In the past month, we've been asked twice by sellers if they still need to pay the buyer agent. Undoubtedly, that's because of the most significant change to the residential real estate industry in 30 years. The sweeping class action lawsuit against the National Association of Realtors, the various MLSs nationwide, and the largest brokerages is happening right now. It's creating more confusion than you'll ever know not only for the general public, but also for agents.
The rules and associated forms we're required to use keep changing as the unintended consequences of these new regulations become clear. The lawsuit was directed more toward the Buyer Agent Commission than anything else.
A BAC (Buyer Agent Commission) fulfills two purposes. First, it's an incentive for agents to bring their buyers to view a seller’s home. Would an agent push one home over another based on the size of their commission? Although our agents would never do that, I can't speak for other agents.
The second reason is that if the seller pays the BAC, the buyer doesn't have to. However, depending on what the seller is offering and what was agreed upon between the buyer and their agent, the buyer might end up paying the BAC out of pocket.
That is definitely not what was intended when this class action lawsuit was created. It was designed to protect the buying public, but as the saying goes, be careful about what you wish for.
What has changed
The massive lawsuit against the National Association of Realtors, the major brokerages around the country, and the various multiple listing services have been a source of confusion for the general public and the agents. Buyer Agent Commissions and Listing Agent Commissions (LAC) have always been negotiable, and that hasn't changed. What's causing the disruption is who pays the BAC and how.
For decades, the Multiple Listing Service (MLS) has stated the BAC amount be noted on every property by the listing agent. It was not an option. Technically, the seller paid the listing agent for both the BAC and LAC. The buyer's agent could see what BAC was being offered on a home, which was almost always a non-issue. The seller paid for the buyer agent's fee out of their closing fees.
As of last month, the new regulations no longer allow the BAC to be shown on a MLS. Buyer agents now must contact the listing agent to find out what commission they will be paid, if any, on a listing. That's an inconvenience for the buyer agents, but it goes further than that.
The buyer is now responsible for paying the BAC, not the seller. Buyer agents are having to negotiate with their buyers for their fees. If the buyer agent and buyer agree to an amount and the seller is willing to pay that, there's no problem. But if there's a deficit, it's up to the buyer to pay that difference.
A 3% BAC, while not set in stone, was considered the norm in this area of Texas. We've been curious if the new regulations are going to entice sellers to pay a lower BAC so we did some research. Today, in the Lovejoy market (most of Fairview and Lucas), we're seeing ...
- 73% of sellers offering a 3% BAC,
- 11% offering 2.5%,
- 6% offering 2%,
- One offering 4%,
- with two listings being "negotiable"
We'll closely monitor this to see if this is becoming a trend. The real unknown is how buyer agents are going to handle the situation when the listing agent replies the BAC is negotiable.
As mentioned, the BAC has always been a required field on the MLS. The agents always knew what was being offered by the seller, But when a listing agent tells the buyer agent their fee is negotiable, what does that mean?
I assume if it's a good offer the BAC will be higher, but if it's a low offer the BAC will be lower. That works great for the seller, but I see real problems. Buyers are now negotiating their fee with the seller, and at the same time, they're negotiating the price for their buyer.
Should Sellers Continue To Offer Buyer Agent Commissions?
Absolutely! Buyer agents serve a very important role in a transaction. Yes, they are there to protect their buyer's interests, but they realize if they can't bring the buyer and seller together they'll never get paid. Buyers rely on them to keep them in compliance on the contract and work through the countless issues that can come up throughout the entire transaction. They earn their pay, but they can't work for free.
Here's the bottom line, if the seller isn't going to pay the buyer agent, it's going to be up to the buyer to pay it out of their pocket. How many buyers have the cash to pay not only the buyer agent fee but also the down payment on the home?
It's not hard to imagine a buyer passing on a home they really like only because the seller is offering a very low BAC. So my suggestion is yes, it's smart for a seller to pay a BAC in line with what other sellers in the area. Sellers need buyer agents working with them not against them.
