Who Pays Real Estate Commissions?

Important Facts for Home Buyers and Sellers About Changes to Broker Commissions. Affecting Seattle and Surrounding Communities. 

As of October 1st – the Northwest Multiple Listing Service (NWMLS) has put into effect changes in the way that Buyers Agents get paid. Lots of headlines in the local media about this – interesting the speculation on how it will affect the market. Here are the facts:

So what has changed? 

Real quick – in case you (like most) don’t really know what the NWMLS is: It is the brokers-only site where we input all of our real estate listings so that they can be syndicated to all the brokers sites (Windermere, RE/MAX, RedFin, etc…). As members of the NWMLS we are governed by it’s rules on how things are done and how we get paid when our client sells or buys a home. 
Also – technically we are not called ‘agents’ anymore, we all ‘brokers’ – just FYI so there is no confusion. Buyers Broker = Buyers Agent. I use them interchangeably.

Previous Rule: The Listing Agent negotiates a commission with the seller and offers a portion of that commission to the Buyers Agent. Buyers (unless there was some special arrangement) did not pay their broker anything.

New Rule: Listing Agent negotiates a commission with the seller for the Listing office to get paid. Seller can choose to offer a Buyers Agent commission but this is no longer required by the NWMLS.  

What does this mean for Buyers?

  • If buyers want to have the representation of a Buyers Agent – the buyer will very likely have to sign a Buyers Agreement with the agent. This agreement will have a compensation that the buyer will pay to the agent’s office if there is no commission provided by the Listing side.
  • Please note that the Buyers Agent is able to negotiate a commission to be paid by the SELLER directly in the contract paperwork when the buyer is making an offer. So the Buyer is not necessarily having to come up with extra funds to pay their agent at closing.
  • As of now, buyers can NOT finance a commission into their loan – so negotiating with the Seller to have the “seller pay” the buyers agent commission would be a roundabout way to accomplish this.

What does this mean for Sellers?

Selling a home is already expensive with all the taxes and fees involved – so sellers are sure to cheer for these changes. However, there are few points to consider:

  • The NWMLS has added the rule that Buyer’s Agents do NOT have to show homes that do not offer compensation to the Buyers Agent.
  • Many buyers in the Seattle market are already struggling with finding a downpayment for the high values in addition to closing costs. Many will not be able to pay their agent’s commission on top of all that. A seller not providing a Buyer’s Agent commission may be a DIS-incentive to these particular buyers.
  • As always, when listing a home, it is crucial to know what the competition is doing. If there are a healthy amount of sellers who are offering buyers agent commissions as part of their incentives to buyers – how will it affect your home sale if you are in a similar price range but you are not offering this incentive?

What does this mean for Real Estate Brokers? 

Even now, most clients don’t know how we get paid and few ask.
Real estate brokers work (sometimes for many months) to guide their clients with the end goal of a successful closing – that is when we get paid. No closing = no money.
Nothing has changed there.

What has changed is that Buyers Agents now have to take the time to really explain this to their clients and have a serious chat about what happens if the home that the buyer falls in love with does not have any compensation for the Buyers Agent.

Honestly, all the hoopla about this is overblown. There have always been sellers who have chosen to offer very small Buyers Agent commissions. Usually same sellers who overprice their homes.
We have been tracking new listings since the beginning of the month and we are seeing very few sellers who have opted not to offer a Buyers Agent commission as part of their listing incentives.

Finally, WHY is this happening?

I won’t go into too much detail but this is all because of a lawsuit brought against some MLS organizations in the USA.  NWMLS is NOT named in this lawsuit.
It has to do with the real estate industry allegedly ‘hiding’ commission rates.
Personally, I think this is unfounded, I haven’t seen any hidden commission fees in any of my closings since I started in this business in 2003

But ok – I guess buyers do not have any clue what their agent is being paid (except at closing as it is on the closing worksheets all buyers sign at the closing table).
So this is happening now – to put it up-front for the buyers – each listing is now going to show the public what the buyers agent is getting paid (or not paid).
Thus, this also gives buyers the opportunity to negotiate with their own agent for what they are personally willing to pay their agent in the event the seller does not offer this incentive.

Jury is out on what buyers think about this!

If you would like to discuss this further just let me know. I am happy to meet up and/or provide additional resources.
If you know of anyone who wants to buy or sell a home please put them in touch with me. Regardless of any changes to the NWMLS rules my clients get the same thoughtful service from me, as always.