Here’s a question: Why do sellers typically pay the commission for both sides of the home transaction?
Putting it differently, why don’t buyers and sellers share the responsibility of paying for the services of their respective real estate broker and their firms?
I’ve asked a number of qualified, experienced and well-connected real estate professionals these questions and the answer may surprise you. Essentially, the response is generally “It’s always been that way” or “This is just the way it happened over time” – and, to be clear, those statements are true.
But those days appear to be numbered.
As the residential real estate industry keeps up with technology and consumer demands, the Northwest Multiple Listing Service (NWMLS) – the service that houses (no pun intended) most on-market homes in a majority of Washington State, is taking the initiative to be more transparent and flexible with the way commissions are handled.
Starting Oct. 1, real estate firms and their brokers affiliated with NWMLS may publish on residential listings sites the amount of compensation granted to the buyer’s broker. Making this information available to consumers at the outset of the transaction provides much-desired transparency regarding broker commissions and clears uncertainty about the compensation process.
NWMLS is said to be the first real estate listings group in the country to introduce such transparency to the public. It explained: “Early and better access to all the relevant information about a real estate transaction will help consumers make informed decisions about every component of listing, selling and purchasing real estate.”
This change comes with a significant caveat for real estate agents – they are not required to show a property to clients when compensation details are omitted in a listing. This is an important change that, without commission details included, could limit when or if buyer brokers will show a listed home. Leaving the information blank on a listing implies the seller is not willing to pay a commission to the broker who found a prospective buyer for the home.
“We’re coming to a place in our industry where it’s entirely conceivable where the seller will not pay any compensation to a [buyer’s broker or firm],” said Annie Fitzsimmons, lawyer for Washington Realtors ®, which advocates for Realtors ® working in the state. (All John L. Scott agents/brokers are members of this organization. Many others in the business are not Realtors.)
Sellers have always been able to negotiate the level of compensation they want to offer brokers and their firms – typically about 3% for each side of the transaction. While this change allows greater flexibility for sellers, it also gives buyers an opportunity to work out a compensation arrangement that could call upon one or both parties in the transaction to pay a commission to the buyer’s broker – a new and potentially fraught aspect of the offer-and-acceptance process. (How many buyers do you know are flush with cash to compensate their broker as they make a significant purchase of a home?)
These changes will likely lead to an increase in the use of buyer representation agreements, which establish a contractual relationship between buyer and broker. The agreement, among other things, establishes an exclusive buyer-broker relationship that includes compensation – either in the form of a flat fee or a percentage of the sale price – to the broker in the event the seller does not meet a minimum threshold (often 3%).
Compensation details from the seller can – but is not required to – be noted in listings on real estate search websites and apps. (NWMLS pushes the listing info to the Zillows, Realtors and John L. Scotts of the world.)
Many consider NWMLS at the forefront of the industry. The organization, which comprises more than 28,000 real estate professionals, was one of the first MLS groups to allow members to publish listings on the internet and to make all property information available to consumers.
These new developments are the latest actions by NWMLS in seeking to be progressive and forward thinking and helping its member firms respond to changes in the market. The revisions are designed to increase transparency in real estate transactions by providing consumers with additional information and choices when listing and buying homes.
The changes closely follow NWMLS bylaws, the first of which states that its purpose is “to benefit the community in which NWMLS acts” and that “it will at all times act to improve the standing of real estate brokerage in the community and better serve the public in all real estate transactions.”