Advice for Working With a Home Buyer’s Agent This Spring

If you’re in the market for a home, you might wonder how you'll be affected by a class-action lawsuit involving real estate agents and commissions. On April 23, a judge granted preliminary approval to the settlement proposed in March by the National Association of Realtors, which means new rules are on track to go into effect over the summer.

None of which means you have to suspend your home search. Here’s what to know about working with a buyer’s agent this season.

What are the new rules?

In the lawsuit Burnett v. National Association of Realtors et al., a group of home sellers argued that NAR and some major real estate brokerages had enforced rules that effectively limited the sellers’ ability to negotiate on commissions. Sellers have traditionally set the commissions for the agents on both sides of the deal.

As part of the settlement, NAR promised to alter some business practices. The three main changes are:

• Buyers, not sellers, will decide how much the buyer’s agent will be paid for a completed sale.

• Commissions for buyer’s agents will no longer be listed on the multiple listing service, a database of properties for sale in a geographic area. Previously, MLS fields visible only to agents, but not consumers, specified what percentage commission sellers were offering for each property. 

• Your agent will be required to "enter into a written agreement" with you before giving you a tour of a home. While such contracts — often called buyer’s agency or buyer-broker agreements — are not new, there’s variation in how they’re implemented. Some states require them already. Some agents sign up buyers before showing properties, while others may explain the arrangement but not ask the buyer to sign anything until there's a house to make an offer on. 

These contracts will likely be mandatory by mid-August, and you can expect your agent to ask you to sign one sometime between now and then.

How much will a buyer’s agent cost me?

Your contract will specify how much your agent will be paid. For now, buyers and sellers are likely to travel the path of least resistance and pay the area's customary commission. That's 2.5% to 3% to each agent in most places.

But you probably won't have to pay your agent out of pocket. In most cases, you should be able to add your agent's compensation to your offer.

For example, let's say you are paying your agent a 2.5% commission, and you make an offer on a $400,000 house. A 2.5% commission on $400,000 is $10,000. So you could offer the seller $410,000 on the condition that the seller pays your agent $10,000 at closing.

Fannie Mae, Freddie Mac and the Federal Housing Administration have indicated that they're OK with offers that include compensation for the buyer's agent.

That leaves out VA loans, which are mortgages guaranteed by the Department of Veterans Affairs. Buyers using VA loans aren't permitted to pay real estate agents directly.

"Veterans are encouraged to negotiate with the seller, through the purchase offer, for the seller to pay for the buyer’s real estate agent or broker," VA press secretary Terrence Hayes said via email.

That sounds like the VA is OK with offers that include the buyer's agent's commission, but that might not be the end of the story. The VA "is actively engaged with industry partners to establish flexible solutions that will ensure veterans maintain equal footing in the homebuying process," Hayes said.

Can I save money by skipping the buyer’s agent?

Technically, you can buy a house without an agent representing you. But it’s not necessarily a money-saving hack, particularly for first-time home buyers.

Keep in mind that you'll bargain with a listing agent who works in the interests of the seller. As you negotiate, you likely would benefit from the experience and support of an agent who represents your interests. Working with a buyer's agent can save time and money.

Claudia Cobreiro, principal of Cobreiro Law in Coral Gables, Florida, advises: Don't buy a house without being represented by a real estate agent or a lawyer. "I make so much money getting people out of crappy situations on contracts," she says.

Hiring a buyer's agent

What if you sign with a buyer's agent, only to find that you don't get along? The good news is that there's leeway in the requirement for a written agreement.

Danielle Rownin, a real estate agent with Keller Williams Realty in Connecticut, says she gives prospective clients options. "Option one is we could just sign the agreement just for today," she says. If there's a mismatch, the contract expires at midnight "and we're free to move on."

Chuck Vander Stelt, a real estate agent in Valparaiso, Indiana, advised starting out with a 30-day contract, which can be extended. "Home buyers should have an easy route to terminate the agreement while still in the looking-for-the-home stage," he said via email.

You should treat the initial discussion with a prospective buyer's agent as a job interview.

A seasoned agent is likely to deliver a prepared presentation. Rownin says her pitch to buyers lasts about an hour. "I take them through every single step of the transaction, what's to be expected and what the next steps are — before we even step foot in the house," she says.

Victoria Ray Henderson, owner and broker of HomeBuyer Brokerage in Bethesda, Maryland, said it's important to ask if the agent works for sellers, too. Is it possible that the agent will want to represent both you and one of their seller clients? What if your agent and the seller's agent work for the same brokerage? Both situations could entail conflicts of interest.

Henderson is an exclusive buyer's agent, which means she and her brokerage represent only buyers. She said this guarantees "100% loyalty" because she and her company don't have split allegiances.

Does it matter whether the agent is a Realtor?

You can choose the best real estate agent for you, regardless of which professional organizations they’re affiliated with.

Most, but not all, real estate agents are designated Realtors, which means they belong to the National Association of Realtors, the largest real estate trade association, and are expected to abide by NAR's standards and code of ethics. Even non-Realtor agents will be affected by the settlement, because the agreement sets rules for any agent with access to the MLS, whether or not they belong to NAR.

Hurry up, or wait, or what?

Don't let the proposed rule changes dictate the timing of your home purchase. Buyers who are ready should move ahead with the steps toward buying a home.

"The settlement isn't necessarily what should be driving a home buyer's decision," says Ryan McLaughlin, CEO of the Northern Virginia Association of Realtors. "It's really their life circumstances that should be driving their decision."