Question: Are buyers now required to pay buyer agent commission?
Answer: Most people have heard a least a little bit about the sweeping, nationwide changes to how compensation is offered/paid to buyer agents in residential real estate transactions that took effect in mid-August. If you’d like a catch-up, you can read my article on it from July.
Are Buyers Required to Pay Agent Commission?
I have heard a lot of confusion over the last few months on what these changes actually mean for buyers and sellers. Many came away from reading/hearing whatever news they follow understanding that buyers are now required to pay buyer agent compensation, but that is not accurate.
Here’s what you need to understand: Buyers are responsible for their agent’s compensation, but they are not required to pay it out of pocket.
What Does it Mean for Buyers to Be Responsible?
Prior to the new rules/laws, buyers didn’t hold much responsibility when it came to their agent’s compensation because in most cases (like 99%+) buyer agent commission was set when the seller signed a listing agreement with their agent and became enforceable when the home was entered into the MLS for mass marketing. So most buyers thought little about their agent’s compensation and rarely had to come out of pocket for it (the DOJ hated this).
The new rules require that the Representation Agreement between a buyer and their agent include a clear and specific amount of compensation the agent will earn. In other words, it must be a specific percentage or dollar amount, it cannot be vague (e.g. “as negotiated with the seller”) or broad (X%-Y%). This means that, through the Representation Agreement, buyers are responsible for ensuring their agent is paid the agreed upon amount.
This does not translate to the buyer being responsible for paying their agent out of pocket (cash at closing). Sellers can still pay the commission of the buyer agent in a transaction, but the buyer now has to include that in their offer.
The image below shows a section from the first page of the Northern Virginia Association of Realtors contracts (what everybody other than big builders, with their own contracts, uses in a residential transaction in NOVA) where you can see that Section E allows the buyer to include seller-paid buyer agent compensation.
So Far, Little Has Changed…
It’s one thing for the rules and practices to have changed, but what really matters to consumers is how these changes are affecting individual transactions and the bottom-line to buyers and sellers.
Prior to these changes, when buyer agent commission was part of the MLS, I could run highly accurate reports on how much buyer agents were compensated by sellers in a transaction (like this report last year), but now that buyer agent commission is no longer part of the MLS, we have to rely on anecdotal evidence and limited/inconsistent brokerage data (that is not often shared publicly) to understand what is happening in practice.
So…anecdotally and based on brokerage information I have access to, I can share that little has changed in how buyer agent compensation is being paid with the vast majority of transactions including seller-paid buyer agent commission and the average amount being just over 2.5% which is very similar to what it was before the DOJ and class action attorneys got involved.
…But That Doesn’t Mean It Won’t
It’s important to remember that we’re only about two months into the rule/law changes and in a slower, less competitive period of the market (second half is generally less competitive than first half of the year). I am very curious how things play out when the calendar turns to 2025 and (most likely) 5-10+ offers becomes the norm again during the first 4-5 months of the year. I think market conditions/competition may play a significant role in the frequency of seller-paid buyer agent compensation and the average amount of seller-paid buyer agent compensation.
I plan to check back in with everybody next spring with an update on how things are going.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
