New Real Estate Compensation Questions and Answers

Posted by Liza Alley on Monday, October 3rd, 2022 at 6:45pm

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You may be aware of a new rule change from the Northwest Multiple Listing Service regarding “Offering” a Buyer’s Agent Compensation (We no longer use the term Commission). While it’s a confusing topic for both consumers and real estate agents alike, The Cascade Team has put together some Questions and Answers on the topic.

 

 

Why was this rule change put into effect?

For more than 30 years, the compensation framework in the real estate industry was structured for the seller to pay the listing firm and for the listing firm to "share" its compensation with the buyer brokerage firm.  This framework was a vestige from "sub-agency" where every broker represented the seller and brokers did not work directly for the buyer.  Sub-agency was eliminated in the mid-1990s with the adoption of the Agency Reform Act (RCW 18.86) and the creation of buyer's agency.  Yet, the "commission sharing" structure remained.

Rule 101 and the listing agreement will be revised to provide for a direct offer of compensation from the seller to the buyer brokerage firm.  The concept of "commission sharing" by listing firms will be removed from the Rules and the listing agreement.  Of course, the seller and listing firm can work together to determine the amount of compensation, if any, to offer the buyer brokerage firm.  The listing agreement will be reformatted to clearly differentiate between the listing firm's compensation and the buyer brokerage firm's compensation.

The revisions further enhance transparency regarding broker compensation and create additional opportunities for consumers and brokers to discuss and negotiate compensation.  The changes provide greater flexibility for consumers and brokers when selling and purchasing real estate and promote innovation and competition in the market.

These revisions build upon changes made in 2019, when NWMLS began publishing, and allowing its member firms to publish, the amount of compensation the seller offers to pay a broker representing the buyer.  At that same time, NWMLS eliminated the requirement that a seller offer compensation to the buyer's broker.

Again, these revisions further enhance transparency regarding broker compensation, create additional opportunities for consumers and brokers to discuss and negotiate compensation, provide greater flexibility for consumers and brokers when listing and purchasing real estate, and promote innovation and competition among member brokers.  These revisions are critical to the evolution of the real estate brokerage industry and will help NWMLS members better serve their clients for years to come.

Do I have to offer a Buyer’s Agent compensation?

The short answer is “No.”.. The NWMLS eliminated the requirement that a seller offer compensation to the buyer's broker.

Fact: Real estate brokers’ compensation rates are not regulated in any state and are ALWAYS 100% negotiable.

Surprisingly, many people think that real estate brokerage compensation rates are “set” in their area, and they must pay a specific percentage of the sales price to the agent in order to get their services. This is absolutely not the case.  In fact, you can pay whatever you and the agent have agreed upon.

What is a “Fair” amount to pay for real estate compensation?

“Fair” is whatever you and the agent decide is fair, and just as you are not under any obligation to pay more than you want, the agent is not under any obligation to do business with you if they are not going to earn what they expect.

What will most likely happen is Buyer’s agents will have what’s called a Buyer’s Agency Agreement with their clients. This agreement will guarantee them a certain commission.

 

Who pays the Buyer’s Agent compensation?

 

 

This really gets to the heart of why the change was made and the surrounding confusion on real estate compensation.

Where a lot of confusion came in was the fee paid to the Buyer’s agent. That money was traditionally always offered as a promised split of the overall compensation to the Buyer’s agent. So technically the Seller was paying for the Buyer’s agent, and that Buyer’s agent then proceeded to represent the buyer and negotiate “AGAINST” the Seller for a lower price, or on inspection items, ETC… So, the Seller was paying for someone to literally work on the other side of a transaction and often against them.   

See a detailed breakdown of how this works HERE 

Under the new rules it now becomes clear that the Buyer’s Agent compensation is part of the negotiated purchase price and it’s clear who is paying them, who they represent and what % amount of purchase price that represents.

It’s all about better transparency in the process. Agents will still be properly compensated, just everyone will be clearer on who represents who and it conforms with the law that states “ALL” Real Estate compensation is negotiable.

And honestly many Buyers and Sellers didn’t understand how that worked.

Now the Selling Office compensation offered or (SOC) will be publicly displayed and can be negotiated.

What will most likely happen is Buyer’s agents will have what’s called a Buyer’s Agency Agreement with their clients. This agreement will guarantee them a certain compensation. They will then decide to either accept the offered compensation by the seller or negotiate for a higher amount.

 The buyer’s agent may submit the offer along with an addendum asking you to pay them 2.5% of the purchase price. (On a $Million Home that would be $25,000) That addendum must be agreed to and signed off on by the Buyers as part of their offer. (So, the buyers will understand this “Ask” may affect the competitiveness of the offer they are submitting.)

 

 

Is compensation negotiable?

YES!

Fact: Real estate brokers’ compensation rates are not regulated in any state and are ALWAYS 100% negotiable.

The compensation offered in the listing will be auto-filled into the purchase and sale agreement from the listing - or inserted by the buyer's broker (if the auto-fill tool is not used).  The buyer and buyer's broker then need to decide if the compensation in the listing will be accepted as offered in the listing ("Pay as Offered") or if the compensation will be modified by the parties in an addendum

You may choose to offer a flat compensation of ($10,000 for example) for a buyer’s agent who brings a qualified offer for your home.

That agent may submit the offer along with a addendum asking you to pay them 2.5% of the purchase price. (On a $Million Home that would be $25,000) That addendum must be agreed to and signed off on by the Buyers as part of their offer. (So the buyers will understand this “Ask” may affect the competitiveness of the offer they are submitting.)

You could accept this request, deny it, or counter back at a different number.

You could even offer LESS

If your home is listed at $1 million and you are offering a $10,000 compensation to the buyer, and their offer comes in under $1 Million and they ask for more…. You could choose to accept the lower offer or counter back AND you could also LOWER the compensation you are offering down to $5,000 or some other number.

(NOTE) The buyer’s agent has the checkbox option to simply accept the compensation offered. In that case the compensation is not negotiable.

Surprisingly, many people think that real estate brokerage compensation rates are “set” in their area, and they must pay a specific percentage of the sales price to the agent in order to get their services. This is absolutely not the case.  In fact, you can pay whatever you and the agent have agreed upon.

What is a “Fair” amount to pay for real estate compensation?

“Fair” is whatever you and the agent decide is fair, and just as you are not under any obligation to pay more than you want, the agent is not under any obligation to do business with you if they are not going to earn what they expect.

What will most likely happen is Buyer’s agents will have what’s called a Buyer’s Agency Agreement with their clients. This agreement will guarantee them a certain compensation.

 

What happens if I don’t offer a SOC (Selling Office Compensation)?

As part of the changes, NWMLS will revise its listing agreement form to remind sellers that Washington law says that buyers’ brokers and agents are not required to show property for which there is no written agreement to pay compensation to the buyer’s broker. Asked why this was being added, NWMLS said, “When listing their home for sale, sellers in Washington state need to be aware of the legal consequences of not offering a SOC.”

A new provision provides that the broker shall bring listings to the attention of the buyer, regardless of the amount of seller's offer of compensation, unless otherwise agreed by the parties.  Similarly, new Rule 106 provides that brokers shall not filter listings sent to buyers based upon the compensation offered to the buyer broker, unless specifically requested by the buyer in a written buyer representation agreement.  New Rule 106 also prohibits a broker from filtering listings sent to buyers based upon the listing firm or broker.

 

Can I “Test” the waters with no SOC and then change my mind a few weeks later?

 

Absolutely! You can try no, or a low SOC to start out, and then if after a few weeks you can decide to offer more compensation that can be changed with a simple form and signature!

And of course, even if you offer no compensation, a buyer’s agent can always ask for compensation as part of the offer which is signed off on by the buyer.

 

What happens when a Buyer’s Agent has a Buyers' Agency Agreement?

 

 

The buyer’s agent has the checkbox option to simply accept the compensation offered. In that case the compensation is not negotiable.

The buyer’s agent may reject the compensation offered and submit the offer along with an addendum asking you to pay them a higher amount or percentage of the purchase price.  (2.5% of the purchase price on a $Million Home that would be $25,000) That addendum must be agreed to and signed off on by the Buyers as part of their offer. (So, the buyers will understand this “Ask” may affect the competitiveness of the offer they are submitting.)

“This revision allows greater flexibility for sellers when listing a property, while affording buyers and buyer’s brokers a vehicle for negotiating the compensation for the buyer’s broker’s services.

The Seller still has no obligation to agree to pay the higher commission, and as the buyer’s agent works solely for the buyers benefit it may fall to the buyer themselves to make up the difference in the offered commission and the commission amount guaranteed in the buyer’s agency agreement.

You could even offer LESS

If your home is listed at $1 million and you are offering a $10,000 compensation to the buyer, and their offer comes in under $1 Million and they ask for more…. You could choose to accept the lower offer or counter back AND you could also LOWER the compensation you are offering down to $5,000 or some other number.

 

Can the Buyer’s agent “Ask” for higher compensation?

 

(NOTE) The buyer’s agent has the checkbox option to simply accept the compensation offered. In that case the compensation is not negotiable.

The compensation offered in the listing will be auto-filled into the purchase and sale agreement from the listing - or inserted by the buyer's broker (if the auto-fill tool is not used).  The buyer and buyer's broker then need to decide if the compensation in the listing will be accepted as offered in the listing ("Pay as Offered") or if the compensation will be modified by the parties in an addendum

The buyer’s agent may reject the compensation offered and submit the offer along with an addendum asking you to pay them a higher amount or percentage of the purchase price.  (2.5% of the purchase price on a $Million Home that would be $25,000) That addendum must be agreed to and signed off on by the Buyers as part of their offer. (So, the buyers will understand this “Ask” may affect the competitiveness of the offer they are submitting.)

The Seller still has no obligation to agree to pay the higher commission, and as the buyer’s agent works solely for the buyers benefit it may fall to the buyer themselves to make up the difference in the offered commission and the commission amount guaranteed in the buyer’s agency agreement.

You could even offer LESS

If your home is listed at $1 million and you are offering a $10,000 compensation to the buyer, and their offer comes in under $1 Million and they ask for more…. You could choose to accept the lower offer or counter back AND you could also LOWER the compensation you are offering down to $5,000 or some other number.

 

If the buyer’s agent asks for more but the offer is lower than asking, can I offer a lower compensation?

 

 

YES! You could even offer LESS

If your home is listed at $1 million and you are offering a $10,000 compensation to the buyer, and their offer comes in under $1 Million and they ask for more…. You could choose to accept the lower offer or counter back AND you could also LOWER the compensation you are offering down to $5,000 or some other number.

 

Many Buyer’s Agents offer “Rebates” to their clients. How does this rule change affect that?

 

Additional options have been added to Form 41C to enable the buyer brokerage firm to reduce its compensation and have seller credit the amount of the reduction to the buyer's obligations at closing.  Note that such credit is subject to approval by the buyer's lender.  Another new option in the form is a simple reduction in the buyer broker compensation paid to the firm.  This option could be used in situations where a buyer and buyer's broker agreed to a lesser amount of compensation in a buyer representation agreement or a reduction to make the buyer's offer more competitive.  There is also an "other" box that the parties may use to agree on different compensation terms.

Letting brokerage websites publish the commission that a homeowner is offering the buyer’s agent will show everyone all the incentives at work in a home sale and make it easy for agents to explain the costs of our services.

And being explicit that a listing can offer buyers’ agents any commission or now even no commission will assure consumers and agents alike that Seattle’s real estate market is wide open for competition.

Therefore, the public will be able to see in advance what percentage of commission is being paid on any home.

 

Can a Buyer’s Agent reduce their compensation to make the offer more favorable?

 

 

Another new option in the form is a simple reduction in the buyer broker compensation paid to the firm.  This option could be used in situations where a buyer and buyer's broker agreed to a lesser amount of compensation in a buyer representation agreement or a reduction to make the buyer's offer more competitive.  There is also an "other" box that the parties may use to agree on different compensation terms.

 

What if a Buyer comes unrepresented and wants to purchase my home?

In the event that the buyer is unrepresented the listing agent will be required to handle both sides of escrow, confer with the buyer’s lender, and collect data and clear all sides for closing. There will be a separate section on the listing agreement where the listing broker indicates.

1)   Compensation for marketing the home and negotiating the offer

2)   Additional fee if the buyer is unrepresented.

In the past the default would have been for the Listing agent to claim both the Listing and Buyers compensation.

Under the new forms this is now broken out and can be clearly negotiated in advance what would happen if the buyer came unrepresented into the transaction.

 

 If you have any questions about compensation, please fill out this form below 

Please provide a valid email address.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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