Heading into Aug. 17, when the business practice changes outlined in the National Association of Realtors’ commission lawsuit settlement agreement had to be implemented, most brokers and agents were concerned about how they would disclose a seller’s offer of buyer broker compensation.
What few actually considered, though, was what would happen when a buyer went from looking at a property to making an offer.
Across the country, the topic is causing quite a stir as real estate professionals are sorting out how to incorporate buyer requests and seller offers of buyer agent compensation into a purchase and sales agreement. Some have decided to tackle the issue from the start of the buyer-and-agent relationship.
At Leading Edge Real Estate in Boston, broker-owner Linda O’Koniewski has implemented a buyer agency agreement with a professional fee section. This outlines how much the buyer has agreed to pay their agent, and it includes a box the buyer can tick, which instructs their agent to ask the seller to cover this fee in their offer.
Alternatively, they can check another box indicating that they will pay the fee out of pocket. The section even includes proposed language that the buyer’s agent could include in the agreement when asking the seller to cover the fee.
Although most buyers are opting to have their agent ask the seller to cover buyer agency compensation, some are choosing to cover it themselves. O’Koniewski said this can sometimes make the buyer’s offer more attractive. But if a buyer selects the first option, O’Koniewski said it is essential that agents follow these wishes — not only because it is what the buyer wants but because it will ensure they get paid.
“It is crucial to note that if an agent doesn’t explicitly include their compensation in the offer, then there is no mechanism to ensure they get paid,” O’Koniewski said. “The previous system guaranteed buyer agent payment through MLS enforcement. which is no longer in effect. Seller might even withdraw their offer of a concession if they receive lower-than-expected offers.
“Therefore, it is essential for buyer’s agents to write in their professional fee and clearly state it is being paid by the seller to avoid it being seen as a co-broke. Some of our agents are also specifying what the offer would look like it if included a concession for the buyer. This proactive approach prevents any misunderstandings and reinforces the buyer’s decision to pay the fee.”
Joanie McIntire is the president of the New Hampshire Association of Realtors and an agent at Coldwell Banker J. Hampe Associates. She has other reasons why a buyer’s agent should include information about how they are getting paid, whether it’s an offer or in a purchase and sales agreement.
“If I don’t see it on the purchase and sale, I am going to assume that the buyer has it covered and that my seller doesn’t have to pay that fee,” McIntire said. “Maybe you are trying to make your offer more attractive to the seller, so you don’t include it on the purchase and sales, but in a negotiation situation, I think it is really important to have it on there, just as you would if you are waiving inspection, so that way everyone knows what the buyer’s intentions are going in.”
She and other agents believe that by having this information upfront, it makes it easier for sellers to compare offers in a bidding-war situation, which is currently common in New Hampshire.
“As the buy-side agent, you don’t want to get to the closing table and realize that the seller isn’t going to cover your compensation because you didn’t ask for it in the purchase and sales and your buyer doesn’t have the money to come out of pocket,” McIntire said.
Prior to the business practice changes going into place, brokers say buyer agency fees got swept into the contract through the practice of cooperative compensation. This is no longer the case now that buyers must sign buyer agency agreements outlining exactly how much their agent will be paid. But some agents still feel uneasy about injecting their fees into negotiations by including them in a purchase and sales agreement.
In Florida, Tom Baker — the district sales manager of The Keyes Co.’s Hutchinson Island office — said it has never been the practice there to include broker compensation into a purchase agreement. Due to the NAR settlement, however, Florida Realtors released a variety of “compensation agreements.” These can be between a listing broker and a buyer’s broker, a buyer and their broker, or a seller and the buyer’s broker.
“We are seeing these referenced as contingencies in contracts, such as ‘this contract is contingent upon Seller executing the Seller to Buyer Broker Compensation Agreement as presented with this offer,’” Baker wrote in an email to HousingWire.
Similar to McIntire’s assumptions, Baker noted that if a buyer is paying all of their agent’s compensation, it is not mentioned in the offer or the purchase and sales agreement.
Among lenders, the inconsistent inclusion of requests for buyer agent compensation is also creating confusion and chaos.
“We’ve seen some transactions being delayed because of this, which of course is a concern when you have a borrower who has lined up movers and other support items to facilitate their move,” said Amanda Tucker, chief risk and compliance officer at Atlantic Bay Mortgage Group.
“But when we get to the closing table, if we haven’t calculated cash to close and we don’t have clarity on what portion of the closing funds are going to the buyer broker, it does cause the transaction to stop.”
Tucker said lenders are having to look for documentation in the form of a buyer agency agreement or cooperative compensation agreement, if the information is not in the sales contract. This will determine how much the buyer’s agent is getting paid and where the funds are coming from. If the buyer was expecting the seller to cover some or all of the buyer broker fee, the added cost comes as an unwelcome surprise at the closing table.
Despite the confusion, the inclusion of this information remains a point of contention nationwide. While she doesn’t like having to disclose what the buyer’s agent fee is to the seller, Gretchen Pearson — the broker-owner of California-based Berkshire Hathaway Drysdale Properties — sees it as a necessary evil.
“To avoid confusion if the buyer is asking the seller to participate in compensation for her buyer’s agent, it needs to be in the purchase and sales agreement,” she wrote in an email. “But I don’t believe it is the seller’s right or business to see the buyer’s agreement with their agent, but they could request a redacted version, but that isn’t equitable because the buyer can’t request to see the seller’s contract with their agent.”
Until further best practices emerge, real estate professionals agree it is best to include any requests for buyer agent compensation in a purchase and sales agreement. This will avoid nasty surprises for homebuyers and their agents.
