Collins: Real estate purchasing changes coming in August

Some important changes are about to go into effect next month. The most significant change is how buyers can choose to compensate their agent or buyer representative for the work they do on their behalf.

Even though compensation has always been negotiable in the past, it was traditionally driven by the listing agent, who would share a percentage of their negotiated commission with the buy side agent at the close of the transaction. Moving forward, the buyer representative must negotiate directly with their client in advance and sign a buyer representation agreement that outlines the terms of service and compensation structure before showing property.

Buyer representation agreements have been around for years, but not frequently used in our area before this year because buyer compensation was listed in the Multiple Listings Service. This will no longer be the case. Hence the requirement of a buyer representation agreement that clearly outlines compensation for services rendered by your agent.

“The effects of these new business practices could be cumbersome, especially for those first-time homebuyers who are already using every dollar they have already,” Santa Clara County Association of Realtors President Michelle Perry said. “It’s a wait-and-see how the market reacts to the changes that really will determine the outcome.”

While this change may cause some concern, it will lead to more transparency and perhaps new business models.

“This also means buyers may have more of a freedom to pay for services whereas they had not previously,” Perry said.

Buyer representatives may end up offering a menu of services starting with a most basic level of service, like showing properties and writing orders, to a more full-service concierge level. You could see some agents offer a flat fee while others may ask for a commission based on the final acquisition price of the property. Whatever the case may be, it will be communicated and agreed upon in advance.

So, what happens if a buyer can’t afford to pay their agent? After all, most buyers are struggling to put together a downpayment. One option is that the seller could offer to pay for the buyer’s agent fee after they successfully close the deal. Sellers could also offer concessions to help the buyer as well. Sellers who are flexible and willing to cooperate with buyers will have access to the greatest number of buyers. Lastly, buyers could ask their representative to build the cost of representation into their offer.

Selling and purchasing a home is a complicated process. To be successful and limit liability you need to work with skilled professionals. When interviewing your representative, be sure to check out their success rate, sales volume, areas of expertise and testimonials. Not all agents are created equal. The top agents will command a higher level of compensation and could be critical to your success.

San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. Contact Neil at [email protected].