By Mike Bodeen · 18 August 2024
What Should Sellers Do?
Last week we wrote that the class action lawsuit of Sitzer-Burnett VS NAR forced a settlement by NAR that brings major changes to real estate compensation, particularly about how Buyer’s agents get paid. On top of that, this one change could be the catalyst for more agents leaving the industry.
What are the changes? To repeat from last week:
No longer can a seller offer buyer agent compensation through the Multiple Listing Service (MLS).
The buyer’s agents will be compensated either by their client directly, or through seller concessions outside of the Multiple Listing Service (MLS).
A buyer must have a “written” agreement with a buyer’s agent before seeing homes which sets the amount of compensation, terms and conditions.
These rules went into effect August 17th -.
There are changes for a seller, though not as radical as there are for buyers and their agents, but important to understand, nonetheless.
For a seller, there will still be a listing agreement – which is an “employment contract” with the agent’s company representing them. The fee that the seller pays their agent’s firm is only for their agent, whereas before it included what a buyer’s agent would be paid (shared) by the listing agent.
This will be the one, if not the biggest change for a seller. Rather than a fee that would include a buyer’s agent, this is no longer the case. The fee outlined is solely between the seller and their agent.
Having said that, there is a place on the listing agreement that authorizes a seller, through their agent, to communicate an offer of compensation (via a buyer’s concession) to a prospective buyer broker. And as noted in #2 above, there can be no mention of a buyer’s agent’s fee inside the MLS.
So, a big change for agents will be the need to communicate if the seller is offering compensation. This will cause the buyer’s agent to contact the seller’s agent and ask the question, “Is your seller client offering a co-broke fee, and if so, how much?
Now my guess is you’re wondering, should a seller offer a buyer concessions to cover a co-broke fee to a buyer’s agent potentially saving the seller thousands of dollars? This is the proverbial $64,000 question. Will the seller really benefit from not offering this compensation? Hmm.
As previously mentioned, a seller doesn’t have to pay a buyer’s agent a dime. The seller is only responsible to pay his agent. The same is true with the buyer. Any compensation between a buyer and their agent is solely between them.
This is the part of Sitzer-Burnett that makes the most sense, in the same way that a plaintiff’s attorney should not be required to pay the defendant’s attorney’s, for obvious reasons. (Liquidated Damages is another issue, but not for this topic)
But is it a good thing for the seller? This is the sticky wicket in all this. We won’t know for months and maybe years ahead. And don’t believe anyone who says they know.
Back to the question at hand, should a seller offer to pay a buyer concessions to help pay his agent?
Now dear friends, please understand that what I say now is based on zero experience working under this new practice. I could well change my mind, maybe more than once in the months and years ahead. We may even see successful buyer lawsuits reversing, or substantially changing Sitzer.
Mike’s thought: The type of market that we find ourselves in will help to answer that question, and I want to stress that what might be right for one seller to do (in offering compensation) may not be right for another seller.
Suppose we’re in a rabid seller’s market like we experienced 3 years ago when we had a 15-day supply of homes for sale with multiple offers rolling into a seller within days of a new listing coming on the market. In that kind of a market the seller may well feel that his property is hot enough that he doesn’t have to pay the buyer concession.
An example: A seller is offering 2.5% concession to a buyer. Five offers came in. All are full price. 2 are cash, 2 are conventional, and one is VA or FHA (lower down payments). Three of the offers are seeking or needing the 2.5% concession to cover their buyer’s agent’s fee. Two did not – one cash buyer and one conventional buyer are handling their agent’s fee apart from the seller’s help.
Who wins? It’s not hard to see that it will be one of the two who did not request a seller concession.
What about a balanced or buyer’s market? In these cases, if I’m a seller, do I want to do anything to prevent a qualified buyer from viewing my house?
It’s safe to say that if a seller does not offer that concession to a buyer, more buyers may not be able to afford that home and still have their own representation. This is especially in the low to moderate range of homes for sale where the down payment is critical.
These are weighty matters for buyers, sellers, and their agents to discuss. Trust in their agent will never be more important.