The Evolution of REALTOR Compensation: Understanding Changes in Buyer’s Agent Remuneration

Prepare for a shift in the REALTOR compensation landscape. Substantive changes loom, particularly concerning the remuneration structure for buyer’s agents.

Traditionally, sellers have been responsible for compensating their listing agent, with a portion earmarked for the buyer’s representative. However, a trend could emerge wherein sellers opt to exclusively remunerate their own agent, leaving the buyer’s agent compensation subject to negotiation by buyers.

This transition is driven less by legislative or case-law intervention and more by a competitive environment among agents vying for listings. Consider a scenario where a seller interviews three agents: two propose a 6% commission (allocating 3% to the buyer’s agent), while one offers a commission of only 3%. Invariably, the latter clinches the deal.

Potential implications include concerns over a possible downturn in home prices. Yet, it’s improbable, as sellers are unlikely to adjust prices commensurate with savings on commissions; instead, they are expected to retain the surplus.

While seemingly seismic, this shift primarily affects semantics rather than substantive change. Notably, buyers will now explicitly include agent compensation in their offers, a departure from the implicit arrangement prevalent before. Effectively, it’s a zero sum change.

This adjustment may pressure buyer’s agent compensation downward, as buyers seek to mitigate costs—and many newer agents with less value to offer may bite. Nevertheless, esteemed agents will steadfastly maintain the value they bring to the table.

In contrast to sellers, who are legally obligated to enter into listing agreements, buyers have historically resisted signing exclusive Buyer Representation Agreements. This dynamic is over, necessitating mandatory agreements before agents can facilitate property viewings.

This paradigm shift offers distinct advantages for buyers, including dedicated representation, targeted marketing efforts, and safeguards against dual agency complications. By transitioning from mere customers to clients, buyers enjoy a level of trust akin to that found in attorney-client relationships. Be prepared to navigate this evolving landscape. Here’s what you need to know:

When you become our “client” you enjoy specific legal protections as identified by

California law. These include:

• The duty to be fair and honest
• The fiduciary duty to use skill, care, and diligence
• The fiduciary duty to be accountable
• The fiduciary duty to disclose material facts
• The fiduciary duty to act solely for the benefit of you,
• the principal

The fiduciary duty is the highest level of liability known under law. There is no greaterlevel of skill, care, and diligence owed to a consumer compared to the fiduciary level.

You will be afforded our fiduciary status by entering into a Buyer/Broker agreementthat identifies our specific responsibilities. There is no fee to become a client, just awritten mutual commitment to work together.

If you are merely a “customer,” the threshold of our responsibilities is significantly reduced.

• The duty to be fair and honest
• The fiduciary duty to use skill, care, and diligence
• The fiduciary duty to be accountable
• The fiduciary duty to disclose material facts
• The fiduciary duty to act solely for the benefit of you,
• the principal

In most cases, the buyers will have to build their own compensation into their offer—some of which was previously disallowed. Does this mean that the buyers are paying more for the home than when they didn’t have to pay a commission? The answer is yes and no.

It will be patently clear how much they are increasing the offer to compensate their agent, as it will be written in the offer. But before, it was intrinsically in the offer, just not expressly written in the offer.

Attention, Sellers: Heed this warning. Just becasue you can do something, doesn’t necessarily mean you should.

As buyers and agents grapple with the prospect of bearing additional costs for purchasing your property, they may opt to bypass your listing altogether in favor of one adhering to the conventional compensation framework.

Drew and Christine Morgan are experienced REALTORS and NOTARY PUBLIC located in Belmont, CA. They have been assisting buyers and sellers in their community for over 30 years. Drew and Christine have received the coveted Diamond award and ranked among the top 50 agents nationwide and top 3 in Northern California by RE/MAX. To contact them, please call (650) 508.1441 or email info@morganhomes.com.

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This article provides educational information and is intended for informational purposes only. It should not be considered as real estate, tax, insurance, or legal advice, and it cannot replace advice tailored to your specific situation. It’s always best to seek guidance from a professional who is familiar with your scenario.

BROKER | MANAGER | NOTARY