If you're looking for a new home, you need a buyer's agent. Here are the new rules

Just an hour and a half from Los Angeles there’s a mountain community where there are actual seasons: Warm summers, crisp autumns, snowy winters and resplendent springs complete with daffodils all around. Real estate flyers plaster storefronts in the quaint Alpine-drag village. I visited in 2018 from the land of million-dollar starter homes, and when I saw that prices for houses started around $150,000, the hairs on my arms stood up. As a freelancer single mama, I could finally afford an actual house by cashing out some Tesla stock for a down payment.

The next weekend I met Victoria, a real estate agent who’d logged a good three decades on the mountain. She showed me several homes that sent my heart fluttering, but then pointed out potential problems, like rot under a coated deck and the long wait for contractors for low-priced fixers. Finally, we stopped at Wedgewood blue 1937 cabin with the rare garage. I stepped through the door, surveying the late-summer light dappling the antique wood floors. I immediately made a full-price offer with no contingencies. Victoria approved, and I got it for a price that seemed like couch cushion change compared to Los Angeles real estate, plus concessions for wiring and cleaning, thanks to her contacts.

You may think you know a lot of home buying, but unless you’re a professional, using an agent is critical. Even with a few real estate transactions behind me, I would never have known about problems with certain properties without Victoria’s deep knowledge of the area. Buyer’s agents have a fiduciary duty to their customers, including pointing out anything that affects the value of the home, such as deferred maintenance.

The Commission Rule

Significant national changes took effect this year following a winning lawsuit by Missouri homebuyers against the National Association of Realtors (NAR). Plaintiffs argued that agents weren’t transparent about commission. The upshot is that now agents cannot state their commission in MLS listings (but can disclose it elsewhere, like on their websites). Buyers and sellers are responsible for paying their own agents, as a flat fee or commission, rather than the previous model where the commission was paid by the seller and split between the two agents. Sellers can still pay the buyer’s agent fee in order to sweeten the deal.

The rule sent the industry into a tizzy, with the main concern that buyers, especially those who qualify for zero-down programs, won’t be willing or able to pay those commissions out of pocket.

“That might affect their ability to purchase a property, especially someone that's down payment-challenged, and that will affect what they may be able to offer for the property,” says Vince Malta, a member of the NAR Leadership Team.

Rebecca Hidalgo Rains, a broker-agent in Arizona with a soft spot for first-time and lower-income buyers, is concerned that some folks will forego using an agent altogether to avoid the fee. She likens it to defending yourself in court or using the public defender. “Or do you want somebody who's got 30 years of experience like me, who will make sure you get what you want when you want it?”

Of course, buyers have always paid half the commission folded into the purchase price and rolled into a mortgage. Now, they may need a separate loan or cash to finance their piece of the commission. Some lenders are responding. The Federal Savings Bank, for example, offers a loan that can be used for this exact purpose.

The rule change may also work in the buyer’s favor if your state’s property taxes are based on the home purchase price as they are in California, for example. When the agent fee is separate, the purchase price could be lower.

The Buyer-Brokerage Agreement

Back in the day, looky-loos could roam through homes without regard for the time or energy spent by the agent showing them. Under another new rule, would-be buyers must sign a representation agreement to even look at a home, so that even if they purchase it with another agent, they’d still owe the first agent commission. Most agents will also ask for proof of pre-approval from a lender.

Hidalgo Rains says the buyer-agent agreement has always been an option, but predicts the forced use of it will send the industry back to the 1950s, when the buyer had little or no leverage or protection in a real estate deal.

She told the story of a couple who had been working with an agent in her office, but purchased directly from a developer to avoid the 3% commission. Because of the new rule, they owed about $7,000 the agent but settled for $2,000. Had they used the agent for the new home, they could have negotiated a better deal to save money, even factoring in the commission.

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 If You’re Buying

Buying a home is the biggest financial transaction most people make, and these new rules can possibly help. Still, so much depends on how hot or cool the real estate market is and how much leverage the buyer has.

·  If it’s a buyer’s market, you’re more likely to get concessions, including asking the seller to pay all or part of your agent fee.

·  In a seller’s market, a flat fee to your agent may be smart if you anticipate escalating your initial offer. Even if you do some of the legwork yourself, always rely on the agent’s expertise for negotiating.

·  Make sure you like your agent (use referrals from people you trust) and that the contract you sign has performance provisions (such as communicating in a timely manner) and a clear termination clause.

Malta of the NAR says that these changes, ultimately, are not a big needle-mover for home prices, which are affected mostly by inventory and the economy.  “The biggest effect we believe is that this change is pro-consumer, puts the consumer in the driver's seat, and they're going to know upfront what their choices are in relation to compensation of an agent and moving forward."