03/27/2024
Current typical commissions being paid by sellers are 5-6% and generally this is split 50/50 between buyer and sellers agent/agency. Prior to around 1995, all agents represented the Seller of a home and Buyers were told caveat emptor, “Buyer BeWare”. In the mid 1990’s, Buyer agency was established so that Buyers could be represented by an agent so that their best interests were being protected by a fiduciary agent. Up until this time the seller paid both agents because both agents represented the seller and not the buyer.
This is the moment in time when buyers should have started paying their own agent/agency fees but the industry continued to have sellers pay the buyers agent so that buyers wouldn’t need to come up with the commissions on top of all the other costs associated with buying a home. Sellers for 50+ years have been paying the buyers and sellers agent/agency from the equity in their home. For the buyer this meant that they would not need to pay commissions from their savings to their buyer agent which kept their cost out of pocket to buy a home lower than if they had to pay the commissions themselves. The majority of commissions paid to buyers agents using the MLS is 3% of the sale price of the home and in Central PA the average median home price is $300,000 meaning that home sellers have been paying an average if $9000.00 to a buyer agent/agency out of their equity to an agent that WAS NOT representing them in addition to the $9000.00 to the sellers agent/agency that IS representing them.
Name another example in a sales transaction where one party pays fees/commissions etc to their representative and to the other party’s representative, automatically, that is working against them?
The real estate changes that are likely to go into effect this summer is that sellers will no longer offer any buyer agent compensation in the MLS meaning that if a buyers agent wants a seller to pay $9000 to them, that agent will have to make that part of the buyers offer and if seller agrees then the buyer agent will be paid by the seller like it was done previously.
Where it gets really interesting is when the seller refuses to pay a buyer agent commission.
In this example that would mean that if all other terms are acceptable to the seller then the sellers counteroffer would be that we accept all of your terms except for the buyer agent commission.
If the buyer wants that house and has agreed to pay their agent $9000.00 then the buyer will have to pay their agent directly out of their pocket in order for the seller to accept their offer.
Herein lies something rarely ever seen in the current market structure and it is going to cause a lot of confusion for agents, agencies, sellers and buyers. However this will also have the side effect of exposing to home buyers exactly how much the costs are of their buyers agents commissions and buyers agents will have to convince them that their services and representation is worth the cost.
Currently the majority of agents tell buyers that the seller of the home that they buy will pay their commissions and buyers rarely even think of negotiating the fee because they don’t have to pay it out of their pocket. The buyer may or may not have understood that they were paying $9000.00 to their buyers agent in the sale price of the home which means most buyers are financing the commission to their buyers agent into their mortgage so it’s commissions + interest over the term of their mortgage, wow!
It is really interesting to note that in most mls real estate transactions that the fee offered to a buyers agent, for an existing home is 3% or $9000.00 in this example and one must ask, how is it possible that if buyers were always able to negotiate the fee that their buyer agent was paid, that somehow almost all of them agreed to the $9000.00 in this example? Same story for sellers. This does not look, sound, smell, taste or feel negotiable.
Sellers no longer will be able to offer a buyer agent commission to agents in the MLS so if they sell their home at fair market value and do not agree to pay a buyers agent commissions then they will be able to save $9000.00 in this example.
Agents and agencies will do their absolute best to tell buyers and sellers why their value and services are worth $9000.00 in this example, some buyers and sellers will agree and some will not. I can’t imagine how an agent showing me a home that I found on the internet and helps me with paperwork to buy the house should be paid $9000.00 in this example?
Prediction: It is likely to take a year or two for the confusion to end and for the new world of real estate to take hold. Smart sellers will save thousands over the current structure. Smart buyers will force the cost of buyers representation to a much lower commission.
