Those buyers don’t need to be “protected.” They are not being victimized by anyone.

We would call those buyers “future homebuyers” and present day renters.

Homeownership is not for everyone, nor is it a right. Over time, renters can choose to become homeowners.

Buyers being responsible for their portion of the commission does make logical sense. And it would work in many instances. But how do we protect those buyers for whom that additional percentage make the difference between affording a home or continuing to rent?

Seller should pay the listing agent to get the home sold.

Buyer should pay the selling/buyer’s agent for his or her time, knowledge, expertise, and negotiating skills.

Lenders are financing both sides of the commission anyways; it’s embedded inside the purchase price.

As I said on the inman blog a couple of days ago, why are banks jonesing to get into the real estate business? So they can collect the buyer’s side commission AND write the loan. Of course they’ll finance it…..if they’re the ones allowed to earn it.

Think like a corporation: Profit. It is the next logical step.

Commissions on both sides are headed downward. The winners will be those who can create ways to make a profit in the new lower commission world.

http://www.stlouisrealestatevoice.com

Thanks for the snip. I think I actually noted that last year when I wrote about this before. The issue here is that closing costs in my market generally run 2.5%-3% of the Purchase price; coupled with a buyer-broker fee of 3% of the Purchase Price, this would be in excess of most of the limits set by lenders, so we need their help as well.

The challenge is that the changes will have to be made for the majority of Realtors, as 98% don’t want to negotiate the buyer-broker fee without being dependent on whatever bait the seller is offering. It muddies the waters of true buyer-client representation.

Take this hypothetical situation – a buyer-broker can choose between three houses to show (in this market, it’s more like 100. One is offering 3% to the Buyer-Broker, one is offering 2% and one is saying that the Seller is not offering any commission because the property is not listed in the MLS. While the one not listed in the MLS might just be the better house, it probably would be shown last, if at all.

Having the buyer pay (and finance) the commission may be feasible now, but it’s just not done. For that, we need fundamental and sweeping changes from other sources.

What about this notion of the buyer paying?

It is widely believed that it is impractical or impossible for the buyer to pay her own broker at closing. A report published in spring 2006 discussing the future of MLS considered the idea of buyers paying their own brokers: “It is unlikely that this will happen unless HUD and Fannie Mae allow the buyer to finance the portion of the commission that the buyer would need to compensate their own agent.”

In fact, HUD and Fannie Mae regard a commission paid by buyer to buyer’s broker at closing as a valid closing cost. In other words, to the extent that closing costs can be financed, a buyer broker’s fee can be financed as well. The traditional view is that the buyer borrows money to pay for the purchase price and comes to the closing with the closing costs in cash. Practically speaking now, buyers have the option to come with a piggyback loan ready to cover some of the down payment and closing costs in return for a second lien position on the property. There may even be tax advantages to this approach for the buyer.

Even if you are queasy about the buyer paying, the transaction can still fund the buyer broker’s commission. The buyer merely seeks the necessary amount as a concession from the seller. Note that this is a request from the buyer that the seller cover some of buyer’s closing costs. It is not a request from the buyer for the seller’s broker to pay more than the published cooperating compensation to the buyer’s broker; such a contract clause would likely run afoul of NAR’s Code of Ethics. A seller concession to pay the buyer broker should be perfectly OK from the perspective of mortgage lenders and the secondary market. But the buyer broker had better have a buyer representation agreement first.

Thanks for commenting. If the lenders would change their regs so that buyers can finance the Buyer Agents’ commissions, wouldn’t that help to solve the problem?

As a lender I get this question from time to time from first time buyers. They’re a bit unsure of using a Realtor and I tell them the seller pays for them anyways. They are always a bit confused.

I agree there needs to be a change. The buyer needs to pay some of the cost and this whole dual agency is a bit outdated. However, making the buyer pay can be a bit tricky. We have buyers with no down payment money and then for existing buyers having to sell their homes just to pay the Realtor.

Thanks,
Shailesh

Change will have to come from more than one front, however.