Let’s talk Real Estate…This year, the real estate industry has undergone a major change in how business is transacted across the country.  Many of you are aware of the successful lawsuit that was filed, in Missouri, against the NAR (National Association of Realtors).  The final decision was implemented nationwide in August of 2024.

Let’s consider how this change impacts both SELLERS & BUYERS. It’s not just black and white.  Prior to August 2024, based on common practice, a SELLER would pay the total commission of X% at closing.  Most often, the total compensation would be allocated to the listing and buyer agents from the proceeds of the sale.  The BUYER had to bring funds to the closing for the balance of their cash down payment and closing costs.  This was all reflected in the sale price of the property.

Today, a SELLER can decide the compensation to be paid when listing their home.  They have the choice to pay a buyer agent compensation(commission) or negotiate that fee. The agreed upon compensation is built into the listing contract (exclusive right to sell agreement).  One would think that a seller would say, “Great, I only have to pay half of what I would have paid in the past”.  The seller has signed a contract that he will only compensate his listing agent.  It seems like a savings for the seller.

The BUYER, however, will now have to contract a Buyer Agent to assist in finding a property and performing the due diligence required as a fiduciary. Their contract requires that the buyer pays the buyer’s agent’s compensation at the closing, an expense, formerly, paid by the seller.

Now, before making an offer, the buyer needs to come up with a different strategy since, in addition, to his cash down payment and closing costs, the buyer’s agent’s compensation must be factored into his total expenses. This presents a challenge to buyers in securing sufficient funds to cover these expenses.  Not favorable for buyers or sellers.

It’s not just black and white.  There are options to be considered for both buyers and sellers.  Offering compensation is a strategy, not just an expense.   A SELLER can:

1. decide to pay only the listing agent compensation and not the buyer agent commission. The buyer now needs to pay the buyer agent or, possibly, consider another property.
2. decide to offer a buyer broker compensation as an incentive for buyers in this time of transition, in addition, to paying the listing agent commission.  Buyers can move forward without needing more cash to compensate their buyer broker.  Some buyers may request NOT to be shown properties that do not offer buyer agent compensation. It is their right to choose. This is not favorable for the seller who wants his property shown or a buyer in a low inventory market.
3. offer a seller’s concession at closing.  A seller’s concession is an amount in addition to the contract sale price.  If a home is in contract for $200,000 ex., the buyer can ask the seller for a concession to add $10,000 to the total sales price.  At closing, the contract price is $210,000, the seller still gets the proceeds for the $200,000 sale price and the $10,000 is allocated to the buyer to possibly cover renovation, closing costs or buyer broker commission. It can be a win, win, but the property must appraise at the higher price of $210,000. Without a successful appraisal, the mortgage will not be approved. Something to consider with this strategy.