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Feeling overwhelmed by all the advice about how to negotiate buyer-broker commissions? Confused about what to tell your buyers and sellers? Surprisingly, adjusting to the coming changes may be easier than you may expect.
All that is required is a simple mindset shift, a few easy tweaks to the language you use for negotiation, plus applying your current listing appointment negotiation skills to negotiating your Buyer Broker Representation Agreements.
It’s incredibly frustrating to see so-called industry experts giving advice that keeps agents trapped in the old model that still involves extracting the buyer’s agent fee from the seller and/or through the listing agent sharing their commission.
Specific examples include websites that display listing commissions to buyers’ agents through the seller/listing agent, advice focused on “seller offers of compensation” or the use of forms that recommend “seller concessions.”
Dwiggins details
At the end of July 2024, I reached out to James Dwiggins, the CEO of NextHome, for his opinion about how to approach this issue. His advice was crystal clear.
First, you must determine whether you’re in a seller’s market, normal market or a buyer’s market for the property you are listing.
If you are in a seller’s market or a normal market, Dwiggins strongly advises that you don’t advertise buyer’s agent compensation.
“There is zero reason sellers/seller agents should advertise buyer’s agent compensation, concessions, or anything in advance of an offer,” Dwiggins said. “The only thing agents should state and put in the MLS (which is legal) is the following: ‘Seller is willing to entertain any and all requests you put in your offer.’ The end.
“The buyers need to put their best foot forward, and sellers should be open to anything and not put their cards on the table ahead of time. They should let the offers dictate their strategy and response.”
Seller objections: Handle with care
Do you need a simple way to overcome the seller’s objection, “I don’t want to pay a commission to the buyer’s agent?”
Dwiggins reminded me of an approach that I have trained for over 30 years on how to handle commission objections.
The first step is to ask sellers the following question: “Is it correct to assume that you would like to get the highest possible net price for your property in the shortest amount of time?”
The answer is almost always, “Yes.” But I have seen two cases where there was a divorce, and the answer was, “No.”
Next, show them your unique selling/value proposition that outlines all the services and tools you use to help them achieve the highest possible net price for their property.
If the seller objects by saying, “I don’t want to pay the buyer’s broker’s commission,” counter their objection by asking the following question: “Which is most important to you? Not paying the buyer’s broker commission or getting the highest possible net price for your property?”
“The seller only cares about the net, so this discussion about, ‘I don’t want to offer any compensation’ is total nonsense,” Dwiggins said while explaining why this question is so effective. “The listing agent just needs to tell the seller that they need to be open to anything, and we’ll decide once the offers are in.”
A tale of 2 offers
Dwiggins provided the following example that illustrates his point.
“If two offers are submitted and [offer No. 1] is all cash with the buyer agreeing to pay their buyer’s agent fee, and [offer No. 2] is $100,000 over asking with a request for the seller to pay the buyer’s agent fee, but it nets them $70,000 more, which offer is the seller going to accept? Obviously No. 2, which is why the training post-Aug. 17 really needs to focus on the listing agent doing their job correctly.”
Advertising ‘seller concessions’ on the MLS or elsewhere may violate your fiduciary duty
Dwiggins made an extremely important point about your fiduciary duty to your sellers and how a “concession” field could harm them.
“I would argue that your fiduciary responsibility is not to advertise anything upfront. If acting in your sellers’ best interest includes getting them the highest price possible, then telling buyers what your seller is willing to do before receiving an offer could be harmful to that goal and not following your fiduciary responsibility to your client.”
If you are in a buyer’s market where there is a lot of inventory and few buyers, Dwiggins says, “that’s when the seller should use the ‘concession’ field to attract buyers to write an offer on their home, but still not state [a dollar] amount, in my opinion.”
Negotiation strategies
The language you use while negotiating buyer-broker agreements can make or break your deal.
Here are some keywords to use as well as words to avoid:
Use the word ‘fee’ vs the words ‘compensation‘ and ‘commission‘
There are a variety of reasons for making this shift.
Due to the commission litigation, “commission” and “compensation” have become hot-button words.
Sellers have repeatedly heard through the media that they only need to pay their half of the commission. Using the word “fee” opens up an infinite number of possibilities for how the sellers may choose to help the buyer — for example, a credit to repair the roof or to provide the buyer with an interest rate buy-down.
Buyers are more likely to push back on paying their own “commissions” because they may not be able to afford it, haven’t had to do so in the past or simply don’t like the idea.
Using the word “fee,” also encompasses the fee for service (menu of services) business model where the buyer may elect to pay their agent for completing specific transaction tasks, such as locating and showing the property, negotiating the offer, and/or handling transaction problems required to close the deal.
The Department of Justice (DOJ) and the Consumer Federation of America (CFA) want our forms to be “consumer-focused” rather than “Realtor-focused”
The new eXp Buyer-Broker Representation Agreement offers one possible way to address this concern. This document uses the term “broker fee” throughout the agreement.
It also references how the fee will be “paid,” i.e., not how the broker will be “compensated.” In fact, the word “compensation” is used only twice in the agreement:
COLLECTING BROKER FEE FROM THE SELLER:
Credit to Buyer, at Closing. Buyer may choose to negotiate that the Broker Fee be paid, in whole or in part, by the seller, through a seller-credit to Buyer, at closing. At Buyer’s instruction, Broker will write this request into Buyer’s offer to purchase the Property.
AND
Direct Seller-to Broker Compensation: Buyer authorizes Broker (eXp) to request that the Broker Fee be paid, in whole or in part, by the seller, to Broker (eXp), at closing. Any such arrangement will be memorialized in a separate compensation agreement as between the seller and Broker (eXp). Buyer understands that Broker (eXp) cannot communicate with the seller without first receiving the seller’s broker’s permission to do so.
Use ‘terms and/or conditions,’ not ‘concessions’
For decades, there has been a field in most purchase contracts where agents can write in additional terms or conditions their buyers want, such as “repairing the roof,” “buying down the buyer’s interest rate,” or “including the dining room chandelier in the purchase price.”
If your state or brokerage purchase contract has a field for “concessions,” follow Dwiggins’ advice and leave this field blank. Instead, put the additional terms your seller wants to use in the “other terms and conditions field” or in an addendum. Also, be sure to check with your manager or broker to confirm how they would like you to handle this situation.
In addition to the required federal, state and/or local disclosures that include agency, “commissions are negotiable,” “hazardous disclosures,” etc., additional issues buyers’ agents must address in their buyer-broker representation agreements include many of the same issues you address when you take a listing.
The beginning and termination dates of the buyer-broker representation agreement
Like a listing agreement, buyer representation agreements require both a definite beginning and ending date.
In terms of when your agreement begins, are you willing to show buyers one or more properties without a buyer representation agreement in place? Given the new NAR guidelines, many brokerages will be requiring their listing agents to have a signed buyer representation agreement in place before allowing a buyer to see the property. Consequently, it’s smart to get this document signed upfront.
In terms of the expiration date of the agreement, if you place a property under contract, it’s smart to ask for an automatic 15-day extension past the closing date of your buyer-broker agreement so you can continue representing the buyer through closing.
Because agency laws are still in full force, it’s important to make sure the dates on the agency disclosures and your buyer representation agreement coincide whenever possible.
Going forward, the agency agreement and/or the buyer-broker representation agreement will be the primary determinants of when your representation of the buyer starts, especially if there is a dispute over the commission.
Brokers’ ‘good faith’ representation of the services they will provide
This typically includes locating and showing suitable properties to the buyer, negotiating offers, cooperating with any other real estate licensee(s) to facilitate the buyer’s purchase of the subject property, plus working with inspectors, escrow/title, mortgage providers, appraisers, etc., as needed to close the transaction.
The buyer broker fee
Buyer broker fees are not set by law and are fully negotiable. Typically, these fees are paid upon closing. In terms of the amount required at closing, it can be a percentage of the gross purchase price of the property as reflected in the final settlement statement or an exact dollar amount.
Has the buyer signed any other buyer-broker agreements?
It’s also important to determine whether the buyer has an active exclusive buyer-broker representation agreement with another agent. If this is the case, it’s likely you may not be able to represent them until that agreement expires unless the existing agreement is for a specific property only.
The eXp buyer-broker agreement also asks whether the buyer is “party to any active, non-exclusive buyer broker representation agreements.” In this scenario, consult with your broker-manager and/or attorney about the specific circumstances and how best to proceed.
Can you help the buyer and seller with down payment assistance (DPA)?
The research from DownPaymentResource.com shows that 84 percent of the properties in the U.S. qualify for down payment assistance and that the most typical amount of DPA received last year was $17,000.
Every listing agent should know whether DPA is available for any of their listings. The same is true for properties that the buyer’s agent will show their buyers. DPA can be a powerful way to help both buyers and sellers increase the number of options they have for negotiating other terms, including fees.
You can locate what DPA is available for currently listed properties on both Realtor.com and Zillow. On Realtor.com, click on the “Monthly Payment” tab on the main property page to locate this information. On Zillow, click “Monthly Payment Calculator” and scroll down to the “Down Payment Assistance” tab.
Dwiggins said all the advice and workarounds are making everything way too complicated.
“This is really simple. Everything is negotiable. Buyers should put all their requests in their offer. The end. No need to advertise concessions or compensation or, really, anything, [and], if a seller puts ‘Sold as is,’ you can still request what your buyer wants in the offer. It’s all a negotiation,” he said.
Bernice Ross, president and CEO of BrokerageUP and RealEstateCoach.com, and the founder of RealEstateWealthForWomen.com is a national speaker, author and trainer with over 1,500 published articles.
