New York Real Estate Lawyers Blog
We previously posted about significant changes to the rules concerning real estate agents’ commissions. These changes became effective in recent days. Previously, sellers paid a commission to the buyer’s agent in the amount indicated in the listing in the multiple listing service (“MLS”), the primary source of real estate listings. The recent changes state that the seller is no longer permitted to offer a commission on MLS and is not required to pay the buyer’s agent at the sale. This post will examine the effect that this drastic change will have upon buyers.
With the exception of “open houses,” where any buyer can arrive and tour the property, buyers who make appointments to view properties are required to sign a compensation agreement with the buyer’s agent who shows the property to them. In particular, inexperienced first time homebuyers are at a disadvantage. The agreement may contain terms that may be unacceptable to a buyer, such as exclusivity (agent is paid even if she did not show the property eventually being purchased to a buyer), length of time (buyers should not be tied to an agent for long time periods), conditions to be met before the commission is to be paid and price (lower percentage, flat fee or hourly fee). In a tough real estate market with elevated interest rates, it may be counterproductive for a buyer to be responsible for the additional costs of his real estate agent as well.
It should be noted that sellers still have the option to pay the buyer’s agent’s commission, which counteracts a buyer’s agent’s inclination to steer a buyer away from a property for which she will not be compensated. This increases the visibility of a property to buyers.
Buyers may benefit hiring an experienced real estate attorney earlier in the process, in particular if they choose to forego the services of a real estate agent. Advice should be rendered as to the terms of a potential buyer’s agent’s compensation agreement, since most agreements are not uniform at this time. Buyers still need an expert to assist in the negotiation of the most favorable price and deal terms. Such issues as whether the mortgage contingency should be waived, whether the seller will agree to make particular repairs, whether an appraisal should be waived and considering whether improvements to the property have been properly permitted need to be handled from the buyer’s perspective. Although New York State currently has elevated requirements for property condition disclosure to the buyer, the implications of potentially waiving a property inspection should be explained to the buyer.
We may enjoy an active fall real estate market. Sellers awaiting these commission rule changes and the opportunity to avoid paying the buyer’s real estate agent may be more willing to list their properties for sale, which will elevate the housing inventory currently being offered. Our attorneys are ready to respond to our readers’ inquiries regarding the changed real estate commission structure and its effect on a particular transaction.