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The recent class action lawsuit settlement in the real estate industry has significantly changed broker compensation practices in Colorado, and the August 15th compliance deadline is approaching fast. There has been much to sift through and comprehend around these changes, and in recent months the real estate industry as a whole has been learning what these changes mean for buyers, sellers, and brokers alike.
Before I list the major changes and implications for buyers and sellers, I want to clearly state that sellers are not obligated in any way to offer any compensation to a buyer’s broker, and they never have been.
Change #1: Signed Buyer Broker Agreements
The first major change involves buyer broker agreements and the requirement that an agreement be signed before a broker shows a client any properties. This agreement may be for one specific property only or a longer-term representation agreement; however, an agreement outlining the broker/client relationship, the contracted broker services, and the compensation being paid for those services must be signed in advance. (Side note, many brokers – myself included – have been practicing this way for many years, so this change is not actually that new. For brokers who have not been operating this way, this change might seem more significant.)
Change #2: Buyer Broker Compensation Section in the Contract to Buy and Sell
As of August 15th, the Contract to Buy and Sell, which is the purchase contract between a buyer and a seller, will now include a section pertaining to the buyer’s broker’s compensation where the buyer can specify an amount to be paid to their broker and by whom. That compensation can be paid by the seller in full (who, again, is not obligated), the buyer in full, or a combination of both buyer and seller. The inclusion of this new section in the contract addresses the issue of transparency around who will be paying the buyer’s broker and exactly how much.
Change #3: Disclosure of Buyer Broker Compensation in the MLS
Prior to the settlement, Realtor MLS systems included a place for listing brokers to publicize in their listings the amount of buyer broker compensation being offered, if any. As a result of the settlement, Realtor MLS systems are no longer allowed to include any reference to buyer broker compensation, at all; there will be no amount included in the listing, there will be no mention of buyer broker compensation in showing instructions or supplemental documents, and there will be no mention of buyer broker compensation on other real estate websites to which MLS systems feed. Listing brokers can communicate with buyer brokers directly about their sellers’ intentions around buyer broker compensation; therefore, listing brokers and buyer brokers alike will need to be more proactive in reaching out to each other – preferably in advance of scheduled showings – to discuss the amount of buyer broker compensation being offered, if any.
Implications: Potential Buyer Paid Broker Compensation
Even the most proactive listing brokers and buyer brokers will not always be able to connect prior to a scheduled showing, and there is a strong likelihood that a buyer may see a house before knowing if that particular seller intends to offer buyer broker compensation. As such, buyers need to assume that sellers will not be paying their broker’s compensation. We do not know yet if/how often this will in fact happen – there are potential negative implications for sellers they should know about and consider in their compensation decisions – and it will take some time to determine how this change will evolve in the market.
As mentioned above, buyers can ask sellers to pay their broker’s compensation in the purchase contract, and the assumption is that many buyers will do just that; however, sellers have the right to refuse and counter that provision in the contract; if that happens, a buyer needs to be prepared to pay their broker’s compensation. They will need to work with their lender and financial advisors to incorporate their broker’s compensation into their financial models and scenarios when structuring their offers.
Additionally, a buyer can instruct their broker to not show them any properties where the seller is not offering compensation for a buyer broker. Buyers should be aware that they may limit their pool of potential homes should they exercise this option, yet it is an option nonetheless, and it would need to be specified in their signed broker agreement.
These are big changes in the real estate industry and brokers are working hard to understand them, implement them according to the required timeline, and explain them effectively to their clients so they can make informed decisions in their best interests. I am, as I always have been, committed to helping my clients navigate these changes smoothly, with clear communication and transparency, throughout the entire buying and selling processes.
Again, it will take some time to watch how these changes unfold in the market as well as grasp their tangible implications. In the meantime, please reach out with any questions you have about these changes or the market in general. And, as always, if you know of someone looking to get into the market, please feel free to pass along my name. I’m happy to help however I can.
