The End of an Era: Buyer Compensation Removed from the MLS

It’s the end of an era!

Since I got my real estate license in 2003 – and for at least 20 years before that – working with buyers was a fairly simple proposition.

You see, buyers have always been easy to come by. There is (or maybe was) an addage in the real estate business: “Buyers buy the house, Sellers buy the Agent.” That meant that for a buyer, the agent was almost incidental – they didn’t have to think much about their choice of agent, because in almost all cases, the buyer’s agent was compensated by the listing agent’s brokerage. Buyers and their agents rarely felt the need to formalize their relationship with a “buyer broker” agreement.

That’s all changed now, as a result of the (still proposed) settlement of the Sitzer-Burnett lawsuit vs. the National Association of REALTORS (NAR) regarding real estate commissions.

The relationship between buyer’s agents and buyers has fundamentally changed. Previously, buyer’s agents were guaranteed compensation via the Multiple Listing Service (MLS) if they brought the seller an offer from a buyer that was accepted and ultimately closed the deal. It was automatic; a buyer’s agent in California never needed any kind of written agreement with a buyer about how, and how much, they would be paid.

Regardless of a buyer’s offer price or terms, the seller had to pay the buyer’s agent whatever compensation was declared in the MLS. Technically, this money was deducted from the total commission which was paid to the listing agent, who then split that fee with a buyer’s agent as detailed in the listing agreement.

For better or worse, those days are gone. The standard California Residential Listing Agreement has been modified to omit any reference to paying a buyer’s agent whatsoever. A seller may still choose to offer compensation to a buyer’s agent, but to do so requires a separate addendum/modification to the standard agreement.

Under the previous system, the compensation offered to the buyer’s agent was detailed in the MLS. Several years ago, some consumer-facing websites began publishing the buyer’s agent’s commission. But now, under the terms of the settlement, no information about an offer of compensation from the seller to the buyer’s agent may be transmitted in any way via the MLS.

Going forward, buyer’s agents will be required to sign buyer broker agreements with their buyers, much as agents sign listing agreements with sellers. These agreements must be signed before the agent shows a buyer any property, or writes an offer on a property.

Buyers and their agents will need to determine up-front how much the buyer’s agent will be paid by the buyer. At the time the buyer makes an offer, they can craft the offer such that it specifies that the seller is to pay the buyer’s agent whatever amount is specified in the buyer broker agreement.

It remains to be seen how all this will pan out in actual practice. Aside from the additional paperwork now required, I expect that in most cases, little will change in practice and that most sellers will continue to comepnsate a buyer’s agent. There will be some buyers who choose to forego representation entirely, in which case the seller may end up netting more at close of escrow.

But I wouldn’t count on that. Any buyer not seeking compensation for their agent (assuming they have one, which I believe the vast majority will) will likely trim their offer to reflect this – much as buyers of “for sale by owner” properties have always factored in a reduced commission when making an offer.

As with any change, there will be winners are losers. Some sellers will indeed come out ahead, and some will come out behind. For most sellers though, I think little will change in practice – because sellers always look at the bottom line. What matters to them is the size of their check at closing.
As always, whichever buyer offers the best combination of price and terms (including compensation seller is asked to pay the buyer’s broker) will win the day.

If you’d like to talk about these changes – or anything else for that matter – please feel free to contact me any time!