A Simple Guide to the Industry Changes Impacting Buyers and Sellers
You’ve been reading flashy headlines (and scary comment sections!) about the real estate industry changes for over a year now. The real bummer? Most of these articles and opinions come from people who don’t work in the real estate industry, and sometimes don’t have any experience buying or selling a personal home.
So, here are the details. Straight up and easy to understand.
For Homebuyers –
There are two primary changes that will impact all homebuyers moving forward. But most of the time, these changes won’t affect you monetarily or experientially.
Change #1: You’ll be required to sign a document before you start to tour homes with your agent.
This document is called a Buyer Broker Agreement. The terms of this agreement are super flexible, and can have very few implications with certain details in place. If you aren’t 100% certain you want to hire your agent exclusively, you can sign this Buyer Broker agreement for as little as one day. This means the terms fully expire after you’re finished seeing homes that day.
On the flipside, my hope for most buyers is that they partner with an agent they trust, respect and know. If you have a great agent in your corner, it makes complete sense to sign a longer agreement (3+ months). Why? A working relationship carries a whole lot of weight. Relationship contracts exist everywhere else – think the gym, your HVAC service agreement, your attorney. Your agent’s job is to represent your best interests, find you a great home, and secure excellent terms. This buyer broker agreement ensures just that.
Please remember that not all agents are created equal. I recommend all buyers do their due diligence before choosing your real estate agent partner. Google is your best friend here, and absolutely ask for references.
Change #2: How your agent is paid isn’t as straightforward as it used to be.
But, it most likely isn’t changing. Up to this point, the commission percentage paid by the selling side to the buyer’s agent is included in the listing details online. The minimum amount that was allowed to be offered was $1. Now, it’s $0.
The headlines will make you think this change will cause homesellers to no longer pay buyer’s agents. I’m going to call their bluff on this. Why? 89% of homebuyers are represented by a real estate agent when they buy a home, according to Bankrate.com. Skilled listing agents present this fact to their sellers and recommend a list price that factors in these standard closing costs.
A homeseller’s goal is to sell their home, and that means maximizing exposure to buyers.
Before you head out on your full day of showings, your agent will likely share with you if any of the properties on the list are offering $0 in pay for their work (we find this out by simply calling or texting the listing agent). If that particular home isn’t offering any commission to your agent, you can choose to skip the showing altogether or expect your agent to negotiate their pay.
For Homesellers –
There is only one key change to consider when listing your home with a licensed agent. While you have always had the option to pay the buyer’s agent $1, you now can pay $0. Tempting? Evaluate the facts and make your decision strategically.
Your goal when partnering with an agent to sell your home is to actually sell your home. Depending on the price point of your property, there are a few key facts to consider when evaluating your potential buyer pool:
Most buyers will need to bring a minimum of 3% of the purchase price for a down payment, plus another 3% for standard closing costs (taxes, title, lender fees, etc.) Many buyers save their whole lives to afford this purchase and cannot afford another closing cost, eliminating them from contention altogether. This buyer may choose to eliminate your home from their search and focus on homes that compensate their hired agent representative.
At the end of the day, the buyer is really the one paying all of these fees. What do I mean? None of the closing costs, commissions, remaining loan balances, etc. would ever be paid out if there isn’t a buyer for your property. While the agent’s commission is in the seller’s column on the settlement statement, it’s only possible to pay it at all because the buyer has brought their cash to the closing table and qualified for a loan.
A strategic seller will always factor in buyer’s agent commission when listing their property. They will price their home accordingly while factoring in these closing costs, allowing their buyer pool to be as big as possible.
What I’d Do if I Were You…
I would do my due diligence. Whether I was selling a home or buying a home, I would partner with an agent who has the experience and track record to represent my best interests.
I wouldn’t sign a Buyer Broker agreement or Listing Agreement with my cousin’s friend, just because they were referred to me. I would understand that my real estate agent is representing me in one of the most important financial transactions of my life, and that requires asking for references, knowing their track record, and trusting you’ve hired the best person for you.
Questions on navigating these changes as a buyer or seller? My team and I are always here to help (and are the ones you want in your corner).