Real Estate Evolution

Some new rules go into effect in August regarding how real estate agents advertise and sell property.

The first rule is that the Multiple Listing Service (MLS), will no longer allow the advertisement of any offer of compensation from the seller or listing agent to a buyer or buyer’s agent.

What Does This Mean?

Traditionally, when a seller signed a listing agreement with a listing agent, they would negotiate how much compensation would be paid to the listing agent for selling their property. The listing agent would, with the approval of the seller, share a percentage of that commission with the buyer’s agent once the transaction closed. The rules of the MLS were that if you advertised a property for sale you had to share what amount of compensation would be available to the buyer’s agent. That amount had to be the same for whatever agent brought in a ready, willing and able buyer.

Does This Mean That Listing Agents and Sellers Cannot Offer Cooperative Compensation?

No. Offers of compensation can continue off the MLS. Listing agents can continue to advertise compensation on flyers, websites, social media and other avenues. The MLS just cannot be used to convey any offer of compensation to a prospective buyer’s agent.

How Will A Buyer’s Agent Get Compensated?

The second rule requires that agents working with buyers must enter into a written agreement with their buyer prior to touring a home that is advertised on a Multiple Listing Service (MLS). There are three (3) main requirements to these agreements.

The first is that there must be a specific and conspicuous disclosure of the amount or rate of compensation the agent will receive. It does not matter if it is a flat fee, a percentage of the purchase price or a figure based on services performed. The important part is that the amount is set in the contract, and it cannot be open-ended or vague. The second requirement is that there must be language in the contract that states that the agent may not receive any more compensation than what is spelled out in the contract. If a buyer and their agent agree on an amount and a seller ends up offering more in the way of compensation, then the agent is limited to what is in the contract. The final requirement is that the contract must state clearly that commissions are always negotiable between the parties.

While some may believe this is a new way of conducting business, many states have required written agreements between agents and buyers for years and even in states where it has not been required, you’ll find many agents who have used written agreements for years. In fact, prior to this settlement, the California Legislature had been working on AB 2992 (Nguyen) to require written buyer-broker agreements. This legislation, with the support of the California Association of REALTORS®, is expected to pass and go into effect in 2025.

Will This Lock Buyers into a Contract With an Agent?

No. These agreements can be written to be as flexible as a buyer needs them to be. The agreement could be for a single property, or the term could be for as short as one day. They do not have to be exclusive agreements either so a buyer could still talk to other agents.

Will This Require Buyers to Pay Their Agent?

Any real estate agent who ever told their buyer that they were working for them for free was probably a liar, unless they really were working without getting compensated. Historically, in a typical transaction, the buyer’s agent would be compensated by the listing agent out of an amount that was negotiated ahead of time with the seller. This amount has always been negotiable and has been a publicly viewable field on third party listing sites such as Zillow. While the new rule requires that a buyer and an agent agree on compensation ahead of time there is no prohibition from the buyer requesting that the seller or the listing agent contribute to or fully cover the commission due to the buyer’s agent. In fact, the settlement specifically calls out the ability of a seller to advertise that they are willing to offer concessions to a prospective buyer. These are amounts that could be used to assist with closing costs, repairs or commissions.

So, What Impact Will This Change Have on Consumers?

Buyers will have a clearer understanding of their agent’s compensation before engaging in property tours. Additionally, buyers and their agents will spend more time upfront defining exactly what a buyer is looking for and how they will be able to complete the transaction. Buyer’s agents gain a better insight into the needs of their client, and they can demonstrate their value, instead of relying on a listing agent to set their value for them. Sellers will still be able to incentivize buyers’ agents by offering compensation directly or by offering concessions to the buyer that could be used towards compensating the buyer’s agent. The entire listing agreement process becomes easier, as well, because the listing agreement will only focus on the compensation that is due to the listing agent from the seller and no other party. I believe we will see greater transparency in the entire transaction process. Buyers will be fully informed about the financial aspects of their representation and misunderstandings and potential conflicts will be avoided.

Buying a home is probably the largest financial decision most people will make in their lifetime. It is critical to work with a professional who can guide you through the complexities of the process. Getting to know your agent to ensure they are the right fit for your needs is a big part of that process. Their expertise and dedication can make all the difference in securing your dream home and navigating the transaction smoothly. Trusting a knowledgeable agent not only provides peace of mind but also ensures that you are making informed decisions every step of the way. If you have questions around the new rules, please reach out to your REALTOR® or you can always contact us at the Santa Barbara Association of REALTORS®.

Brian Johnson is the CEO of the Santa Barbara Association of REALTORS®, a trade association representing more than 1,300 real estate professionals in southern Santa Barbara County.