Buying a Home? Changes you NEED to know!
For decades, real estate transactions typically followed a common framework: the seller's agent charged a fee, usually around 5% to 6% of the sales price. This fee would then be split equally with the buyer's agent. When a buyer officially purchased a home, the buyer’s agent’s commission was deducted from the seller’s proceeds. This arrangement relieved the buyer from having to pay out-of-pocket for their agent’s services at closing. This is still the likely scenario that will be pursued. Which I will explain why below.
Don't shoot the messenger! This is not just a rule Realtors have to follow; this is Louisiana State law going into effect in August 2024. This will be nationwide!
In that agreement, there’s a compensation field, and you could be responsible for paying your Realtor for their services.
As a buyer, before you only needed to worry about your down payment for the loan you qualify for, home inspection costs, and potentially your closing costs. Now, your agent's fee could be an added expense.
However, the agreement also states that the buyer's agent fee is to come from the SELLER (the original way), which is likely the route most will pursue, as previously mentioned. The issue is that there’s no guarantee this will happen, and each house could be different.
The old way, the seller's agent already had a signed agreement with the seller offering the buyer's agent compensation before the home went to market. And that compensation was displayed for all to see. Now, it will be on a case-by-case basis. It’s completely up to the seller to offer that compensation. Technically, it always was up to the seller, but the new laws prohibit the seller’s agent from negotiating the buyer's agent fee up front.
Many sellers are still willing to pay for a buyer's agent, as this can lead to a smoother transaction. Having a competent agent on both sides ensures a fair and efficient process for both buyer's and seller's. It's similar to a jewelry store owner compensating their staff: the added support can significantly enhance the overall experience. Could you imagine a random person not accompanied by a licensed Realtor entering someone's home alone? Then having to negotiate with their best interest in mind through such a complex transaction? Seller's will understand the risk there.
Furthermore, it’s essential to remember that the transaction hinges on the buyer's funds; ultimately, the buyer holds significant leverage in the process. Most sellers understand that buyers have numerous financial commitments that must be considered for the sale to proceed successfully.
This situation emphasizes the importance of choosing the right buyer's agent. Make sure to vet your potential agent thoroughly. Here are some critical questions to consider during your selection process:
- How many years have you been in business?
- How many transactions have you closed?
- What sets you apart from other Realtors?
Real Life Example
My buyer client agreed to a 3% commission. After viewing a few homes, we found the one they liked. We made an offer of $220,000 ($5,000 less than asking) with the SELLER to cover my 3% commission ($6,600). The seller agreed to the price but was willing to offer $5000 towards my compensation to represent the buyer. After discussing this with my buyer client. They agreed to make up the remainder of my commission, which was $1,600. So as you can see, my buyer agreed to 3% at first, but only ended up having to come up with 1/4 of that amount after the seller contributed the majority. There's also plenty of examples of the seller covering 100% of the buyer's agent fee.
So even though you have to sign this document up front, it is all negotiable throughout the entire process. When your agent ask you to sign a buyer's agency agreement, remember there's going to be a whole another party involved (the seller) in this transaction that is more than likely willing to contribute to cover some, if not all of the buyer's agent fee!
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