As you may have read, the real estate industry is undergoing change regarding agent compensation. Realtors are now required to enter into a separate representation agreement with the buyer BEFORE touring properties. Other changes to the historical compensation system include a prohibition against the seller making an “offer of Compensation” to the buyer’s broker/agent within the MLS.  Each party (buyer and seller) are now obligated to enter into an agreement with their own agent.  

These changes are designed to enhance transparency and align the interests of all the participants in the real estate transaction. We want to ensure that you are fully informed and understand how these updates to our industry practices might impact you and your future transaction.

1. Commission Payment Structure: Traditionally, the buyer’s broker fees (commissions) were paid indirectly as part of the purchase price and were deducted from the seller’s proceeds. Moving forward, the commission paid to the buyer’s agent will be negotiated directly between the buyer and the agent.
2. Buyer Representation Agreement:  As noted above, all Realtors are required to enter into a written representation agreement with the buyer before touring properties. The written agreement sets the commission terms, including the amount or percentage paid by the buyer at closing. This requirement mirrors the requirement that a seller and seller’s agent enter into a written “listing agreement” which likewise establishes the compensation and other essential terms.
3. Potential Impact on Contract Terms: It is common for the buyer to seek to structure the transaction to fold the commission inside the purchase price, and effectively pay these obligations as part of the mortgage. Alternatively, the buyer may choose instead to pay the commission separately as an additional closing cost and for some buyers, depending on how they structure their income taxes, there may be a savings by paying these fees directly. A professional tax consultant will need to give expert advice on this matter. 
4. Next Steps: We will send a Buyer Representation and Broker Compensation Agreement for your review. We will discuss the terms of the agreement, and the industry changes in detail at that time. It is important that you understand our agreement and your options before signing. We have been extensively trained on these new rules and are ready to answer any of your questions.
5. Increased Transparency: The new structure furthers our industry goal of increased financial transparency.