I have been asked by more than one agent on what can be done about very low BAC (buyer’s agent commission)?
As I thought about it, some things started to come to mind.
A buyer's agent has never really had to negotiate their commission, it has always been there via the MLS. In fact how many buyers agents have told a buyer and even advertised that it is free to use them? Well, it is sort of, maybe, kind of true! Now that BACs have dropped like they do in every seller's market, using me is free is becoming somewhat truer.
So let's look at a buyer's agent commission, it is an employment compensation. Who is the employer? It would be the buyer. How is employment established? With an employment agreement, in this case, a Buyer Broker Agreement (BBA).
This is a bilateral agreement, you agree to work for the buyer, if the buyer buys a house they agree to pay you no matter what, just like an Exclusive Right to Sale Listing Agreement with a seller. Seller agrees if they sell the house they pay. Now the terms can be modified to not be exclusive, that's another story, for now, we'll use the exclusive contract. The contract clearly states that the buyer owes the buyer's broker a fee if they buy a house, it goes on further to say that if the Listing Broker pays an amount that satisfies the amount in the BBA, then the buyer's obligation to pay is satisfied.
Because you are a Realtor there are two components to the BAC, contract, and co-op. Now that we have cleared up who is responsible for paying, which is the contract.
Now let's take a look at the Co-Op system of the MLS. When a Member Broker enters into a listing agreement, they agree to cooperate with all the other brokers. This is a rule of their membership, they agree to share ALL of their listings, and offer compensation. Yes, there are exceptions, we're not talking about that. There is no rule on what that compensation is.
Before we go any further, I think you should know a little history of compensation and cooperation. There was a time when there was no buyer's agent, all agents were subagents of the listing broker. Yes, you read that right.
Larry Lister an agent of ABC Realty list the home of Sam and Lind Seller, then Betty Boop an agent of XYZ Realty meets a buyer that wants to buy a home.
All the Brokers and all the Agents represented the Seller in a sub-agency arrangement. When a transaction closed, the listing broker paid an SAC (sub-agent commission). The theory was, as a seller, if I am paying a commission, then you represent me.
Then, Buyer Agency came into residential real estate, there was a debate whether the seller and the listing broker should pay anything to the buyer's broker. Again the thinking being that if you are not representing the seller's interest, why should I the listing broker pay you? The industry soon realized that it made sense to pay the BAC. For many years MLSs offered BAC/SAC, eventually, the SAC dropped.
Now that we're finished with a trip down memory lane, let's get back to the original question. What can be done about a BAC that is less than you prefer?
The answer is plain and simple, you must have a buyer agency contract signed, you must explain what the contract means and how it impacts them, it is that simple. You need to explain to the buyer that your minimum commission is x% and if any property we look at is less than your minimum preferred amount, then you the buyer are obligated to pay the balance at closing.
Could this be the beginning of a divorce between the commissions? Where all parties pay their respective brokers? That is another conversation I'm sure I will write about.