Prior to August 17, 2024, when a buyer hired their own representation, most buyer's agents would explain to the buyer that "the seller is paying my compensation". In order for a new real estate listing to be published in the Multiple Listing Service (MLS), the broker was required to offer cooperating compensation to the buy side of the sale. This meant that every listings in the MLS would publish the amount of compensation that would be paid to the buyers broker when they brought a ready, willing and able buyer to that sale. The buyer's broker compensation was paid through seller net proceeds after the close of that sale.
Does this mean the listing brokerage is prohibited from offering cooperating compensation? NO! It just means they can not advertise or publish that they are offering it. Does this mean that the seller is prohibited from offering cooperating compensation? NO! However, many sellers are asking more questions about whether they should be offering compensation.
So, if compensation can no longer be published in the MLS, where does it get negotiated into the transaction? Who is really paying for real estate agent compensation? Those are GREAT questions! It all comes down to perspective...
In an ideal world, the seller would pay their own listing broker directly. To be honest, it would be great if they paid listing broker compensation like a pre-paid retainer fee! Likewise, the buyer would also pay their buyer broker a pre-paid retainer fee. I am certain every broker would LOVE for it to happen that way. Alas, that is the least likely thing that will happen - primarily because many buyers and sellers do not have liquid cash available to handle compensation pre-payment.
Many sellers firmly believe that they are losing money by offering (or paying any) compensation to the buyer broker. The funds paid to the seller after all of the other closing costs are paid is what is called "net seller proceeds". Their listing broker explains to them that their compensation is paid through those net seller proceeds. In years past, that also included the cooperating broker compensation, which that listing broker would then pay to the buyer broker after closing. This is why many sellers feel like they should not have to pay the buyer broker. They are asking "Why doesn't the buyer pay their own broker directly?"
Many buyers just don't have cash to pay the buyer broker directly. Many first time home buyers have been saving money for years to buy their first house. Now that they finally have money for the down payment and closing cost on their mortgage - this lawsuit changes the way the game is played! Or did it?
When you look at the question of who is really paying agent compensation - doesn't it really just come down to what side of the ledger you are looking at? Logically speaking, if the buyer doesn't buy the house, then can the seller make any net proceeds from the sale? And if the seller pays their broker through seller net proceeds, how would that happen if the buyer doesn't make the purchase? So, without a buyer, no one gets paid in the transaction! If 100% of the money is coming from the buyer who makes the purchase, then doesn't it stand to reason that it is in fact the buyer who is paying 100% of everything!? Isn't it the buyer who is paying both the buyer broker and the seller broker?
As the buyer, you always have the option of negotiating how compensation is paid through your offer on a property. When we look at the situation from the purchaser's side of the transaction, it is truly the buyers who have a strong negotiating position. When you understand your options of how you can negotiate the buyer brokers compensation with your purchase offer, you can make the best decision that will ultimately affect you long term.