If you buy a home after August 17, you’ll need to do some things differently than before. The rules changed that day due to the settlement of an antitrust lawsuit.
Unlike before, you decide how much your real estate agent will receive for representing you in the home purchase. And your agent will not be paid by the seller’s agent. Instead, you will likely ask the seller of the home to pay your agent – a request that is negotiable.
In short, it will not be the same buying process that your parents, siblings and friends went through when they bought their homes before the legal settlement with the National Association of Realtors.
This is how the new process works:
You sign an agreement before viewing houses
You’re browsing real estate websites and you’ve discovered a home you’d like to tour to see the inside – this is called a home tour. Before a real estate agent takes you inside, you’ll have to sign an agreement that outlines what the agent will do for you.
The agreement can establish a light and short-term relationship with the agent or be a longer-term contract – depending on what you negotiate.
On the low end of the spectrum, you might sign a viewing contract that lasts a day or a week, or gives you access to just one or two homes. Think of it as an unpaid audition for the agent. “I give them options. Option one is we could sign the contract for just today,” says Danielle Rownin, a real estate agent with Keller Williams Realty in Connecticut. If agent and client aren’t a good fit, she adds, the contract expires at midnight “and we can move on.”
You sign an agreement even if the agent gives you a virtual tour, which is usually done by walking through the home with a cell phone camera. But you don’t have to sign a tour agreement to attend an open house. Likewise, you don’t have to sign an agreement for the seller’s agent to give you a tour of the home, because that agent works for the seller, not you.
You sign an agreement when the search becomes serious
At some point, you will officially hire a buyer’s agent. You will sign a more detailed and longer-term contract that outlines not only the agent’s responsibilities, but also how much the agent will be paid. It might be called a buyer’s agency agreement, buyer-agent agreement, or buyer representation agreement. These contracts are nothing new; in fact, they have always been required in some states. But now they are required almost everywhere.
This could be the first contract you sign. You don’t have to use tour contracts. Or you could build a relationship with an agent during a tour contract and convert it to a buyer’s agency contract.
It is still possible to buy a home without hiring your own agent to represent you, but it is not recommended.
You negotiate the agent’s salary
The contract will specify exactly how much you will pay the agent for representing you. “It can be a flat fee – small or large – or a percentage of the purchase price,” says Leo Pareja, CEO of eXp Realty.
Real estate agents are experimenting with flat fees and other compensation structures such as hourly rates. However, currently most buyer’s agents charge commissions that are a percentage of the home’s price. Experienced agents may charge higher percentages, and inexperienced agents may charge less. You’ll need to put yourself in the negotiating shoes and push for a commission that works for you.
If a buyer’s agent is charging a 3% commission, “be sure to say, ‘That seems high to me. Would you be willing to lower that amount?’ That’s all you have to say,” advises Stephen Brobeck, senior fellow at the Consumer Federation of America.
Some agents might respond with a lower commission. Others might stand firm and tell you that you get what you pay for. This unyielding approach might impress you if you believe they will work diligently on your behalf. Just keep in mind that there are many agents competing for your business and some might charge less. You don’t have to sign a contract with the first agent you negotiate with.
Percentages are abstract numbers, so calculating the commission cost in dollars can help you understand what you’re getting into. For example, let’s take a home valued at $400,000. A 3% commission would be $12,000, while a 2.5% commission would be $10,000.
They deal with contract elements in addition to payment
The length of the contract is also a negotiation point. The agent may want to lock you in for 90 days, explaining that we are in a seller’s market and it may take a while to make a successful offer. However, Brobeck says 90 days is too long. “You shouldn’t accept anything more than 60 days and ask for 30,” he says, explaining that you can extend the contract after it expires (if you are happy with your agent).
Read the contract thoroughly and ask the agent to explain anything that is unclear. If you are still confused, consider getting legal advice – it could be worth it.
Watch for fees in addition to the commission, said Wendy Gilch, deputy director of Consumer Advocates In American Real Estate. “Management fees, broker fees, transaction fees, regulatory compliance fees are junk fees and buyers should negotiate them,” she said in an email. “They are common, some brokers charge buyers $800 in addition to the commission collected.”
The contract can specify the geographic area it applies to. It can be an address, one or more zip codes, a city, a county – whatever you negotiate. Gilch advises against extending the contract to the entire state, because that would be asking too much.
You can ask the seller to pay your agent’s commission
When you make an offer on a home, you may ask the seller to pay your agent what is called a seller’s concession.
If you’re already worried about how you’re going to pay the down payment, earnest money, and closing costs, having the seller pay your agent is a relief. Your agent’s commission is thousands of dollars, and many buyers don’t have that kind of money to spare.
“The seller has the ability to pay the buyer’s agent,” says Courtney Johnson Rose, president of the National Association of Real Estate Brokers, an industry group for black agents. “That’s the seller’s prerogative.”
Here’s an example of how it can work: You offer $400,000 for the house on the condition that the seller pays your agent 2.5%, or $10,000. That means the seller nets $390,000 before paying the agent, taxes, and closing costs.
The seller may have already indicated a willingness to make a concession of, say, up to 3% of the purchase price to pay the buyer’s agent or to contribute to closing costs. In such a case, the seller will not object to your request to pay money to pay your agent.
Even if the seller hasn’t indicated they’re willing to pay your agent, you can still ask. It might be in the seller’s best interest to pay. “Sellers who choose to offer the mentioned compensation will attract more buyers, get the best price and sell faster,” Rownin said in an email.
In a welcome policy change, VA borrowers — homebuyers with loans guaranteed by the Department of Veterans Affairs — will be allowed to pay their real estate agents directly or through a seller’s concession.
How to get a home by negotiating a better contract
Finally, a word about the value of negotiating a lower commission with your agent. Consider again the example where you offer $400,000 and ask the seller to give 2.5% of that, or $10,000, to your agent.
Now imagine a competing buyer who also offers $400,000 but demands 3%, or $12,000, as payment to his agent.
Your offer will give the seller $2,000 more. The difference could swing the offer in your favor because you negotiated a better deal with your agent.
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Holden Lewis writes for NerdWallet. Email: [email protected]. Twitter: @HoldenL.
