What is a Buyer’s Representation Agreement?

First of all, have you heard of the lawsuit involving the National Association of Realtors (NAR)?  If not, you can read about it here.  One of the results of the lawsuit was something called a Buyer’s Representation Agreement.  So, what is a Buyer’s Representation Agreement?

A quick but important history lesson

In order to answer that question, you’ll need a quick history lesson.  Historically, a homeowner would hire a real estate agent to list and sell their home.  The homeowner and the agent would negotiate a commission.  Part of that agreement would be for a portion of that commission to be paid to a cooperating broker (aka the buyer’s real estate agent).  It could be argued that the seller was then paying both agents.  It could also be argued that the buyer was paying both agents and it’s really reflected in the selling price of the home.  Either way the portion of the commission that was being offered to the buyer’s agent could be seen by an agent in the Multiple Listing Service (MLS).

So, when and what is happening now

Starting in August 2024, agents will no longer be allowed to put any information in the MLS referencing commission.  Also, starting in August, agents will be required have buyers sign some type of Buyer’s representation agreement prior to showing them any homes.  These agreements will all be required to have certain elements to them.  However, you may will likely find different brokerages using slight variations of the form.

So, what is a Buyer’s Representation Agreement?

It will be agreement between the buyers and their agent on how the agent will be paid.  The agent may be paid by the buyers, the sellers or a combination of both.  Let’s say for example that the buyer’s agent charges 3% and the buyer agrees to this.  If the buyer then buys a home where the seller is offering to pay a buyer’s agent 2%, the buyers will pay the 1% difference.  If the seller is not offering to pay anything to a buyer’s agent, then the buyers would pay the full agreed upon 3%.

So why the heck would a seller even offer to pay a buyer’s agent?

The buyers may direct, as part of the Buyer’s Representation Agreement, their agent to only show them homes where the seller is offering to pay a minimum amount toward the buyer agent commission.  But how will the buyers or their agent know what the seller is or isn’t offering? In past, the agents could simply find this information in the MLS.  Now they will be required to call the seller/listing agent and inquire on each property!

Still confused on what a Buyer’s Representation Agreement is?  Call me!