Upcoming Changes for Homebuyers

There has been a lot of talk about the upcoming changes for homebuyers. If you’ve been paying attention to the news stories, you may be confused about what is really going on. Let’s take a look at the two important changes that take effect on August 17 and how they may affect you as a homebuyer.

THE CHANGES

1. Buyer Agency Contract. This is the contract that officially makes a real estate agent your representative. The buyers and the agent sign this contract and it’s binding. Within the contract are important points, such as the buyer broker fee and compensation, and when the contract starts and ends. It gives notice about Megan’s Law and the Civil Rights Act, tells buyers it’s up to them to do inspections, and so on. In the past, this contract could be signed any time in the process up until the buyer wrote an offer. The big change now is that the Buyer Agency Contract must be signed PRIOR to a real estate agent showing ANY property to the buyer. 

2. Buyer Broker Compensation. In the past, if the listing broker was passing along any compensation to the buyer broker to pay the buyer’s agent, this was listed in the MLS. A buyer’s agent could check the MLS to see what amount or percentage of compensation was offered from the listing broker for their services to the buyer. The big change now is that any buyer broker compensation will NOT be allowed to be included in the MLS listing of a property. This means that buyers’ agents will need to contact the listing agent to find out what, if any, compensation is being offered by the listing broker.

THE AFFECT

1. Buyer Consultation. First of all, it’s very important to schedule a buyer consultation with an experienced buyer’s agent. You need to understand the documents you will need to sign, be prepared with financing, and understand how the buying process works. A quick email or phone call is not enough. You should meet in person, or at least through a video call, to review all the documents to be sure you understand the process. You need to understand the changes and all the implications for you as a buyer.

2. Choose an Agent. Before you can go see any property, you will need to choose a buyer’s agent. This step is very important with the legal changes and the competitive market. Don’t just use your aunt’s friend’s daughter. Read reviews and find out how many deals the agent closes per year. In this fast-paced housing market, you want a true professional who is knowledgeable and friendly. Do your research because you will be signing a binding agency with him/her before seeing even one home. Then you will be working very closely with your agent during the buying process. 

3. Compensation. Although compensation has always been negotiable, these changes have brought compensation to the forefront of people’s considerations. In the past, the commission paid by the seller to the listing broker was often shared with the buyer’s broker to compensate the buyer’s agent for his/her services. Understand that seller’s may choose to lower the commission they decide to pay and listing brokers/agents may choose to not compensate the buyer’s broker. So, now who compensates the buyer’s agent?

4. A point of negotiation. We often see competitive offers pushing the price over the list price. Buyers may offer more money, waive the appraisal, and pay both sides of the transfer tax in efforts to get their offer accepted. With the focus on compensation, we may see this become a point of negotiation. Instead of offering large amounts over list price, buyers may instead offer to compensate their own agent. This could give the seller a higher net with less worry about the appraisal. Buyer’s agent compensation could be a big playing card in negotiations.

5. You may have to compensate your agent. If a listing broker is not offering any compensation to the buyer’s broker, you may have to figure out how to pay your agent. Whether the listing broker/agent is wanting to pocket more profit or the seller has reduced the commission they are paying the listing broker (and there’s not enough to share), it could end up that there is no buyer broker compensation offered. In this case you may 1) use your own funds or 2) ask the seller for seller assistance to fund the compensation. 

A few more things that come to my mind are: 1) A lot of discount buyer’s agents are going to come out of the woodwork. Only the inexperienced and desperate agents will do this because working with buyers is ridiculously challenging and time consuming in the current housing market. 2) Buyers will go to listing agents to write the contract as unrepresented buyers. This is really unwise for everyone in the transaction! There are so many liabilities, due dates, negotiations, contingencies, etc. A buyer needs a designated agent. A seller needs a designated agent. 

Only the future will tell how things will shake out. There could be some muddy waters for a while as everyone adjusts to the changes. The best advice I can give you is to work with an experienced real estate professional. Don’t cut corners. Don’t try to save a few bucks. Buying and selling real estate is a huge transaction, probably the largest transaction you will do in your lifetime. So why take a chance? Hire a great realtor to represent you, just like you’d hire a great doctor or attorney. From writing offers, to negotiating, to hitting deadlines, to understanding contracts, a trusted real estate professional on your side is priceless.