Homebuyers' Guide to the New Contracts: What You Need to Know for 2024
Understanding the New Buyer’s Contracts in 2024
Starting August 17, 2024, significant changes are coming to the home-buying process due to a recent antitrust lawsuit settlement. The biggest shift is that homebuyers will now have more control over how their real estate agents are compensated. Here's everything you need to know about these new rules and how they will impact your home-buying journey.
How to Take Control of Your Agent’s Commission
You Decide How Much to Pay Your Agent
In the past, the seller’s agent typically paid the buyer’s agent out of the seller's commission. Beginning August 17, 2024, you will now determine how much your agent gets paid, turning this cost into a key negotiation point between you and the seller.
When you make an offer on a home, you'll likely negotiate for the seller to cover your agent's fee as part of the deal. While this adds a new layer of complexity, it also empowers you to take more control over your home-buying process.
Signing Agreements Before Viewing Homes
Before you can start touring homes with a real estate agent, you'll need to sign an agreement that outlines the terms of your relationship with the agent. These agreements can be short-term, covering a single day or specific tours, or more extensive, lasting the entire duration of your home search.
For example, you might sign a brief touring agreement allowing the agent to show you one or two homes. This lets both you and the agent "test the waters" without committing to a long-term relationship. If things don’t work out, the agreement usually expires at the end of the day, giving you the freedom to move on to another agent if needed.
Even if you're opting for a virtual tour—where the agent shows you the property via a smartphone—you'll still need to sign an agreement. However, you won’t need to sign anything when attending open houses or tours with the seller’s agent, as those agents represent the seller.
Transitioning to a Long-Term Buyer Agency Agreement
Once your home search becomes serious, you'll need to sign a more detailed, longer-term contract, often called a buyer agency agreement or buyer representation agreement. This contract will specify your agent’s responsibilities, their commission, and other essential details. While these agreements have existed before, they will now be required in most areas.
You may choose to skip the short-term touring agreements and start with a longer contract, or you may transition to one after working with an agent for a while. While it’s still possible to buy a home without your own agent, having one is generally recommended for a smoother, more informed process.
How to Negotiate Your Agent’s Commission
Negotiating the Commission Rate
A crucial part of the new agreements is the ability to negotiate your agent’s commission. Commissions are typically a percentage of the home’s purchase price, but some agents may offer flat fees or hourly rates.
For instance, if an agent requests a 3% commission, you have the right to negotiate that rate. Even a slight reduction can save you thousands of dollars. On a $400,000 home, a 3% commission equals $12,000, while a 2.5% commission would only cost $10,000.
Understanding the financial implications of the commission rate you agree to is crucial. Some agents may be more flexible than others, so don’t hesitate to shop around for the best deal.
Important Contract Details Beyond Commission
Aside from the commission, other contract details require attention. You'll also negotiate the duration of the contract. While an agent may propose a 90-day contract, experts recommend pushing for a shorter term, like 30 or 60 days. This allows you to reassess your relationship with the agent more frequently and renew the contract if you're satisfied with their service.
Be mindful of additional fees, such as administrative or transaction fees, that some agents might try to include. These are often unnecessary and can be negotiated out of the contract. It's also wise to define the geographic area the contract covers, ensuring it aligns with your home search needs without being overly broad.
Strategies for Asking the Seller to Pay Your Agent’s Commission
Leveraging Seller’s Concessions in Your Favor
When making an offer on a home, you can request that the seller cover your agent’s commission through what’s known as a seller’s concession. This tactic can be especially useful if you’re already stretching your budget to cover other costs, like the down payment and closing fees.
For example, you might offer $400,000 for a home on the condition that the seller pays your agent 2.5%, or $10,000. This approach leaves the seller with a net of $390,000 before other costs, making your offer more appealing than a competing bid where the buyer asks for a higher commission rate.
If the seller has already indicated a willingness to pay a certain percentage toward the buyer’s agent fee, your request may be easily accepted. Even if they haven’t, it’s worth negotiating, as many sellers recognize that covering the buyer’s agent commission can attract more buyers and lead to a quicker sale.
Gaining a Competitive Edge with Lower Commissions
Negotiating a lower commission with your agent can give you a competitive edge when making an offer on a home. For instance, if you negotiate a 2.5% commission instead of 3%, your offer might be more attractive to the seller because they get to keep more money from the sale.
In a competitive market, this small difference could be the factor that secures your dream home over another buyer’s offer.
Conclusion
The changes to the home-buying process that take effect in August 2024 empower buyers to take greater control of the transaction. By understanding these new agreements and negotiating terms that work in your favor, you can navigate the home-buying process with more confidence and potentially save thousands of dollars in the process.
