Are buyers now going to have to pay their own Realtors?
Some commentators have suggested that one of the results of the recent judgment in the real estate industry (currently under appeal) may be that buyers may have to pay their own agents. To clear up the confusion, many buyers who have enough available cash already do pay their own agent, and that is then subtracted from the offer price to result in a lower deed price for the home. This is nothing new – buyers are motivated to do this because this lowers the deed price for tax assessment purposes which can mean years of tax savings to the buyers. However, this tactic has previously been reserved for those with sufficient cash to cover their down payment, closing costs, and paying their agent directly.
Historically listing agents have shared the commission they receive with the buyer’s agent, resulting in a 2.5%-3.5% payment to the buyer’s agent. Conversations have recently shifted to whether sellers will continue to provide buyer agent’s with this commission. That is a conversation that each seller will need to have with their listing agent, but if they offer a low or no commission, buyers will need to be prepared to pay the commission to their agent, and some buyers may wonder where they will come up with the cash. The industry is anticipating that lenders may come up with creative ways to address this issue, but in the meantime, there are two simple alternatives if you find yourself with insufficient cash to pay your buyer’s agent.
First, we have always been able to request seller assist from a seller, which can be as high as 6% of the sales price. What this means is that the seller is giving the designated percentage of the sales price back to the buyer to assist them with their costs, thereby lowering the seller’s net proceeds. Second, it is permissible for a buyer to attach a PA state drafted addendum to the offer that indicates that the seller will pay the buyer’s commission liability to the buyer’s agent, again reducing the net to the seller.
One may wonder, why go through all of these machinations if the seller is going to effectively absorb the cost of the commission anyhow, and that is an excellent question. In the normalized market that we are currently operating in, most sellers are more than happy to effectively reduce their price by three additional percent if they can get their home under agreement and to the closing table, so why not just continue to offer the buyer’s commission out of the gate?
The answer likely lies in the fact that as willing most sellers are to leave 3% or more on the table to get a deal done, most sellers are also (at least initially) eager to take as much away from their home as possible and may view not paying a buyers agent’s commission as an addition to their bottom line. That said, we are no longer in a market where homes are getting multiple over-asking price offers in the first week, and so it is likely that most sellers are still going to have to offer to pay a buyer’s agent a commission when they list their home or entertain a buyer’s request for funds to pay that fee when they receive an offer in order to get the job done. This is because, despite some of the negative press you may have read about the value of a buyer’s agent, they actually play a very valuable role and no buyer should venture into a real estate transaction without one. More on that next week!
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