The Future of Real Estate Commissions: Strategies for Paying Buyer’s Side Realtor Compensation
Prior to the NAR policy changes that are taking place in August 2024, sellers have historically covered buyer's agent compensation as part of the overall sale price of the home.
The policy changes lead to opportunities for a variety of strategies when it comes to buyer’s side realtor compensation, including paying out-of-pocket, obtaining a seller concession, financing the compensation, or hybrid methods where compensation is split between the buyer and the seller.
Strategies for Paying Buyer’s Side Realtor Compensation
The most commonly asked question we’ve received regarding the NAR policy change is “Can a buyer finance the buyer’s agent’s compensation?”
The short answer is “Yes!”, but there are a variety of options for buyers to explore when it comes to compensating their agent.
Paying for the Buyer’s Side Agent Compensation Out-of-Pocket
Allocating additional funds to cover agent compensation is the method that may come to mind first.
Your home financing details will largely remain the same- the purchase price of the home, your loan amount, and your down payment are all unchanged.
Your out-of-pocket expenses, however, will need to increase to cover your agent’s compensation, typically 2.5% of the purchase price.
Reallocating Funds From Your Down Payment to Cover Agent Compensation
If you’re lacking the additional funds to pay for compensation out-of-pocket, you may consider reallocating funds meant for your down payment to cover your agent’s compensation.
If this reallocation means that you’re putting less than 20% down, keep in mind that your monthly payment will now include private mortgage insurance (PMI).
As an example, if you were going to put 20% down on the home, you would now be putting 17.5% down and allocating that 2.5% to cover your agent’s compensation.
Obtaining a Seller Concession to Cover Buyer’s Agent Compensation
Increasing the offer price to include the buyer agent compensation and obtaining seller concessions can help offset your buyer’s initial costs to close.
With this method, the purchase price of the home will increase by 2.5% to accommodate agent compensation, along with your loan amount and down payment. Your closing costs and monthly payment will see a slight increase to accommodate the shift in price.
This method is beneficial to those looking to finance the cost of your agent’s compensation over time, rather than covering the entire compensation upfront at closing.
It’s important to note that if you are increasing the price of the home to cover buyer’s agent compensation, the home will need to appraise for the greater amount to avoid mortgage insurance and ensure qualification guidelines are still being met.
Hybrid Methods: Splitting Compensation with Your Seller
These “hybrid methods” can apply to a variety of scenarios, such as:
- Seller pays a portion of the compensation, and the buyer finances the difference
- Seller pays a portion of the compensation, and the buyer pays the rest out-of-pocket
- Seller pays a portion of the compensation, and the buyer gets a seller concession for the difference
As an example, a seller could opt to cover 1.25% of the compensation, and you could receive the other 1.25% as a seller concession.
New Requirement for Signed Agreements Between Buyers and Their Agents
A new requirement for signed agreements before home tours ensures that buyers understand what services their agent will provide, as well as associated costs, creating an opportunity for clearer communication and trust.
The written agreements must include the following:
- A specific amount or rate of compensation the agent will receive
- A term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer
- A conspicuous statement that broker fees and commissions are fully negotiable and not set by law
Several states already require buyer agreements, but the new updates aim to streamline the practice nationally.
Closing Thoughts
Despite the policy changes, it’s important to recognize that agent compensation for home buyers and sellers continues to be flexible.
For personalized assistance in navigating which of these methods is best for your family, give us a call or visit us online today.