Who Covers Buyer’s Agent Fees in California?
Who pays the buyer’s agent commission?Traditionally, when a homeowner enlisted the services of a real estate agent to sell their property, they agreed to cover the commission for both their agent and the buyer’s agent. This fee generally ranged from 5 to 6 percent of the home’s sale price and was typically divided evenly between the two agents.
However, a recent lawsuit settlement has brought about changes, potentially shifting the responsibility for paying buyer's agent fees away from the seller.
Why Covering the Buyer's Agent Commission is Smart When Selling Your Home?
The commission you pay covers essential marketing efforts like photography, advertising, and promotion, which are tax-deductible for sellers. Offering a competitive commission incentivizes buyer's agents to bring qualified buyers, increasing your home’s exposure and chances of receiving multiple offers. Without compensation, agents are less likely to show your property, reducing demand and potentially lowering your sale price. A larger buyer pool, smoother negotiations, and an efficient closing process are key benefits of offering fair compensation. Remember, the commission is a strategic investment to maximize your home's value—this is not the time to cut corners.
Steps Required for Sellers to Pay Buyer’s Agent Commission
California Residential Purchase-RPA- agreement Paragraph 18 outlines that the seller is only obligated to pay the buyer's broker if the buyer has a valid agreement with their broker covering the property and requires the buyer to pay at least the amount requested from the seller. If these conditions are not met, the seller has no obligation to pay.
The buyer affirms that:
There is a valid Buyer-Broker Agreement in place.
The Buyer-Broker Agreement includes the subject property.
The Buyer-Broker Agreement requires the buyer to pay compensation not less than the amount the buyer is asking the seller to pay.
If the buyer fails to meet any of these contractual obligations, the seller is not required to pay the buyer's broker. To ensure compliance, all necessary forms must be completed and submitted with the offer to the seller.
What Happens If the Buyer Can’t Pay the Broker and the Seller Won’t Cover the Commission?
If the buyer doesn’t have sufficient funds to pay their broker and the seller won’t agree to cover the commission, the broker may withdraw from the transaction. In this case, the buyer can approach the listing agent directly, and a new agency confirmation can be established, allowing the buyer to continue with the purchase with
Is Refusing to Pay a Buyer's Agent a Good Idea?
Following the recent NAR settlement, buyers and their agents can now negotiate fees directly, and sellers are no longer required to pay the buyer’s agent. However, choosing not to offer compensation can create significant challenges:
Smaller Buyer Pool: Many buyers depend on agents to find homes, and agents may avoid showing properties without compensation.
Weaker Market Position: Homes without buyer agent incentives often take longer to sell and may attract lower offers.
Reduced Sale Price: Buyers who must cover their agent’s fees often adjust their offers downward to account for the added cost.
Legal Risks: Buyers may work directly with the listing agent, which could result in legal issues if the transaction is not handled properly.
Offering fair compensation encourages cooperation, smoother transactions, and higher buyer interest, often leading to better outcomes. Skimping on this can create unnecessary risks and potentially lower your overall profit.
Can You Cancel the Buyer Representation Agreement?
The buyer's obligation depends on the structure of the representation agreement—exclusive or non-exclusive. If the agreement is specific to a property where the seller refuses to pay and the buyer lacks funds, the buyer may be responsible for the broker’s compensation unless G2-9B2 is checked, indicating insufficient buyer funds. The COBR form allows agents to cancel the agreement for a specific property, protecting brokers from unpaid work.
What Happens When a Buyer Representation Agreement is Canceled COBR?
The Cancellation of Buyer Representation (COBR) form allows either the buyer or the broker to terminate their agreement. The cancellation can be unilateral (by one party) or mutual (by both parties). For non-exclusive representation, unilateral cancellation is effective immediately or within a specified number of days. For exclusive representation, cancellation becomes effective 30 days after notice is given.
If the buyer is unable to pay the broker’s commission and the seller refuses to cover these costs (as outlined in Paragraph 2C(2) of the Cancellation of Buyer Representation), the broker has the right to withdraw representation for the specific property. However, the agreement remains valid for other properties covered under the same representation agreement. Once the cancellation takes effect, the broker is no longer obligated to assist the buyer with negotiations or the transaction for that property.
Key Takeaways
If you check the box in paragraph 2G(2), your pay depends on the seller. If they refuse, you can cancel but may lose your client for this deal.
The cancellation option ensures you’re not obligated to work without pay.
Always discuss this clause with buyers to ensure they understand the risks.
This is why understanding the details of the BRBC is so important. Clear communication upfront can save you from potential disputes later!