There’s been a lot in the news about NAR, changes in the way real estate sales will be handled in the coming years and in particular, the fees and commissions paid to agents representing buyers.  With several court decisions pending, it’s without doubt that changes are coming.  The plaintiff’s argument goes that sellers have been paying too much by being forced to pay the buyer’s agent and that buyers are really paying for it in the form of a higher price but they aren’t afforded the opportunity to negotiate that fee with their agent since the seller and their broker set the fee.   Meanwhile, there’s the question of, “How can an agent/fiduciary represent someone who isn’t responsible for your fee?”

While you can argue that by virtue of paying both sides of the commission fee, sellers are paying too much, the reality is that the sellers benefit by paying the agent who has the qualified buyer.  This is because by incentivizing that agent to show the seller’s home, the seller increases the likelihood of competition which leads to the highest possible price.  How can you fault a seller for wanting to ensure their home gets maximum exposure?  Moreover, most sellers were at one time the buyer of the property and they got the benefit of having the seller pay their agent’s commission when they bought the home; so, it’s not like it’s all just seller cost because they didn’t pay going in. 

As for the fiduciary argument, this admittedly could be murky if it weren’t so common that buyer’s representatives never really consider the issue as to who is actually paying them.  They are loyal to their client. 

As for the argument that buyers don’t have the choice of how much to pay their representative since it’s built into the seller’s cost structure, I’d suggest that the buyers don’t want to have to pay the fee at all.  But wait, you say, they are paying by virtue of a higher price!  Not necessarily and not necessarily in full.  In other words, consider a for sale by owner.  A FSBO seller almost always figures the money they save on commissions is theirs, not the buyer’s since they are the ones paying for it.  So even in a situation where the buyer represents themselves, they don’t get the full amount because the seller sees the commission savings as their money, not the buyer’s.

If you are a watcher of real estate and you want to peek into the window of where this will all lead, look no further than Fannie, Freddie, FHA and VA.  Once the government backed lenders authorize commissions to be added to the sales price and financed, then and only then will the system be set up to have the buyer pay their representative’s fee.  Until that happens, a selling agent fee will be paid by the seller as has always been done because buyers won’t have the money to pay, while also coming up with the down payment and closing costs.  If the buyer also has to pay the commission, the already monumental affordability problem gets exacerbated.  Not to mention the seller is going to want to incentivize agents to sell their property, maybe get multiple offers and thus command the highest possible selling price.  And to that point you could argue that the current structure benefits sellers by getting them the highest sales price, and also benefits buyers by reducing barriers to home ownership by reducing the upfront cost which in turn opens the door to the greatest wealth builder this country has to offer, owning real estate.