Step 5:

Understand the New Buying & Selling Experience in Real Estate​

For Sellers→ Old vs New Way

The Old Way for Sellers: 

Sellers would negotiate with their Agent the Commissions for their agent and a Buyer's Agent to be offered in the MLS at the time of Listing.

Example Scenario: At the time of listing the Seller's Agent and Homeowner negotiate their terms for the Sale for a total fee of 6%. The Seller's Agent commission might be negotiated at 3% of the purchase price, and offer 3% an additional to the Buyer's Agent to be posted in the MLS to help attract Buyers.

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The New Way for Sellers

 Sellers negotiate with their agent the Commission for the Seller's agent ONLY at the time of listing; and only a message that says Seller will consider Seller Credits can be posted in the MLS at the time of Listing. Sellers then negotiate for distribution of Seller Credits to Pay Buyers Broker At the time of an Offer. 

Example Scenario: At the time of listing the Seller Sally instructs the Seller's agent to market a listing with Seller Credits Considered. At the time of the Offer, the Buyer Bob includes in their offer a form called a SPBB or Sellers Payment to Buyer's Broker, which is a form that is included in the Buyer's Offer terms, requesting a 3% Seller credit toward the Buyer's broker at closing. The Seller has the option to accept, counter, reject, or let the offer expire; but for this example let's imagine the Seller Sally counters back at 2.5% buyer credit toward purchase price, which Buyer Bob then has the option to accept, counter, or walk away. If the Buyer were to accept the 2.5% credit, the Buyer would still have to pay their Buyer's Agent 3% - 2.5% = .5% of the total purchase price at closing out of pocket.

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For Buyers→ Old vs New Way

The Old Way for Buyers

 Buyers would Search for a property often visiting open houses alone, and because they were more inclined to explore without guidance, usually would not commit to an agent until finally deciding to write an offer on a property, although Exclusive Buyer's Agency wasn't unheard of, it was relatively uncommon. Seller's would specify Compensation for the Buyer's agent in their listing agreement to be posted on the MLS at the time of the Property Being Placed on the Market. There was a safe assumption for Buyers that the Seller would be paying their Buyer's Agent Representation Fee without any hiccups and because of this Buyer's Agent Commissions were rarely negotiated with an offer to the Seller (rarely means almost never). This also means that Buyer's generally did not have to concern themselves with their responsibility to compensate an Agent, or worry about the cost–and they could pick whatever agent they wanted to work with at the time of deciding to write an offer–sometimes soliciting multiple agents throughout their home search process.

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All Real Estate Commissions have ALWAYS been negotiable; but usually the Buyers Agent commission was pre-set or pre-negotiated at the time of listing by whatever the Seller was willing to offer in the MLS so that a Buyer wouldn't have to pay their Agent out-of-pocket for representation. 

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Example Scenario: At the time of listing the Seller's Agent and Homeowner negotiate their terms for the Sale for a total fee of 6%. The Seller's Agent commission might be negotiated at 3% of the purchase price, and offer 3% an additional to the Buyer's Agent to be posted in the MLS to help attract Buyers.

 

When a Buyer writes an offer that is accepted, at close of escrow the Seller would then pay the Buyer's Agent out of escrow the 3% and the Buyer doesn't pay out of pocket because the Seller pays the commission as part of their closing costs.​

 

This payment is sometimes referred to as a "Seller Credit" because the seller is offering a Credit or "Seller Cost Credit" to pay the Buyer's Agent for their Representation from the total Purchase Price, which was usually set by whatever fee the Seller had pre-agreed to at the time of listing.

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The New Way for Buyers

Buyers must now have a signed Buyer Agency Representation Agreement with a Client immediately, or"as soon as is practical". In this Buyer Representation Agency Agreement the compensation for the Buyer's Agent must be "Objectively Ascertainable" or in other words it has to be Pre-set before a Buyer can look at Homes with their Agent. The ONLY exception to this is if you as a Buyer go to an Open House, unrepresented, the Seller's Agent is allowed to show you property, but does not owe you any confidentiality and is only officially representing the Seller's best interest by showing you the property.

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This means that a Savvy Buyer Should ideally select an agent before going to view any Homes or make a reasoned decision to sign a Non-Exclusive Buyer Representation Agency agreement with the Listing Agent immediately, to ensure they have an Adivsor they trust as a fiduciary who can facilitate their offer negotiation throughout every step of the search and purchase negotiation process. This is referred to as Dual Agency, and is only legal in specific states, including California. When you have a Dual agent, the Buyer and Seller both have a fiduciary relationship with their shared agent, but the Agent becomes more like a back-and-forth facilitator between the Buyer and Seller.

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Now whenever a Buyer wants to obtain representation, they must commit either to either Exclusive or Non-Exclusive Representation with an exact "objectively ascertainable" fee for the Buyer's Agent. One major change that has accompanied this shift is that all buyers are also now required to fill out a confidential survey regarding their financial qualifications, and provide proof of funds for being able to pay the Buyer's Agent Fee within 5 days of the agreement. This confidential survey is called the "Buyer Personal Financial Information" Form and is an industry-wide requirement for all Buyers who wish to have any kind of Exclusive or Non-Exclusive Agency Representation.

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Additionally, Sellers No longer are going to be offering Commissions Posted in the MLS starting in August 2024. Sellers will have the option to check a box at the time of listing to instruct the Seller's agent to market a listing with Seller Credits Considered or Seller Credits Not Considered. Seller Credits are allowed to be used by the Buyer for anything, including their Obligation to pay their Buyer's Agent Commission. Buyers Agent's must now negotiate the price + terms of their Buyer's offer, and also negotiate for Seller credits to pay their own fee at the time of the offer. This encourages further negotiation and dialog between the Buyer's Broker and the Seller's Broker so that the Seller is only obligated to pay whatever credits are negotiated for and agreed to at the time of the offer, and the Buyer would have to cover the difference if the Seller credit is not substantial enough to Cover the Buyer's Agent Fee. 

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Example Scenario: Buyer Bob has a written Exclusive or Non Exclusive Buyer Representation Agreement with a 3% Buyer's Agent Fee with ABC Real Estate Brokers, and has already completed the Buyer Financial Personal Information Survey, and provides proof of funds for ABC Real Estate Brokers to ensure he is properly qualified and has well-defined objectives for his home search. Buyer Bob asks his Agent to write an offer on Seller Sally's Property.

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At the time of the Offer, the Buyer Bob includes in their offer a form called a SPBB or Sellers Payment to Buyer's Broker, which is a form that is included in the Buyer's Offer terms, requesting a 3% Seller credit toward the Buyer's broker at closing. The Seller has the option to accept, counter, reject, or let the offer expire; but for this example let's imagine the Seller Sally counters back at 2.5% buyer credit toward purchase price, which Buyer Bob then has the option to accept, counter, or walk away. If the Buyer were to accept the 2.5% credit, the Buyer would still have to pay their Buyer's Agent fee (3%) -  Seller Credit (2.5%) = .5% of the total purchase price at closing out of pocket.

 

This would mean without a good negotiator, the Buyer would be responsible for paying the difference (.5%) between what they are contractually obligated to pay their broker based on their agreed fee (3%), and what the Seller is currently offering for compensation (2.5%). A Buyer may want to consider the implications of collaboratively negotiating for the full 3% to ensure they do not have to pay any additional funds out of escrow; and having a skilled agent who is highly trained in negotiation can make a huge difference in these kind of offer/counter-offer related outcome(s). ​​​​​

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In Summary​​​​​​​​​​​​​

Sellers No longer offer Buyers Agent Commissions of any kind. All Commissions and Fees in Real Estate are Negotiable Between Buyer & Buyer's Broker, and always have been; but the norm for how commissions are negotiated up front for Buyers Agent Fee's makes having a Skilled Negotiator Invaluable for any Buyer.

 

A Skilled negotiator who can negotiate for their full fee to the Seller, and help you get the terms/price you want is really valuable so you don't have to pay out of pocket at Close of Escrow.

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Step 6:

Understand that industry wide Real Estate Fees Varry, and Exist on a Spectrum from one broker to another.​

Fees In the Business World 

It is not uncommon in the Business world to see 10% Referral Fee's for any deals that are done; so in contrast even at 7% - 6% Sellers and Buyers are getting a Bargain for their Agency services.

Fees In the Real Estate World

Although real estate broker commissions are ALWAYS negotiable, Broker's and Individual Agent's have the right to set their price and stick to it as well. In other words, Agents do NOT have to work for free, and are allowed to ask for their full fee, with no exceptions.

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​NOTICE:

THIS IS NOT LEGAL OR TAX ADVICE; REAL ESTATE AGENTS AND BROKERS ARE NOT QUALIFIED TO GIVE LEGAL, FINANCIAL OR TAX ADVICE.

 

PLEASE CONSULT WITH A QUALIFIED PROFESSIONAL FOR LEGAL, FINANCIAL OR TAX ADVICE IF NEEDED – DO NOT RELY ON INFORMATION SOLELY ON THIS PAGE AS ANY KIND OF LEGAL OR TAX ADVICE.​