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As we move into a new reality, buyer and listing agents are both looking for ways to streamline processes and communicate effectively with their clients.
At the heart of the new practices is the issue of how to effectively communicate whether a seller may be willing to provide a concession to a buyer from which they can pay their agent’s compensation. While many MLSs have adopted a new field that allows for a Yes or No response to a seller’s willingness to provide a concession, it could also be used to signify willingness to provide credits towards closing costs or repairs, further confusing things.
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Another concern is centered around listing agents’ historical unwillingness to answer phones. This has long been a bone of contention as many — for reasons completely unknown — are unwilling to communicate in any effective manner.
I am tired of reading agent comments that state, “Due to the high volume of calls, please text instead of calling.” This dialogue, while potentially applicable back in the REO days from agents who had a huge number of listings, is found most often these days on listings by agents who sell virtually nothing and have a single listing that’s been on the market for months.
To be frank, I personally do not believe we are going to see any significant improvement in this area, so we need to develop systems that do not rely on communication from the listing agent. Additionally, I believe we are going to see a growing trend where sellers will not be willing to “tip their hand” by revealing up front what they might be willing to provide as a concession to a buyer’s agent.
There has also been a concern that buyer’s agents might not be willing to show homes where sellers have stated they are providing little or no compensation.
Our team has decided to combat this notion by providing full access to all listings and writing offers as requested, which includes a request for a concession to pay the buyer’s agent — regardless of whether the seller has indicated a willingness to do so or not. Based on any given seller’s response, the buyer then has a choice of proceeding, renegotiating or walking away, as does their agent.
Does this mean we may write more offers than before? Maybe. However, in my opinion, any agent not willing to write a significant number of offers should not be in this business to begin with. With the right systems in place, an offer can be written and packaged in a very short time.
With this in mind, here are key steps we are taking to facilitate the new processes:
1. Establish effective, mandatory buyer consultations
Now more than ever an upfront consultation is critical. With so many changes in effect, agents need the opportunity to go over all of the new rules so that their clients fully understand and are on board.
Since a buyer agreement is now required for every showing, this meeting should happen before looking at the first home. This meeting will be an opportunity for buyer agents to showcase their value proposition, make sure their client is fully qualified and explain the new rules in detail, beginning with the required buyer agreement.
2. Clarify the buyer agreement
There was a significant amount of concern prior to Aug. 17 from buyers who did not understand the need for a signed agreement with their agent that included a request for compensation.
Many buyers did not want to be on the hook for their agent’s commission, especially in higher end markets where the average list price is well over $1 million and buyers are already stretched to the outer boundaries of their financial capabilities to obtain a home. Adding the requirement to pay their agent’s compensation amounted, for many, to adding insult to injury.
Now that the deadline has passed, however, and buyers are discovering that a signed agreement is the new order of things, concern has shifted from needing to sign the document to being able to ensure they still have options and are not necessarily going to be forced to remain with one specific agent or pay them compensation. As a result, we have developed the following parameters:
We ask for exclusive representation
In our state, the agreement has two options: exclusive or non-exclusive. While all of these agreements have a stated time limit, the non-exclusive agreement can be canceled at will and, based on how it is written, end any further obligation. The exclusive agreement, on the other hand, can be canceled but has a 30-day cancellation period. As a result, there could be some pushback to obtaining an exclusive agreement.
To counteract this, we explain that we will be expending an extensive amount of time working on the buyer’s behalf and, as a result, we want that investment of time to be honored with an exclusive agreement. We have a comprehensive value proposition to back up our request for a commitment.
There will always be some buyers who may not agree with the idea of exclusivity, and at that point, a buyer’s agent needs to decide if they are willing to take the risk of working with this type of client.
The major pushback for most buyers comes from the 30-day cancellation period, and this can easily be overcome by writing exclusive agreements that have a limited time frame, such as seven days. In this case, once signed, a buyer is free after one week, with their only obligation being based on whether they end up buying any property shown by that agent to that point (depending on how the agreement is written).
If a buyer wishes to extend the agreement, rather than writing an entirely new agreement, a one-page modification of terms can be sent over by their agent to extend the contract.
For those buyers who are interested in a specific property only, then a short time frame specific to only one property, along with that specific property’s address, will be fine.
We specify our fee for representation
We know our value and, therefore, specify the fee structure that we charge for representing a client.
While this is fully negotiable, we explain that if they negotiate our fee downward, then if any given seller is willing to provide compensation higher than the amount specified in our buyer-broker agreement, that money is simply left on the table and does not benefit anyone.
Put another way, the amount of concession specified is an assurance that we can accept that amount if written into an offer and accepted by a seller, not an automatic guarantee that the buyer will be required to pay that amount.
To clarify, for those buyers concerned about the amount they might need to pay us out of pocket, we explain that they will have the right to walk away from any transaction where the concession offered by the seller does not meet the amount specified in their agreement.
Lastly, we also advise them that, as a last resort, we can renegotiate the fee we would accept should circumstances warrant. In this way, buyers who cannot or will not provide compensation can feel protected and assured that, regardless of the amount specified in the agreement, they will not be compelled to continue with a transaction if their compensation requests are not agreed upon by a seller.
One final fact is that a buyer’s agent also has the right to bow out of any transaction where the compensation request in the purchase agreement is refused by a seller or reduced lower than the buyer’s agent is willing to accept.
3. Establish effective communication protocols
Since attorneys are making it clear they’ll be watching for potential violations, especially around perceived steering, it behooves buyer agents to keep comprehensive records of their interactions with their buyers.
Going forward, our team members will be asking that all requests to show properties be in writing in an email. Once we have received the requests, our agents will check to see if any sellers are willing to provide a concession and then, in a return email, communicate any garnered information back to the buyers. At this point, the buyers will then have the choice as to whether they wish to visit any given property. The choice will be entirely theirs.
Truth is, even if a seller does not provide any clarification as to a concession for the buyer’s agent, there is nothing stopping a buyer from writing an offer that includes a request for compensation for their agent. In fact, I believe going forward, we’re going to see less communication from sellers as to what they may be willing to offer and more of a reliance on the requests for compensation written into any given purchase agreement.
In this new world, why would any seller communicate what they’re willing to offer instead of waiting to see what a buyer asks for — especially if there is an anticipation of multiple offers, which might drive the amount being requested in a downward direction?
With this in mind, there is absolutely no reason a buyer’s agent should “steer their client“ or refuse to show any given property to any specific buyer — unless perhaps the property in question does not meet the buyer’s stated criteria for price, condition, amenities, etc.
Even in these cases, after clarification provided by the agent, the buyer should make the decision to pass, not the agent. Our recommendation is that all these details be in emails so there is a clear audit trail should the need arise to present one and so that any appearance of “inappropriate steering” can be avoided.
4. Write effective offers
Going forward, we will be gathering as much information as possible from any listing our buyer desires to write on and then will submit offers with a request for a concession to the buyer to cover their obligation to pay their agent’s compensation. We will do this regardless of whether the seller is offering a concession or not. After counseling the buyers based on any information available, we will then write the offer based on the buyer’s requested parameters.
5. Increase negotiation skills
I believe we are going to see an increased need for negotiation skills from buyer agents, especially centered around their compensation.
If agents simply accept lower compensation with little or no pushback, then as an industry, we will have earned the right to expect lower compensation going forward. We will need to negotiate during our initial buyer consultation, when writing offers, when responding to any counteroffers, during escrow as items arise from inspections, and so on.
For many, this will mean training to improve basic skills. Since a significant percentage of agents advertise the fact that they are awesome negotiators, regardless of whether or not they have actually taken any negotiation-specific training, it is time to put their money where their mouth is.
The new reality is here. Rather than complain that it may take a lot of extra work to get to the same place, it is time to skill up and face the new opportunities that lie ahead. Not all buyer agents are going to figure out how to work effectively going forward, and when they leave the industry, there will be more buyers for the rest of us to serve. Just make sure you sharpen your sword now so you will end up in the group that is staying.
Author’s note: The views expressed in this article belong to the author and not KW Advisors, its affiliates or employees.
Carl Medford is the CEO of The Medford Team.
