– By Betsy Burkey, Broker|Owner Realty Sky
In California, real estate transactions have long been governed by a system that largely relied on seller-paid commissions, with a portion allocated to the buyer’s agent. However, the landscape of real estate commissions has shifted after the significant settlement of 2024, impacting how commissions are structured, particularly regarding the buyer’s real estate agent.
This blog will explore the implications of the settlement, discuss the introduction and role of the Buyer Representation Agreement, and provide insight into typical commissions in the state post-settlement.
The Impact of the 2024 Settlement on Buyer’s Agent Commissions
Before the 2024 settlement, it was common practice for the seller to pay a commission to both their agent and the buyer’s agent. This commission was usually around 5-6% of the sale price, split between the two agents. Buyers, in many cases, were not fully aware of how their agent was compensated, as they did not directly pay the buyer’s agent out-of-pocket.
The 2024 settlement was the result of a series of legal challenges aimed at increasing transparency in real estate transactions. The key change brought about by the settlement is the uncoupling of the buyer’s agent commission from the seller’s obligation. Now, buyers are more likely to be directly responsible for paying their agent’s commission, a shift that emphasizes the need for a clear, contractual understanding between buyers and their agents.
Introduction of the Buyer Representation Broker Compensation Agreement
With the shift in how commissions are handled, the Buyer Representation Broker Compensation Agreement (BRBC) has become a critical document in California real estate transactions. The BRBC formalizes the relationship between the buyer and their real estate agent, outlining the scope of services the agent will provide and detailing how and when the buyer’s agent will be compensated.
What is a Buyer Representation Agreement?
The Buyer Representation Agreement is essentially a contract between the buyer and their agent. It ensures that the buyer’s agent is fairly compensated for their efforts and that the buyer is clear on what to expect from the working relationship. The BRA typically covers:
– The duration of the agreement, setting a timeline for how long the agent will represent the buyer.
– The agent’s duties, such as assisting with property searches, negotiations, and contract reviews.
– Compensation terms, including the buyer’s obligation to pay their agent, and how that payment may be structured.
– Exclusivity, specifying whether the agent will exclusively represent the buyer for a certain period or if the buyer can work with other agents.
Since the 2024 settlement, more buyers are required to sign a Buyer Representation Broker Compensation Agreement to ensure transparency and a full understanding of the agent’s role and compensation.
How Commissions Are Structured Post-Settlement
Historically, the commission was split between the listing agent (representing the seller) and the buyer’s agent, usually 2.5-3% to each. Post-settlement, this structure has become more flexible, with more responsibility for commissions shifting to the buyer’s side.
Typical commission rates for buyer’s agents are still around 2.5-3%, but the way that commission is handled can vary greatly depending on the agreement. Below are a few scenarios buyers may encounter:
1. Buyer Pays Commission Directly
Under this model, the buyer agrees in the Buyer Representation Agreement to pay their agent’s commission directly, typically at closing. This commission can either be a percentage of the home’s purchase price or a flat fee, depending on the agreement. Buyers may negotiate for a lower commission or specific services, depending on their needs.
2. Seller Pays All or Part of the Buyer’s Agent Commission
In some cases, the seller may still agree to pay part or all of the buyer’s agent’s commission as part of the negotiation process. This might occur in competitive markets where sellers are motivated to close deals quickly, or in cases where the seller has a strong relationship with the listing agent, and the listing commission is structured to include buyer agent compensation.
3. Split Payment or Credit at Closing
Buyers and sellers can also negotiate a split where the buyer covers part of their agent’s commission and the seller covers the remainder. Alternatively, the seller might offer a credit to the buyer at closing, which can help offset the buyer’s out-of-pocket costs for their agent’s commission.
Why Understanding Commissions Matters
As a buyer, understanding how your agent gets paid is essential. The new reality post-2024 requires buyers to be more engaged in the process of compensating their agents. Buyers should carefully review the Buyer Representation Agreement, and ensure they fully understand what services they will receive and how much they are expected to pay for them.
One key benefit of this new structure is transparency. Buyers now have more direct control over the compensation of their agent and can negotiate services based on their needs. Agents, in turn, have more incentive to clearly communicate their value to buyers, fostering a stronger professional relationship.
Final Thoughts
The 2024 settlement has reshaped the way real estate commissions work in California, particularly for buyer’s agents. With buyers now shouldering more responsibility for paying their agent’s commission, the Buyer Representation Agreement plays a vital role in ensuring transparency and setting expectations. Understanding this new commission structure is critical for buyers navigating the California real estate market, helping them make informed decisions and secure the best representation possible.
If you’re planning to buy property in California, take the time to discuss commission structures with your agent, review the Buyer Representation Agreement thoroughly, and ensure you’re comfortable with the terms before moving forward.
Good Luck and Give me a call if you have any questions!!
Betsy Burkey, Broker
Realty Sky – realty-sky.com
CA DRE 01447663