, close to if not in excess of, $1B paid by the National Association of Realtors (NAR) and a long and growing list of Real Estate Brokerages. And we are far from seeing the light at the end of the tunnel, as HomeServices is hit with Buyer suits days after announcing a Settlement in the Seller suits.
In addition to the $418m settlement paid by NAR, a critical change is coming to how Realtors are paid commissions; specifically the Buyers agents.
Until recently, Multiple Listing Services (MLS) across the country had a policy which requires all listings in their system, post an offer of compensation to a Buyers Agent. Contrary to the lawsuits, neither NAR or any MLS had or has a policy requiring a specific percentage or dollar amount; only that it be at least $1. Anything over the $1 is something to be discussed and negotiated between the Listing Broker and a Seller. Today, in advance of the formal settlement, such a requirement is gone.
Actually, because of an agreement between the Department of Justice (DOJ) and NAR, a few years back, MLS’s were pushed to remove the search function on commissions. It was common practice, sadly, that Realtors would search the MLS based on the commission offered and only send, to their buyer clients, homes with 3% offers of compensation. Often putting the commission ahead of the wants and needs of their clients.
So how will Buyer Agents be paid?
The simple straightforward answer is, by the Buyer. However, how that is accomplished can happen one of two ways.
The Buyer Broker/Commission Agreement will outline how much the buyer is willing to pay the Realtor for their services; the assistance and guidance provided in the home buying process.
The Agreement can simply require a fee be paid directly to the Buyers Broker, either upfront or upon the successful closing of a home. Or, any offer made on a home of interest, will include certain terms and conditions that will see the commission paid at closing by the proceeds of the sale; through a common practice known as a “Seller Concession”.
In such a scenario, an example would see a buyer contracting to pay $400k for a home, but in the Contract, the seller is then required to credit the buyer a negotiated amount. In many cases, this has been used to help Buyers pay typical and standard closing costs; title insurance, recording fees, title services, etc… when the Buyer only has funds to cover the down payment on their mortgage. Most often seen in FHA and VA purchases. Additional language is added to the contract, such as: Seller and Buyer mutually agree that Seller will credit Buyer up to 3% of the Purchase Price towards Closing Costs, Prepaid’s and Prorations.
In some cases, depending on market conditions, this may require an offer in excess of the Asking or List Price of a home. Again, depending on market conditions, this could create an issue if the Bank Appraisal is lower than the contracted price. Often the Seller is unwilling to lower their Net, and requires the “Seller Concession” to be adjusted down to suit the Appraised Value. This could kill the deal if the Seller refuses to negotiate leaving the Buyer short of funds to close.
But the bigger issue, for Buyers, is that we will likely begin to see more “double-ended” deals; where one Realtor works for both the Seller and the Buyer. This system of 2 parties, with opposing and/or conflicted interests, represented by one individual in negotiations, will test the impartiality of Realtors who typically earn a higher commission when “working” both sides of the deal. BTW, its interesting that Attorney’s have fought for these changes, yet they themselves are NOT permitted to represent both parties in lawsuits.
You can engage the services of a Realtor, solely for the purpose of showing you homes and keeping you updated on the market, but then hire an Attorney for the preparation of the contract, negotiations and continued representation to the closing.
Until the final settlement is approved by the Judge and all parties, we won’t know the best way to proceed, but these are some options based on only on the limited information we have at this time.
Thankfully both Fannie Mae and Freddie Mac have both announced that Real Estate Commissions can be included in your mortgage.
In the past, Buyers were limited to a maximum allowable “Seller Concession”. For example, a Buyer could only receive up to 3% of the Loan amount as a credit back to cover closing costs.
Any Real Estate commissions will be exempt from this limit; in other words, commissions paid by the Buyer will not affect the Buyers ability to get additional Seller Concessions to cover closing costs.
As the Owner/Broker of Home Sell and Save, LLC. I am waiting on the final Settlement to be announced but I am working on a few options.
At this time I’m developing a Buyer Assistance Plan which will be a LOW Flat Fee for Buyers wanting me by their side throughout the Home Buying process. And I am talking to Attorney’s to partner with as I explained above.
My goal is to create a Buyer Plan that will be less expensive than the commissions paid to Buyers Agents in the current (pre-settlement) system.
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