Buyer Representation

The Real Estate Industry
has gone through changes recently.
Here is a summary of how things now work.

You may have heard about recent changes in the real estate industry, specifically regarding how real estate agents can work with potential buyers.

Prior to August 17th, 2024, we as real estate agents could take new potential clients to see properties without requiring a formal agreement regarding representation, commissions, or brokerage fees. Additionally, on the selling side, it was common practice for the listing agreement to include a brokerage fee shared between the seller's and buyer's brokerages. In that structure, there was essentially no out-of-pocket fee for the buyer - all brokerage fees were typically paid by the seller (from the proceeds of the sale).

Following a recent settlement between the National Association of Realtors (NAR) and the Department of Justice (DOJ), the structure that had been used for many years is no longer permitted.

In accordance with the settlement, the buyer representation brokerage fee (commission) has been removed from the seller's side of the transaction. If a buyer wishes to use a real estate agent, the agent must have them sign a representation agreement with the agent/brokerage before viewing any properties. This agreement must clearly specify the brokerage fee that would be charged if a property is purchased.

A required Buyer Representation Agreement states that the buyer will be responsible for paying a predetermined Buyer Representation commission if the buyer purchases a property during the agreement period.

Now factor in the real-world workings of this new arrangement. For cash buyers, it makes little difference. A buyer would theoretically pay less for a property now that the purchase no longer includes the brokerage fee. The buyer would plan to pay their brokerage fee outside the purchase price. At the end of the day, it's really about the same result for the cash buyer. But for buyers who need a mortgage, coming up with the extra cash to cover a brokerage fee, on top of a 20% down payment, is not always possible. Mortgage lenders generally knew that a buyer agency fee was included in the purchase price of a home and therefore covered that amount in the financing. Now, they had to find a way to include a separate brokerage fee in the financing. The simplest solution was for the buyer to ask the seller to cover the buyer's brokerage fee from the sale proceeds, bringing us back to nearly the same situation we've always had.

With these industry changes, we now have an updated Utah Real Estate Purchase Contract (REPC). The new Utah REPC includes a section that allows the buyer to request that the seller cover the brokerage fee (commission) from the sale proceeds. Almost every transaction we have seen, or been aware of, has included this arrangement. Looking at this objectively, when brokerage fees are paid at closing from the sale proceeds, the split is equal between the buyer and seller. In a way, yes, the seller is paying them (on paper), but it's the buyer who pays the total purchase price amount for the home, which covers all the costs of the sale.

Ultimately, in most cases, things operate as before, with the sale proceeds typically covering both the listing brokerage commission and the buyer’s brokerage commission. The main difference is that before showing any property to a new potential buyer, we are required to have a written agreement in place.

That is a lot to take in, so please do not hesitate to give us a call, and we will happily discuss this further.