Episode #43 - The Dawn Of A New Era Of Real Estate Practice

Starting August 17 we enter into a new era of real estate practice in terms of how the buyer's broker gets compensated for the hard work of the individual buyer’s agent.

There's a lot of information packed into this short episode. For convenience, please find a transcript to the episode here.

I’m going to keep strictly to the facts here. This is not the right time or place to offer an opinion, or to speculate about how all of the following will unfold. Frankly, it will take several months at minimum for each State, each region, each metro, each city, and possibly even each neighborhood to find their new normal.

Although these changes are national, I can only discuss the forms that we’re using in California since I’m licensed only in California and have access only to the California Association of Realtors forms library.

For Buyers: Please find a guide from the National Association of REALTORS® here.

For Sellers: Please find a guide from the National Association of REALTORS® here.

Declan Spring is a licensed CA REALTOR® DRE#01398898

Transcript

Starting August 17 we enter into a new era of real estate practice in terms of how the buyer's broker gets compensated for the hard work of the individual buyer’s agent.

I’m going to keep strictly to the facts here. This is not the right time or place to offer an opinion, or to speculate about how all of the following will unfold. Frankly, it will take several months at minimum for each State, each region, each metro, each city, and possibly even each neighborhood to find their new normal.

Although these changes are national, I can only discuss the forms that we’re using in California since I’m licensed only in California and have access only to the California Association of Realtors forms library.

Let’s begin with a list of 5 forms and one platform I want to touch on:

1. BRBC: Buyer Representation and Broker Compensation Agreement
2. BFPI: Buyer Financial and Personal Information
3. RLA: Residential Listing Agreement
4. CBC: Cooperating Broker Compensation Agreement
5. RPA: Residential Purchase Agreement

Platform: MLS or Multiple Listing Service

After I’ve discussed these forms we’ll need to talk about the difference between compensation and a seller concession.

Let’s start with form 1, BRBC, the Buyer Representation and Broker Compensation Agreement. This form really gets to the heart of the upcoming changes in practice. Beginning no later than August 17, the National Association of Realtors requires that all Realtors working with a buyer enter into a Buyer Representation and Broker Compensation Agreement. It must include the rate of compensation the buyer's broker will receive. On a side note, I said buyer's broker, not buyer’s agent because there’s a common misconception in the market that buyer’s agents receive the full compensation from their clients, but they don’t. The buyer’s broker receives the full compensation and splits it with the buyer's agent based upon whatever terms have been agreed to by the broker and the broker's sales agent. The BRBC, in other words, makes the buyer responsible for compensation to their broker, and asks the buyer directly whether or not they can afford to pay the buyer’s broker compensation, and it must be signed by all parties before any property can be toured. In short, it establishes a client relationship and rate of compensation for which the buyer is ultimately responsible.

Form 2, BFPI, the Buyer Financial and Personal Information form. This form helps a buyer's agent assess the buyer’s qualifications for the property the buyer wants to purchase. Factors include the amount and source of downpayment, maximum loan amount, and type of financing. The information on the form is confidential and the form is designed to be used in conjunction with the BRBC.

Does this mean that seller’s are no longer paying the buyer's broker compensation and that the burden of compensation to the buyer's broker is entirely on the buyer, along with their down payment and closing costs? Let’s discuss the other forms mentioned at the top to shine a light on the entire process.

Form 3, RLA: The Residential Listing Agreement. This is the form that seller’s of property sign to enter into an agreement with their broker to sell their property. The old form asked the seller how much of the total commission was being offered to a buyer’s broker and could be advertised on the MLS, the multiple listing service. Generally speaking, in the Bay Area, the total commission for decades has been 5% to 6%, with approximately 1⁄2 of that amount being offered on the Multiple Listing Service to the broker bringing a winning offer (via the buyer’s agent). The MLS is the subscription platform used by Realtors to advertise their listings. Commission info was hidden to consumers on reciprocal real estate web sites like Zillow and Trulia, and visible only to multiple listing service subscribers. The new Residential Listing Agreement no longer includes a field asking seller’s how much of the total commission will be offered to a buyer’s broker. It asks only the rate of compensation to the listing broker. In addition, the multiple listing service no longer includes a buyer’s broker compensation field.

Form 4, CBC, the Cooperating Broker Compensation Agreement. This is the missing link between the way we’ve been doing business up until now, and how we will do business going forward. The CBC is a separate but complementary form to the Residential Listing Agreement. The CBC asks seller’s how much compensation they are willing to pay a buyer’s broker (if any). It seems very likely that each brokerage will craft their own in-house version of this form. So, in essence, sellers in the Bay Area at least, the market where I do business, will be asked the same question they’ve always been asked, i.e. how much are you willing to compensate the buyer’s broker for the hard work put in by the buyer’s agent? You could call it the new old way.

Okay. Here’s where it gets a little tricky and we need to pay attention. Remember, the buyer, in order to begin touring property with their agent, has already signed a BRBC with their broker, stating that they are responsible for compensation to their broker with the successful purchase of property, but the buyer has no guarantee that the seller will cover the cost of compensation. In fact, when a buyer identifies a property that they like, there will be no information posted to the multiple listing service with respect to a Cooperating Broker Compensation rate. If a CBC is in place the buyer’s agent will need to get that information directly from the listing agent. Here are some scenarios for you to think about: The buyer might have signed a BRBC with their broker agreeing to the conventional compensation amount of 2.5% of the purchase price only to discover that the CBC for a specific property only offers 2%. In this case, the buyer is responsible to make up the difference of .5% out of pocket at the successful close of the transaction.

But wait, there’s an alternate remedy to this scenario.
Form number 5, RPA: The Residential Purchase Agreement.

Let’s talk about the difference between compensation and a seller concession. If there is a deficit in the compensation offered in the CBC and the compensation the buyer has agreed to in their BRBC, or heaven forbid, there’s no CBC at all, the buyer, when they write their Residential Purchase Agreement, can request a concession from the seller, to cover their cost to their broker at closing. In other words, buyers can make a direct ask for the compensation to their buyer’s broker to be in the purchase agreement in the form of a concession. It becomes part of the negotiating process.

Okay, that about covers it. As I said at the top, my goal here is to present the facts as efficiently as possible and not to get into the weeds on speculation and opinion.

I look forward to your questions.