How long do we have to stay with our agent?
Question of the week: How long do we have to stay with our agent?
Answer: As you are likely aware, the real estate industry changed dramatically on August 17th. As of that date, sellers are no longer obligated to include paying a buyer’s agent (the selling agent) as part of a sale and a listing agreement with the listing agent. Sellers may choose to do so, but it is not longer a standard part of the boilerplate listing agreement provided by Realtor associations across the country.
With this no longer part of the listing price, many buyers will be negotiating with selling agents to represent then in the home buying, and closing, process. Buyers can pay their agents directly at close of escrow, or they may ask the seller to pay their agents as part of the sale transaction.
For as long as I can remember, the California Association of Realtors had a buyer-broker agreement available for agents to use whereby buyers would agree to have an agent be their exclusive agent in any home they decide to purchase. While the agreement has been readily available, it was not used very often.
The purpose of the contract was to protect an agent who may have spent a lot of time researching and showing properties to clients looking for the right match, only to have a phone call late Sunday night, “Jill, we were driving home from brunch and walked into an open house, we really loved it. We told the agent we were working with you, but she said if we used her as our agent the price would be lowered two-percent and the seller would pay $10,000 in our closing costs. Sorry, but it was just too much money for us to walk away from.”
Yes, this happened. (Aside, such calls happen in the mortgage industry as well…)
With the new compensation rules in effect, with no guarantee that a seller will be paying the selling agent commissions, agents representing buyers are using buyer-broker agreements to establish representation and compensation.
Due to the new landscape in the industry regarding agent compensation, there are many different approaches agents are taking in regards to the agreements they make with their homebuying clients.
The main factors are revocability, exclusivity, duration, and compensation.
Some of the contracts are revocable by either party at any time or after a specific period of time. Listing agreements have expiration dates, at which point a home seller may decide to relist a property with a different agent. The revocability clause in buyer-broker contracts will enable buyers to cancel a contract before its expiration date if certain conditions are not met.
As defined, exclusivity requires a buyer to compensate the agent whether the agent represents them or not in the purchase a home. This protects an agent if the circumstances above with the Sunday evening phone call occurs.
Time frames and revocability are significant aspects of the agreement. Some buyers are signing a single-property agreement with an agent. If they are not under a representation agreement with an agent and walk into an open house, or see a For Sale sign in front of a house, and wish to see the property and negotiate for a purchase. They may decide the do not want an longer term exclusive agreement with the agent, but agree to representation and compensation on the specific property. If their offer is not accepted, and the buyers liked how the agent represented them despite the outcome, they may decide to sign a more binding agreement for the agent to find their new home.
The compensation aspect of the agreement is likely where negotiations will differ from buyer to buyer and agent to agent. Some agents will agree to flat fees based on what services they will perform. The more services the higher the fee. Others will base compensation on a percentage of the sales price of the property.
An example of a transaction that would have been very unlikely before August 17th. Dennis and Leslie have been thinking about moving and buying a new home. They see an open house in the neighborhood they like, after walking through they tell agent Fred they are interested in making an offer.
Fred asks if they are in a representation agreement with another agent, to which they answer no. The sales price is one-million dollars, they are looking to purchase with 30% down from the sale of their home, which they agree to list with Fred at 2% commission with buyer to pay their own agent. Fred indicates the seller of the open house will not pay buyer’s agent commission. Because Fred had spent no time researching and showing homes, and realizing Dennis and Leslie can obtain another agent to represent them in their sale and purchase, he agrees to a flat fee of $15,000 to represent them in the purchase.
Historically, Fred is reducing commissions that traditionally had been paid for representing Dennis and Leslie on their sale and purchase, however, in the new environment, he recognizes that signing up two transactions in one meeting that walked in off the street, he has had a good Sunday.
Another scenario, is Dennis and Leslie want to move and contact their neighborhood agent Kelly. They agree to have Kelly represent them in the sale of their home and purchase of a new home. They sign 100-day exclusive representation contracts agreeing to pay Kelly and any agent representing a buyer of their home 2% each, and pay Kelly 2% on the representing them on their purchase. They sell their home and purchase a new one with Kelly being compensated under their agreements for the transactions.
Back to our question of the week: how long do you have to remain with your agent after you have signed the buyer-broker agreement. In the above example, the answer is 100 days. Unless you can provide evidence that the agent you have signed an agreement with has not fulfilled their portion of the agreement, you must pay that agent for any home you purchase during the 100-day period. However, that will likely change after January 1st if a bill passed by the California Legislature is signed by Governor Newsome.
The bill will require all buyer contracts to expire automatically after three months, unless both sides agree to extend the agreement.
Further, the contracts must detail agent compensation, services provided for the compensation, when the compensation must be paid, and terms for ending the contract prior to the automatic expiration date.
Note further, any contract with a real estate agent is with the agent’s employing broker. As such, if a buyer is not satisfied with the representation, or effort, they are receiving, they can request to work with a different agent in the brokerage.
It is a whole new world for agents, buyers, sellers, and lenders as we must work with buyers as to how to pay their agents if compensation is not included in the sales price.
Schedule an appointment to discuss your options if you are considering purchasing a new home or property, or refinancing an existing one and want to know the mortgage options available to you.
Have a question? Ask me!
It’s Friday, it’s Friday, First Friday of the month…which means jobs, jobs, jobs. The eyes of the world have been focused on today for the past several weeks as the first Friday of every month is when the Labor Department releases employment data from the prior month. Last month’s release showed a tremendous drop in new jobs, wondering if an anomaly, or a trend, focus was on today’s data release. A very weak jobs report could portend a “hard” landing for the economy, i.e. recession, indicating the Fed has had rates too high for too long. A strong report would indicate that the economy is strong, inflation will be extremely sticky, Fed rate cuts would be less in frequency and amount.
So, what did we get? Just right? Job growth in July was 142,000 new jobs, “soft” was the word the Wall Street Journal’s MarketWatch used to describe the report. While the most jobs added in a month since May, it was still below the 161,000 new jobs forecast. Construction, education and health, and leisure and hospitality sectors added the most jobs. Retail and manufacturing sectors had the biggest job losses. Unemployment fell to 4.2%, from 4.3%, the first decline in 5-months, mostly attributed to people who could not work in July returning to work in August.
Mixed signals came from wages increasing 0.4%, 3.8% from last August; both outpacing the July Consumer Price Index (August’s CPI will be released next week). Stronger wages support higher consumer spending, which supports a stronger economy—or if not stronger a “soft” landing of the economy following the Fed’s attempts to push inflation down and slow the economy with its benchmark interest rate. That strong signal is tempered by a weak signal as job data for June and July were revised lower, as a result the June through August period had the slowest 3-month job growth since 2020 and the early months of the pandemic.
Rates for Friday September 6, 2024: While away last week rates popped a bit, and this week are flat from last Friday as investors see today’s data as supporting a 0.25% rate cut by the Fed, and see a 0.50% cut as less likely—the former has been priced into the market for some time.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:
30-year conforming 6.00% Flat
30-year high-balance conforming 6.75% Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
Wow! What a great vacation Leslie and I had cruising the Alaskan Inner Passage and spending a few days before and after the cruise in Vancouver. A return visit to Vancouver is on our must-do list.
The timing of our trip was a joint present to ourselves to celebrate our 30th anniversary, which has this past Wednesday.
I have thoroughly enjoyed my career in the mortgage industry, the primary reason I am so glad I chose it as a career is that it led to me meeting Leslie, who was working for the Long Beach Association of Realtors when we met.
Affiliates in Action was committee within the Association that consisted of those in affiliated real estate industries, title, escrow, lending, inspectors, etc. The group did a lot of community service and fundraising events that engaged affiliates and real estate agents in the community. Leslie was the Director of Communications for the Association and the staff member assigned to the committee to take minutes, create agendas, etc.
Through my mom and her mom, volunteering was instilled in us at a young age. I am so grateful for them as it led me to volunteer with Affiliates in Action, which led me to Leslie, which led to a wedding in the backyard of our first home, which led to…. thirty years and counting!
Volunteer in your community, it will change your life!
