Demystifying Buyer’s Agency
Two massive class action lawsuits made its way to the national stage this summer. The key theme? Buyer’s agency agreements. Today, we’re talking about what this means for American home ownership and what we’re doing at the Trautman Agency to address these concerns.
First, let’s get some context…
To understand the issue, we first need to talk about Multiple Listing Services or more commonly known as MLS, the cornerstone of the U.S. real estate market, where agents exchange property information. These two lawsuits are challenging the system, alleging that the National Association of REALTORs and big brokerages exploit MLS rules to inflate fees and support agent commission. If successful, these lawsuits could reshape agent compensation, potentially having buyers directly pay their agents.
“This could enhance competition, significantly reduce costs and save consumers billions annually”
“The current setup actually benefits consumers”
Despite the two arguments, most local agents are currently overlooking these cases, which nevertheless pose a significant threat to the real-estate industry and impact buyers more than you think.
So what’s really going on? Let’s talk about how REALTORs are compensated
For many people, buying a house is going to be one of the largest transactions of their lives. Let’s face it, houses are expensive. When a house is listed on MLS services through a REALTOR- remember, these are the online networks where agents can share photos and detailed information about homes for sale and a great asset to sellers who likely don’t have that network themselves-, the seller and the REALTOR will enter a listing agreement. Here, sellers can negotiate what fee they’re willing to pay for the agent’s services and what portion of that fee will go to the real estate agent who finds the buyer.
Buyer’s agents on the other hand, are paid by the listing agent and are told how much that agent will get. At closing, both buyers and sellers are reminded of how much each agent is being paid and by whom.
For sellers, brokers are typically paid out of the proceeds of the sale. For buyers, the listing broker pays the buyer broker’s compensation.
So what? Why is this a big deal?
Simply put saving for a down payment on a house is already really tough. If buyers had to pay their agents out of pocket or in advance, it would put homeownership out of reach for even more Americans. Fewer buyers means that fewer people are able to bid on and ultimately buy homes that sellers are trying to sell. At the same time, sellers don’t usually have to pay their agents unless their home sells for an acceptable price. Real estate agents provide tremendous value; they’re professionals to help you navigate all the financial, legal, and community aspects of selling or buying a home. Like many other services, real estate compensation varies based on service, consumer preference, and the market itself. In fact, commission rates have fallen to well below where they were in the 90s, while real estate agent value has continued to increase!
So what do REALTORS at the Trautman Agency do?
The National Association of REALTORs recommends the usage of a buyer representation agreement to offer transparency, reinforce the services we provide, and explain how we expect to be paid.
Buyer representation agreements are a win-win for clients and REALTORs. It serves as a binding contract that outlines critical aspects of the relationship, including services promised, agency terms, and compensation. Signing this agreement benefits both the broker and the buyer, preventing any potential misunderstandings. While regulations differ regarding written agreements and compensation, most states mandate written documentation for any exclusive brokerage or agency relationship, with some requiring written disclosure of an agency relationship for payment. It’s crucial to understand the specific requirements in your area and consult your state REALTOR association for the appropriate buyer representation agreement form. It’s essential to thoroughly explain all terms to the buyer before they sign.