By now you may have heard that things are changing in the Real Estate world with regards to commissions. In a landmark decision, the National Association of Realtors (NAR) has lost a lawsuit that stated that Real Estate Buyers should be able to negotiate commissions with their agent and or Seller. The lawsuit further states that Real Estate Buyers have the right to negotiate how their agent is paid and by whom. We will discuss some of the pros and cons of this landmark case and how it will affect buying and selling real estate in the future.
Currently, Real Estate commissions have been paid by the seller of a property and is negotiated upfront prior to their property hitting the open market. The traditional commission structure has been 5-6% of the sales price and if another Agent other than the agent who procured the listing called the buyer's agent generally splits that amount with the listing agent. For example, if you are selling a home with a 5% commission in the listing agreement when another Agent brings a buyer to the home the commission to that buyer’s Agent has already been negotiated with the seller and that has traditionally been half of the total amount and in this case, it would be 2.5% to the Buyer’s Agent and 2.5% to the Listing Agent. With the new ruling against the Real Estate industry, it now states that the buyer will have to pay for the commission when represented by an independent Agent. It still can be asked that the seller pay this amount but now the Buyer has to be notified that it is their responsibility to pay their Agent.
One should know Real Estate law states that any Agent in a Real Estate transaction must take the seller’s best interests into account during the Real Estate transaction. The exception is that if a Buyer contracts with an outside Agent to represent them their Agent can look after their best interests, not the seller's. This is done with a contract between the Agent and the Buyers they choose to represent them, this is called a Buyer Broker Agreement and from this day forward this form will become mandatory for all Agents that represent home buyers. Although this may seem like just another disclosure form in the already sea of forms a home buyer and seller must sign it and it has far-reaching consequences for the Buyer notwithstanding the cost of representation. A potential home buyer may be forced to come out of pocket to pay for representation similar to an attorney-client relationship with a contract upfront stating how they will be paid to represent them. If a potential home buyer chooses to use the listing Agent that buyer will not have the same representation as the Listing Agent has to look after the seller’s best interest before that of any potential home buyer. This type of representation in California is called Duel Agency where the listing Agent represents both the buyer and the seller. This is not legal in a lot of states so it will leave home buyers having to contract with another Agent.
The intent of the lawsuit other than the enrichment of attorneys was to allow potential home buyers to negotiate the commissions in the transaction. This ruling missed the mark for home buyers as now they may have to come out of pocket with money for representation where before the seller has paid the buyer’s Agent. In typical fashion, something that was spun to help home buyers will end up hurting them in the long run as it could dramatically raise the cost of buying a home. A potential Home Buyer could now end up paying more for a home to get their Agent paid so they don’t have to come out of pocket to pay them. If they go directly to the Agent who has the listing on the house and try to negotiate without an Agent representing them they too could pay more for the house without representation.
All is not lost however, here at MAE Capital Real Estate and Loan, we have a solution to the problem of buyer representation. We have been using this method to help our Home Buyers over the years and have been very successful and that is where we represent the home buyer and do the mortgage for them. Yes, our Agents are licensed for both Real Estate and Mortgage which allows our Agent to negotiate with a home Seller for a commission which we also give a portion back to the Home Buyer for their mortgage. In this scenario a home Buyer will not only get representation on their purchase, but they will get representation on the mortgage at the same time. This method has proved to be far more convenient for a Home Buyer as they only have to make one call to their Agent to get information on the home as well as the progress of their mortgage as opposed to having to make 2 calls one to their Agent and One their Loan Officer. Not only will this save them time it will also save them thousands in having to pay the new Buyer Broker it will save them on their costs of the mortgage and in some cases our Buyers get a lower interest rate as we have successfully negotiated all the fees to be paid by the Seller and we contribute some of the commission on the sale to the new loan. In some other cases we have helped our clients Sell a home and Buy another home and we do their mortgage for them, in this case, we negotiate a far lower commission for our Seller and when they buy our contribution saves them now on both brokerage fees as well as mortgage fees. If you are considering Selling and buying another home this way will save you thousands and thousands of dollars when you work with MAE Capital Real Estate and Loan. We call this service bundling which is similar to the way insurance companies work when you give them the opportunity to cover your house and cars. Bundling Services in Real Estate now makes more sense than ever. If you are looking for the best way save look no further than Mae Capital Real Estate and Loan.