Getting Paid Now and in the Future (Part 2 of 5): Buyers
Welcome to episode 2 of the 5 part series I’ve put together for you this week, “Getting Paid Now and in the Future (Part 2 of 5): Buyers”
I’d like to pass along several thoughts about our business as it relates to representing buyers, and I know many of you have questions, concerns and ideas about this changing aspect to our business.
From my perspective we (real estate professionals) are in the early stages of perhaps the most seismic shift to our business since Zillow became the dominant property search resource for U.S. real estate buyers.
I can’t overstate enough the potential impacts of the class action lawsuits and Department of Justice investigations into real estate buyer-broker representation and broker commissions practices – note I said “potential” because I’m not interesting in dramatizing or sensationalizing changes to our business that have not yet occurred (and may never occur, although I think it’s very likely there will be at least some measure of change).
What does this mean for you?
It’s entirely possible that sometime in the future real estate brokers may not be able to represent both sides of a purchase/sale transaction, so that’s a potential loss for those of you who are accustomed to acting as a Transaction Broker (TB) on your listings and also representing the buyer(s). Regardless of the ability to be a TB for both sides, it’s already a reality that you must be prepared to get paid by your buyers instead of the “old” way of doing business and simply relying on the co-op commission offered through the MLS.
Why?
The first of the class action broker commissions lawsuits was already settled by Anywhere (the parent company to Sotheby’s International Realty), and that lawsuit continued with other major defendants (including NAR) through a jury determination that the plaintiffs (a group of Missouri former real estate sellers) should be awarded approximately $1.8B (and perhaps as much as $5B+ for treble damages). The Anywhere settlement includes an important nuance that listing brokers must make co-op commission offerings optional for sellers – in practice this has always been the case, sellers have total purview to negotiate whatever listing & selling agent commissions they are willing to pay. There are more court cases and DOJ investigations still in the works…
How should we proceed?
First, know that you should keep how you get paid at the closing table for representing buyers at the front end of your client relationships. Do not wait until writing a contract (or later) to figure out if you will get paid by the seller or buyer (or both).
To be specific, with regards to representing buyers your primary options to get paid today and in the future are:
Rely on MLS co-op commission offerings – but keep in mind these offerings are already being compressed with more 2-2.5% (and lower) offerings every day, and off-market listings often don’t offer any kind of co-op commission (so how you plan to get paid an appropriate amount, or any amount, in those situations matters)
Have a clear agreement in place with every buyer you work with that specifies who will pay you at a successful closing (and those agreements can include MLS co-op’s)
Refer your buyer clients to another broker as appropriate and collect a referral fee
If you can adopt and embrace the mindset that you are a real estate professional who deserves to get paid for your experience, expertise and effort then the dialogue with your buyers will shift, and in many ways become easier.
The brokers who are going to be at a disadvantage in the future (and probably already today) are the ones who do not embrace the new paradigm and truly recognize this is an opportunity to help both the seller and the buyer understand what is truly in their best interests (i.e. always put the client first). I would even go so far to point out that we are already in a marketplace where only the brokers who truly create value are going to be consistently successful having buyers sign a buyer agency or commission agreement with them.
That’s exactly where we come in! We (ASSIR brokers and staff) are the epitome of value creators, and as we’ve been talking about the past few years: know the business, know the market and create value. If you pitch any buyer that those three areas are your strong points, and that they will likely find working with you to be worth far more than 3% when it comes to identifying the best possible properties for them, fully vetting out and inspecting the appropriate aspects of their selected property(ies) and negotiating a suitable purchase price (not to mention everything else it takes to successfully shepherd the buyer and transaction through closing).
The sooner you can introduce the conversation about a buyer agency agreement or commission agreement with any new prospect the better off you will be in the long run. Yes, the conversation can sometimes feel awkward, but frankly the new paradigm gives you permission every time (and any time) to address how you get paid as a real estate professional. Practically you get paid at the closing table, yes, but realistically you get paid when your buyer prospect signs a commission agreement with you, signifying it’s time for you to go to work solely on their behalf, and completely in their interests to secure the best possible property at the best possible price.
How do you start the conversation with a new buyer? There are infinite approaches and certainly not a one-size fits all strategy, but consider this simplified outline…
First, find a way to “break the ice” – an easy question (and a very valid one) is to ask if the buyer has been working with any other brokers? And if they have anything signed with any other brokers? The answer to those questions may be very telling, and may already shift how you determine to proceed.
Next, ask the buyer if they would like to learn about how you work with your clients and what you do for your clients? Of course the answer should be “yes” every time. And that’s your opportunity! Time to bring your formal (or informal) buyer “listing” presentation to the forefront – this can be an actual presentation or as simple as your personal talking points (NOTE: Our sales team has a newly updated buyer presentation template ready to go for your use!). This may sound simple but this is the fork in the road towards success or failure, so recognize this aspect of our business as crucial for long-term success representing buyers.
Finally, close this dialogue with asking the buyer if they would be willing to sign our form Colorado buyer representation agreement (aka Exclusive Right to Buy Agreement)? Their answer will give immediate feedback about your ability to pitch your value proposition and/or if the buyer is likely to work solely with you (versus shopping around for other brokers).
What if the conversation doesn’t lead to a buyer agency or commission agreement?
If the process of having a dialogue about signing a buyer, agency or commission agreement is intimidating to you, then break it into smaller and more digestible pieces. Don’t think about your entire business being predicated on this skill set and aspect of the business. Look at each opportunity as exactly that, an opportunity to experiment and get better. You won’t succeed every time and you need to give yourself permission to “fail” and improve the next time. You do have the opportunity to learn from every interaction and every time you pitch your services to be paid by your buyer. If it doesn’t work out the first time, the second time or even the fifth time…learn from each one of those experiences, and be constructively self critical.
You will likely surprise yourself when you have the opportunity to talk about “why me“ and also think about the questions you can ask your next prospect that will get them thinking about how much is involved getting from point A to Z and purchasing a property in our highly specialized market environment. Once you get buyers answering questions and talking about what they don’t know and how much goes into the process, it will make it easier for you to match up your skills and experience to guide them along the way.
Some of you may never feel totally comfortable asking buyers to sign commission agreements – have you thought about focusing your business solely on being an outstanding listing broker and referring all buyers? Conversely, some of you naturally love working with buyers and already sign buyer agency agreements with every client – have you considered branding yourself solely as a buyer’s agent and referring out listing opportunities? Of course most brokers in our market work representing both buyers and sellers on a regular basis, and that’s a great fit for many people, I’m just suggesting the paradigm shift in our business may create opportunities for some of you to become buyer or seller “specialist”.
A few other miscellaneous thoughts:
For listings that don’t offer a buyer-broker commission (or offer an insufficient amount) and/or for a buyer who won’t sign a buyer agency or buyer commission agreement, you can consider writing a “professional services” fee into the additional provisions of the purchase contract. The Colorado Real Estate Commission does not want to see broker commissions as a part of the purchase & sale agreement so in these instances please discuss with David Harris the appropriate language for your contract.
Help your buyers understand the “math” of the transaction doesn’t change at all if the seller pays both broker commissions, or the seller pays the listing broker & the buyer pays their broker. A lot of people are trying to capitalize on all of the court cases and media coverage today to say brokers shouldn’t earn 5-6% on real estate transactions. REMEMBER: The listing commission and the buyer’s broker commission are separate payments regardless of who pays them – 3% is generally what listing agents should be paid in our market, and 3% is what buyer-brokers should be paid…don’t let people combine the two and try to negotiate a discount based on two completely separate professional services being provided in every transaction (even if you are a TB, you are technically providing the same set of services as if it were separate listing/selling transactions).
What about lenders? Many of you have pointed out that lenders don’t want to see buyers paying their broker on the settlement statement. Big picture, I think this will change because the lending industry will need to adjust and adapt to the practical realities of our business going forward. Short-term, this is an important conversation to have upfront with the buyer and their lender. See the first MISC thought above as an option if necessary, and this may also be a conversation you want to have with the listing agent/seller about how to structure a contract so you get paid and the buyer’s lender is satisfied.
The next email in this series (Part 3) will cover my thoughts on the Seller side of the business going forward. I want a ASSIR to continue to be THE leader in our market, and that means forging the best path to success for each of you individually. Let’s collectively ensure our clients are served in the best possible manner, partly to ensure you all continue to be successful in this business (and make a living doing it), and partly because I want to make sure our company is at the forefront and ahead of all of our competition so we can continue our dominance as the market leader in the Roaring Fork Valley (and beyond).
Onward!
Andrew
