Commission Lawsuit: 6 Ways To Afford A Buyer’s Agent If Sellers Stop Paying
In a landmark verdict, a Missouri jury decided that sellers should not have to pay for the buyer’s real estate agent commission. The effects are already spreading nationwide.
This 110-year-old rule, first brought about by the predecessor of the National Association of Realtors (NAR), meant that buyers got the services of an agent for free.
That may come to an end.
The NAR as well as brokerages across the country are wondering whether the enforced tradition can survive.
Many would argue that home buyers – especially first-timers – need an agent at every step in the process. If sellers stop paying, how will buyers afford one?
How Much Does a Buyer’s Agent Cost?
Up until now, first-time buyers have been blissfully unaware of how much their agent costs.
The answer: typically 3% of the home price.
If you buy a $400,000 house, your agent costs $12,000. You just don’t realize it because the seller pays it out of the home sale proceeds.
Now imagine that the bill comes to you. What do you do? Most buyers don’t have an extra $9,000 to $15,000 on top of the down payment and closing costs. Even with 3% down, your bill to buy a $400,000 house could be $35,000 or more under the new paradigm, including agent commissions, down payment, and closing costs.
Hence the predicament many buyers could be in very soon.
Here’s what buyers may do to adjust to the self-pay system and resources that may become available.
1. Negotiate Agent Fees
Perhaps the best tool to pay for your own agent – if it comes to that – is to negotiate their commission.
This is entirely acceptable and will become the norm. Buyer’s agents will be open to negotiation as their commission opportunities dry up.
Check on norms in your market when the time comes for you to buy. It’s difficult to predict how buyers’ agent commissions will change, but the standard 2.5% to 3% is unlikely to remain. As a buyer, you have decent leverage to offer a much lower fee.
2. Save More
Homebuyers should plan on saving an extra 1% to 2% of the home’s price for agent commissions. If you end up not needing it, it will be a nice war chest for homeownerhip emergencies that can and will happen – home repairs, job losses, car break-downs, medical emergencies, and more.
3. Gift Funds
Gift funds are often used by first-time buyers to cover the down payment and closing costs. Another use for them could emerge: to pay for your agent.
4. Watch for New Loan Programs
If new commission standards sweep the U.S., it’s possible that major lending agencies will respond.
Programs like FHA, VA, and USDA could offer new rules that allow you to roll the cost of your agent into the loan.
These agencies’ primary goal is affordable homeownership. As such, they have allowed flexible guidelines to allow the greatest number of people to buy. For example, the VA loan does not require a down payment, and FHA loans are available to buyers with credit scores down to 500.
It would not be surprising if these, plus Fannie Mae and Freddie Mac, devised options to help buyers finance agent commissions up to a certain limit.
5. Hire a Real Estate Attorney
To save money, some buyers may end up hiring a real estate attorney for a flat fee.
Keep in mind that the attorney only prepares the purchase contract and may review title. They can’t advise on issues with the home, market analysis, or negotiation with the seller’s agent. For some buyers, though, this solution may be all they can afford.
6. Find a Seller Who Offers a Buyer’s Agent Commission
How the real estate commission lawsuit plays out in the real world is yet to be seen. It’s not clear that sellers will be banned from paying the buyer’s agent.
In the future, you may still be able to find a home where the seller is offering a buyer’s agent commission. In fact, this could remain the norm for a few reasons.
First, sellers want to sell the home quickly. Paying for the buyer’s agent can attract a buyer faster and help them avoid hiccups caused by inexperienced, self-represented purchasers.
Second, home sellers may not be as eager to ditch buyer’s agent commissions as first assumed. In Washington State, the seller hasn’t been required to offer buyer’s agent commission for four years. Sellers are still offering commissions. “We really haven’t seen a big shake-up in the compensation being offered by sellers,” said Washington State agent Sharon O’Mahony in a recent Seattle Times article.
The net effect of recent commission lawsuits could be zero or close to it. That could be a very good outcome for homebuyers, especially those doing it for the first time.
Start Preparing Now
If you're looking to buy a home in the next few years, the real estate landscape could look quite different at that time.
Follow developments in this important lawsuit. It could have very real implications for you as a buyer, especially if it means saving an additional $10,000 or more just to get into a home.
Tim Lucas spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. Tim has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, My Mortgage Insider, and more.