In the event that headline news isn’t really your thing, I’ll fill you in on the potentially seismic developments in the world of real estate commissions. Recently, jurors heard a class action case filed against the National Association of Realtors (the trade group to which anyone who calls themselves a capital-R Realtor belongs) and several large brokerages. They came to the conclusion, essentially, that the NAR practice of requiring sellers to offer compensation to buyer agents (those who bring a buyer to the transaction) amounted to collusion and price-fixing. The verdict came with a whopping $1.8 billion judgment against the defendants, which could rise to over $5 billion if the court decides so. While NAR is appealing the verdict, copycat lawsuits are being filed all over the country.
While the smart money says there will be changes to the current procedures, nobody yet knows how extensive those changes will be. Predictions range anywhere from “meh” to full-blown apocalypse. No need to offer my own take, because I know the answers about as well as anyone else– which is to say I don’t know at all.
Instead, I want to take this opportunity to shine some light on how buyer agents typically get paid today. When a home seller signs a listing agreement, that agreement will stipulate what the commission owed to the listing agent’s brokerage is. It will also stipulate what portion of that commission will be given to the brokerage of a buyer’s agent who brings a ready, willing, and able buyer. The currently-used contract in our area reads:
In about 75% of last month’s closed transactions on Portland’s west side, the number included for the Cooperating Firm (that’s the buyer agent’s brokerage) on line 34 was 2.5% of the sale price of the home. So, if a home sold for $600,000 and the Buyer Agency Commission (BAC) was 2.5%, the brokerage where the buyer’s agent hangs their license receives $15,000 from the seller’s proceeds (which, of course, ultimately come from the buyer side since that’s where the funds in a transaction come from). How that money is divided between brokerage and agent will vary greatly, depending on the arrangement between agent and broker.
There are states in which the buyer’s agent and their client can agree to split this commission between themselves, with the agent rebating some portion to the client. Oregon is not one of those states– rebating commission is not allowed here, and can lead to an agent losing their license.
The BAC is a publicly known amount that is included with the listing at the time that listing goes active. Anyone can see what it is– for example, Zillow includes it in this section of a listing:
The issue that the plaintiffs raised in their complaint was about how the BAC is tethered to the commission that sellers agree to pay for listing the home. NAR requires its members (and therefore their clients, the sellers) to offer compensation to the Cooperating Firm. The plaintiffs- and the jury- didn’t believe that sellers should be required to do this.
However! In Oregon as of December 19, the minimum required compensation is…wait for it…zero. That’s down from the one penny that was required. In some states it’s a whole dollar.
The larger and more nebulous question isn’t about pennies or dollars, but whether current practices create an environment in which sellers feel they have to pay a certain price in order to compete in the marketplace. Will buyer agents bring buyers if the seller isn’t offering to fairly compensate the agent? If that’s the case, does the buyer have to pay their agent directly? And how much is “fair” compensation anyway?
What are likely coming down the pike are contracts between buyer agent and client that detail how compensation will be provided in the event that the seller is not offering to compensate. These contracts are commonly used in some states (and sometimes required) but they’ve been less common in Oregon. That is probably changing.
The bottom line here is that buyer agents are going to have to do more to justify their compensation. Let’s face it, real estate agents get paid pretty well when we transact. Sometimes that big paycheck comes after months or years of showing homes, building rapport with listing agents not just to write a compelling offer for their sellers but to learn of off-market opportunities, a lot of miles on the car, working creatively to negotiate both price and repairs, and deft handling of any of the random problems that can pop up and derail a transaction. Sometimes it comes gift-wrapped when a client just wants you to write up a contract on the house they found. It’s not dissimilar to a waiter with one easy table and one tough one, but both leaving the same tip. It may not be a perfect system, but it’s been a pretty good one as it allows buyers to focus on their home search without the additional pain point of negotiating compensation with their own representative, or by going out of pocket to pay them at the closing table.
So, back to a point I made earlier– I don’t know how all of this will shake out. I do know that there is tremendous value to having a good buyer’s agent working for you, no matter the size or scope of the transaction. Real estate transactions are one of those things that look easy on the surface but often that ease was created through the skill of a talented agent. Ultimately, that’s the job.
