12 Factors That Convince A Buyer To Pay A Full-Service Commission

May is Commission and Compensation Month here at Inman. We’ll sort through the noise and misinformation and provide you with the most up-to-date facts and strategies about how to prosper in the wake of the commission settlements. And look for straight-to-your inbox updates with Inman’s new weekly digest, Commission Chronicles.

As the fallout continues from the landmark commission lawsuit, real estate agents across the country are assessing the damage and pondering the way forward. At the heart of the issue is the decoupling of commissions and the inability, as outlined in the National Association of Realtors settlement, for listing agents to display buyer agent compensation on MLS platforms, tentatively beginning sometime in July 2024.

Additionally, buyer agents will now be required to use a buyer broker agreement to delineate their relationship with their clients and specify how their fee will be paid.

As a result, we are currently experiencing chaos, which is producing a growing uncertainty as to how buyer agents will be compensated for their efforts, if at all. “If commissions will be decoupled going forward,” some reason, “then buyers may be expected to begin compensating their agents. With little or no precedent for this in many markets across the country, how will buyer agents convince their clients to pay a full-service commission or fee?”

We are already beginning to see pushback from buyers as many are already straining to come up with down payments and closing costs. The thought of adding an additional fee might literally “break the bank” for many. 

To clarify, there is no such thing as a “full-service” commission. In sharp contrast to the allegations against NAR of “price-fixing,” commissions have always been negotiable and that fact will not change going forward. Additionally, the level of service provided has always varied from agent to agent, company to company, region to region and is also affected by the type of home being purchased, price point and so much more.

I think the real question here is, “What will buyer agents do going forward to ensure that, under the new rules, they still have the ability to earn a living?” 

My answer here is divided into two segments. First of all, I think there is going to be some short-term confusion as sellers, listening to the fake news pounding the airwaves, believe they no longer need to provide any financial incentives to the buyer’s side of the equation in order to sell their home. I think this is going to be short-lived as market pressures, especially in declining markets, will reveal the short-sightedness of this approach.  

Second, I believe we will see a return to buyer agent compensation that will very closely match what existed prior to the NAR settlement but will be packaged differently thanks to the impending decoupling rules. 

REAL President Sharran Srivatsaa, in a video response to the NAR settlement, provides a great perspective. Using a trip from his home in Laguna Beach to Los Angeles as an example, he explains that the shortest route would take approximately 69 minutes. That is not the only way to get there, however, he points out, adding there are additional routes which will still get you to LA, but will involve a few more steps and take a bit longer.

He emphasizes that regardless of which route you take, the goal is always the same: get from Laguna Beach to LA. As for your role as a Realtor? “You are going to help a consumer buy or sell a house. The result is exactly the same. There are two routes: a route that you are used to and a route that you are not used to.” He continues, “And the new route probably takes a few minutes longer.” 

As a result, to prepare for the impending changes, here are 12 recommended steps Realtors representing buyers should take to effectively manage the path forward. 

1. Get skilled up 

In many cases, buyer agents’ existing toolboxes do not have the tools required to handle the emerging changes. Successful agents will be those who have the ability to fully explain the emerging landscape, have the new procedures and forms dialed in and are seriously trained negotiators.

All of this requires training to enhance agents’ skills. As an example, most real estate agents I know claim to be great negotiators. How many of them, however, have attended negotiation training events, taken protracted negotiations classes, earned a negotiation certification or have at least read outstanding books like Never Split the Difference by Chris Voss?

At its most basic, “a value proposition is a simple statement that summarizes why a customer would choose your product or service. It communicates the clearest benefit that customers receive by giving you their business” and has four key components:

1. A focus on needs: Start by identifying the core issues potential clients will face when buying or selling a home.
2. A clear and specific roadmap: Follow up by identifying how your services will address your client’s anticipated issues.
3. A list of benefits: Continue by explaining how your services are unique and how you will save your clients time, effort and money.
4. A risk-free commitment: Conclude with specific ways your clients are protected when working with you. Examples could include an “easy out” policy whereby they can cancel their representation agreement or a guarantee to resell their home for free within a specific period of time if they are unhappy with their purchase.

A value proposition is not a vanity list of how great you are in comparison to others but, rather, a summary of specific things you will do to meet a client’s perceived needs. Everything else you do should be built upon this. 

3. Develop a mandatory buyer consultation and presentation that rocks

Successful agents have always had stellar listing presentations. Given the new guidelines, a buyer presentation is going to be critical as well. Sharran Srivatsaa again provides some clarification by reminding us of his cardinal rule of real estate.

He states. “We have a seller and we have a buyer. A seller has a house and a buyer is looking for a house. It is our job as the agents to facilitate that.” He emphasizes, “Don’t overthink this. Your job in a living room on a listing appointment is not to talk about marketing — your job is to talk about finding a buyer.”

He further explains, “Your job with a buyer is not to talk about loyalty or the buyer-broker agreement. It is not to talk about how great you are and how many sides you have represented. Your job is to talk about how they can get the home they want at a price they want and the terms that they want.”

He goes on to state that, to develop a buyer presentation, we should 10x the amount of time and effort we put into developing our listing presentation.  Our presentations should provide a clear roadmap to success so potential buyer clients understand how you will help them accomplish their dreams. To facilitate this, an effective buyer consultation should be mandatory. 

4. Learn to tell stories

People quickly tire of facts and figures but will listen to captivating stories for hours. Rather than try to convince buyers how great you might be, provide examples to help them understand how critical competent representation is. Here are a couple of examples: 

No. 1: Recently, our team had a home listed for $1,650,000. We had set an offer deadline and as the time approached, we had no offers. At the last minute, an offer hit our inboxes. Excitedly, we opened the email and discovered a fully non-contingent contract for $1,900,000.

The buyer’s agent, a recently licensed individual working for a discount brokerage, had not contacted us, had not asked if any other offers had been submitted, had not asked about the seller’s desires … nothing. Had they called, it is quite possible they could have negotiated a contract for less than the list price.

Instead, their incompetence as a buyer’s agent, inaccurate assumptions about the market and subsequent failure to act as their client’s fiduciary unnecessarily cost their clients a quarter of a million dollars. 

No. 2: Our team listed a home for a couple looking to downsize. We quickly secured a buyer for their home and then got them into contract on the home of their dreams in a nearby city.

As time progressed, the husband began to exhibit anxiety. I received a call one day from the wife, who explained, “A number of years ago, my husband — due to an extremely stressful situation — had a massive anxiety attack that led to a depression that lasted three years. During this time, his depression was so significant that he was under constant medical attention and literally could not work. Apparently, the sale of our home has retriggered the symptoms of anxiety and I am concerned we may end up going through another bout of depression.”

Although the transactions would have provided two large commissions to our real estate team, we put the needs of our clients ahead of our own and counseled them to cancel both transactions. Needless to say, the other two Realtors involved were less than happy, but we successfully negotiated on behalf of our clients and got them out of both transactions with no financial penalties. 

Bottom line? Experience matters. 

5. Explain how agency works

There is a significant amount of confusion out there as to what agency is, how it is established, and how it is compensated. Many agents assume that since a buyer visited their open house or they showed a person any given property, they are now the agent with procuring cause. Au contraire. Here are the definitions from NAR (National Association of Realtors):

The seller’s representative (also known as a listing agent or seller’s agent) is hired by and represents the seller. All fiduciary duties are owed to the seller, meaning this person’s job is to get the best price and terms for the seller. The agency relationship usually is created by a signed listing contract.

The buyer’s representative (also known as a buyer’s agent) is hired by prospective buyers to and works in the buyer’s best interest throughout the transaction. The buyer can pay the agent directly through a negotiated fee, or the buyer’s rep may be paid by the seller or through a commission split with the seller’s agent.

A subagent owes the same fiduciary duties to the agent’s customer as the agent does. Subagency usually arises when a cooperating sales associate from another brokerage, who is not the buyer’s agent, shows property to a buyer. The subagent works with the buyer to show the property but owes fiduciary duties to the listing broker and the seller. Although a subagent cannot assist the buyer in any way that would be detrimental to the seller, a buyer customer can expect to be treated honestly by the subagent.

A disclosed dual agent represents both the buyer and the seller in the same real estate transaction. In such relationships, dual agents owe limited fiduciary duties to both buyer and seller clients. Because of the potential for conflicts of interest in a dual-agency relationship, all parties must give their informed consent. Disclosed dual agency is legal in most states, but often requires written consent from all parties.

If you expect to establish meaningful client relationships that lead to a paycheck, you need to fully understand agency and be able to clearly articulate it to clients so they fully understand the nature and implications of the various relationships. 

6. Explain how representation works

When a party is represented, compensation is warranted. This simple fact is what secures a fee in a real estate transaction. In any given transaction there are three representative parties: 

1. The seller is represented by the listing agent.
2. The buyer is represented by the buyer agent.
3. The purchase agreement is represented by the closing company (title or escrow company or attorney) to facilitate the contract.

In each of the three scenarios, a fee is earned. I think it is safe to say that Realtors have shot themselves in the foot over the years by stating that we represent buyers for free. Now that commissions will be decoupled, some backtracking is in order so buyers understand that if they are going to be represented in a real estate transaction, a fee is warranted. Once they grasp this fact, then the various options for payment of the fee can be discussed. 

7. Establish a strong relationship with a very good lender  

The recent Fannie Mae and Freddie Mac decision to not count a buyer’s agent commissions as part of their allowable interested party contributions (IPCs) removes what could have been a serious obstacle in the way of a buyer agent securing a fee from their buyer clients. Going forward, it will be critical for buyer agents to partner with lenders who fully understand all of the rules specific to each type of loan program.  

8. Start using the buyer broker agreement now

It is important to understand the difference between a consumer and a client. You provide information to a consumer, but you provide service to a client. The documentation that establishes the difference between the two entities is the buyer broker agreement.

Since a majority of real estate-related information is now in the public domain, it is assumed that information is free. The only means of justifying compensation occurs at the point where you have an officially recognized client relationship (in writing and signed by all parties) that delineates the activities that will be performed that justify a fee.

Although the planned date for the new rules is in July, we recommend you start using your association’s buyer agreement now. Since these forms can typically be filled out in any number of different ways, get the training you need now so you will not be playing catchup once their use becomes law. 

9. Consider charging a retainer fee

Many professionals charge a retainer fee, including attorneys, contractors, some auto mechanics and more. With the real estate landscape shifting, in an effort to increase the professionalism of our industry, retainer fees need to at least become part of the ongoing discussion. The retainer would be paid upfront and then reimbursed through escrow.

If the client decides to back out and not purchase a home, the fee would be retained by the Realtor to compensate for the time already spent on behalf of their client. This practice has been suggested by none other than The Consumer Federation of America, which has also lambasted the current levels of Realtor professionalism given the high percentage of Realtors who are part time and who do virtually no transactions on an annual basis. 

10. Talk to the listing agent

There is one caveat here: The listing agent needs to answer their phone. With the decoupling of commissions and the emerging inability to put compensation information on the MLS, buyer agents will need to be able to talk to listing agents to get compensation particulars.

Those listing agents who think they can set up a separate website and expect buyer agents to go through a series of hoops to get the information they need will quickly earn the same reputation many REO agents had during the foreclosure crisis, which includes some words that cannot be used in this context. 

Those listing agents who want to help buyer agents succeed will establish some effective communication protocols in order to set the stage for meaningful offers. While it may be hard for some agents to understand the nuances of this, the goal of a listing agent is to do whatever it takes to help facilitate a buyer agent’s success (and yes, this comes under the category of don’t get me started).

In my opinion, any listing agent who consistently fails to answer their phone is in violation of their fiduciary relationship with their seller. Bottom line, to quote Leigh Brown, it’s time for agents to “show up.”

And if you as a listing agent are too busy or too important to field buyer agent queries on how to effectively sell your listing, at least have the courtesy to provide — on the MLS — contact information for someone on your team who has the required answers and who will answer their phone.

11. Have an ongoing dialog with your existing clients

We have a history of doing things behind the scenes to make life easy for our clients. Not only do we need to continue in this vein, but we now need to communicate the intricacies of what we are doing so buyers begin to understand everything we actually do.

A buyer cannot fully appreciate what we do if they are not consistently and methodologically informed. Once they get a glimpse of what you are doing on their behalf, they will be more amenable to writing reviews and providing referrals. 

12. Make getting client reviews a priority

I am amazed at how few agents consider reviews a vital part of their business strategy. Let past clients do some of the heavy lifting for you. Implement a strategic plan for getting reviews for every transaction and, while you are at it, ask for referrals as well. Showcase these reviews in your buyer consultation meeting and provide a list of references.   

We are entering a brave new world where buyer agents will need to be able to delineate their value to their clients in a way that leads to contractual relationships. It begins with knowing your value yourself: you cannot articulate what you have never taken the time to determine on your own.