Let the Seller Beware: Risks of not paying Buyer Compensation
Part 4 in a series: What buyers and sellers need to know about the NAR changes
The first post in this NAR settlement series helped home sellers understand the new NAR rules now in effect nationwide. We covered the buyer’s side of things in the second and third posts. We circle back again to the seller’s side in this fourth and final post.
Sellers, although you now have an option not to pay commissions to the buyer’s agent, this post may help you think through this new change.
Caveat Emptor and Caveat Venditor are two Latin phrases which translate to, “Let the Buyer Beware” and “Let the Seller Beware,” respectively. Normally, Caveat Venditor is used to warn sellers when the purchase contract and courts favor buyers. I’m going to adopt the phrase here to alert sellers of three potential risks of not paying any compensation to the buyer’s side.
Sellers, let’s start by helping you research and learn what’s happening in your area and market.
Check your market’s temperature and trends by interviewing several agents
In this new, post-NAR settlement landscape, it’s more important than ever for sellers to gather market intel and compare several listing brokers. Here’s a list of questions to ask each agent:
What is your company’s listing fee and what services are included? Are there any special circumstances when your fee is negotiable or different?
What are all my options to pay (or not to pay) compensation to the buyer’s side? What are the pros and cons of each option?
When agents at your company represent a buyer, what is the required minimum fee your buyers must agree to pay?
What are the other listings in my building/neighborhood paying to the buyer’s side?
Does your company allow dual agency? Have you ever represented both the seller and the buyer? What should I be aware of in this scenario?
How would you handle an unrepresented buyer who wants to submit an offer to us?
By querying agents from a variety of brokerage companies, you will get a feel for what other sellers in your market are paying to the buyer’s side.
Possible answers you may hear
The whole point of the NAR settlement was to create more competition among real estate companies, so each company’s policies and minimum fees may run the gamut and surprise you. You may hear some of the following answers:
“The previous status quo of sellers paying the buyer’s side is still happening.” This may or may not be true; see if there’s consensus after talking with all the agents.
“My company requires our sellers to pay ___% to the buyer’s side.” If a company has made it their policy, you may not have a choice and be forced to pay the buyer’s side. This is a good reason to interview several agents and shop around. Take note if this seems to be the norm with larger brokerages in your area.
“You don’t have to decide up front about paying the buyer’s side—you can tell buyers you’ll review it as part of their offer.” This may be true in many states and local boards. Buyers can ask for whatever compensation amount in their offer. As you review an offer as a whole, you can choose to accept, counter, or reject the compensation requested, the same as you can negotiate any other part of the offer.
“Be ready to receive offers that include payment to the buyer’s broker commission regardless.” As a tactic, some buyer’s agents aren’t asking in advance if or what the seller is paying. They will just try to include their compensation in every offer.
“If a buyer chooses to represent themselves, this puts more work and liability on me and my company.” This is true. Ask each agent if their company has any extra fees for servicing unrepresented buyers or being a dual agent.
“If you don’t offer any compensation to the buyer’s side, fewer buyers may come see or consider your listing.” Whether this is true remains to be seen, but in a case where other similar listings in your neighborhood or building are offering compensation to the buyer but you are not, your listing might be the last choice to be shown—or not at all. This segues right into the first of three possible risks for sellers who don’t pay the buyer’s side.
1. Seller beware: You may risk fewer showings and offers
Buyers must now agree in writing to pay their agent’s fee if the seller does not. A buyer who can’t or doesn’t want to pay their agent may direct their agent not to show them any listings where the seller is not offering compensation to the buyer’s side. Less showings could mean longer days on market. Less offers could mean less competition between multiple buyers, and weaker offers.
2. Seller beware: You may risk losing full representation
If you don’t offer compensation to the buyer’s side, buyers who can’t pay their agent’s fees may choose to represent themselves or have your agent become a dual agent. Either option could diminish the amount of representation, support, and advice you get. If there’s only one agent involved in the transaction, the risk of being involved in a lawsuit also increases.
Your agent is supposed to assist an unrepresented buyer as needed, without compromising their fiduciary allegiance to you. But anytime your agent communicates directly and often with the buyer, there’s a risk they might cross the line and give the buyer advice—possibly against your best interests.
The moment you and a buyer agree to dual agency, you lose your agent’s fiduciary allegiance. Now, your agent is supposed to remain neutral—which is not easy. How can you be sure the dual agent is not favoring the other side?
3. Seller beware: Are you OK to give “rich” buyers an unfair advantage?
If you don’t offer compensation to the buyer’s side, you will absolutely tip the scales in favor of “rich” buyers who have more means to pay their agent. If you’re a seller who wants to be as fair to all as possible, this may wreak havoc on your conscience.
It’s one thing if a buyer has signed a Buyer’s Representation Agreement and has knowingly and willingly agreed to pay their agent. This buyer has considered their budget and determined they can afford the extra cost. The higher the price point of your home, the more you’ll see buyers who are not struggling.
But homes in a starter-home price point can attract buyers from two extremes: cash-strapped, first-time buyers vs. investors with lots of cash. When there is a multiple offer situation, we agents witness this lopsided match-up; our hearts break when, all too often, the cash-rich buyers win. The cash-poor buyers have already scrimped and saved for a small down payment; they’re dejected with these NAR changes with the possibility they’ll now need even more cash to pay for an agent.
A seller who strives to be fair could make a conscious, moral decision to level the playing field by offering compensation to all buyers.
Here are three verses from Proverbs 16 which encourage us to act fairly in our business dealings:
Proverbs 16:11 (NIV)
Honest scales and balances belong to the Lord;
all the weights in the bag are of his making.Proverbs 16:2 (NIV)
All a person’s ways seem pure to them,
but motives are weighed by the Lord.Proverbs 16:8 (AMP)
Better is a little with righteousness
Than great income [gained] with injustice.
Dear seller, would paying some or all of the buyer’s broker fee be the fair and right thing to do?
In closing, I understand that sometimes it’s the seller who is the one struggling financially. If you are not breaking even or realizing a profit as you sell, you and your agent can discuss what buyer compensation—if anything—is fair and doable for you.
Thank you for reading this NAR series! The industry changes are now in full effect—may God help us all!
Whether you’re a fellow real estate agent, a seller, or a buyer, I welcome your comments and questions as we navigate this new era in real estate together. I plan to write a “How it’s going” update in a month or two. Aloha and God bless! Ali
The more I think about the potential issues that arise, I continue to come back to the fact that the commissions paid on the buyer side will likely compress, but will also result in a reduction in quality of service.
There will likely be an increase in the dual agency situation when buyers look to reduce the commission paid out of pocket, and the listing agent is more likely to agree to a reduced commission. In this instance, both seller and buyer receive receive less than ideal service.
Lots of great points Ali! I do think the change makes it harder for those that need representation the most (first time homebuyers). So far my sellers understand the importance with offering the buy side commissions. We will see how this all shakes out with some time.