Beginning August 17, 2024, every potential home buyer will need to have a “Buyer Representation and Broker Compensation Agreement” signed to view property, and by extension, to write an offer to purchase a property. This extends to anyone who wants to visit an open house, even if they have no intention of buying it.
So: what IS the Buyer Broker Agreement? Also known as a buyer’s agency agreement or a buyer representation agreement, it is a legally binding contract between a home buyer and a real estate agent or broker that outlines the terms of their working relationship. This is a good thing. Sellers have contracts with their agents, but up until now, in California, very few buyers did. You may have a strong relationship with and a lot of trust in the agent you’ve been working with, but you’ve not agreed to it in writing. Now, because of a class-action lawsuit that originated in Missouri, you will. In this agreement, your agent will commit to you their fiduciary duty of utmost care, integrity, honesty and loyalty in dealings with you. In turn, all buyers will need to agree in advance on what their agent will earn when they purchase a home. In addition, the agreement will spell out that the buyer agrees to pay that compensation.
In writing, and in theory, the buyer will agree to pay their broker. In practice, and in most transactions, the buyer’s broker will still be compensated by the seller, just as they have been up until now. Starting this weekend in California, listings will no longer be able to publish what they are going to compensate the buyer’s broker (i.e., offer a commission) in the MLS. This does not mean sellers cannot compensate the buyer’s broker. It just means they cannot publish it. Most sellers understand that it is to their advantage to compensate the buyer’s broker. Most buyers are struggling to come up with the down payment and closing costs. Very few can also afford to compensate their agent, especially since this cannot be financed into their loan.
The new purchase agreement includes a box labeled “Seller agrees to pay the obligation of Buyer to compensate Buyer’s Broker under a separate agreement. A new form called “Seller Payment to Buyer’s Broker” will accompany the purchase offer. Just like everything else in the transaction, the Buyer’s Broker compensation is now negotiable as well.
Some sellers will agree to pay compensation; some will not. But even those who say they will not, may change their minds if they don’t receive any offers; or if they calculate their net proceeds after reviewing all offers. If a seller does not agree to compensate your broker, you can pay them directly, or you can move on to a different property that will. From the conversations I’ve had with my active and potential seller clients, I maintain most will, and this extra layer of paperwork is just that. With the upside that now you and your agent have a written contract where they’ve pledged their duties and commitment to you.
Comments