Professional Development Meeting Series | 2024
navigating the new standards: mastering written buyer agreements
Meeting Number PRODEV060424
Category: Professional Development
Materials Needed: Handouts Included with Meeting, Flip Chart
Estimated Time: 30-45 Minutes (This meeting could be broken up into two separate meetings if you prefer a shorter meeting format).
PowerPoint Available: Yes
Meeting Objective: By the end of this meeting, you’ll be well-versed in the mandatory provisions for written buyer agency agreements and other important considerations, as well as how to implement these changes effectively in your practices with consumers.
Introduction to Today’s Meeting (Start with the following story): Let’s take a trip back to the early 2000s. Blockbuster, the video rental industry giant, is at its peak with thousands of stores worldwide. Families, just like yours, flock to their local Blockbuster every weekend to pick up the latest movie releases. Meanwhile, a small company called Netflix is just starting to offer mail DVD rentals.
The Turning Point: Netflix, a small company at the time, took a bold step by exploring the idea of streaming movies directly to customers’ homes. In contrast, Blockbuster, confident in its brick-and-mortar business model, dismissed the potential of streaming. They saw no reason to change a formula that had worked so well for so long. This stark contrast in strategies would later prove to be a turning point in the industry.
The Outcome: Fast forward a few years, and the landscape has undergone a seismic shift. Netflix’s audacious embrace of new technology and changing consumer preferences has not just transformed the industry but also the way we watch movies. In stark contrast, Blockbuster, having failed to adapt, was forced to declare bankruptcy in 2010. Today, Netflix is a global entertainment powerhouse, while Blockbuster is a nostalgic memory of a bygone era.
The Lesson for Real Estate Agents: Just as the video rental industry was forced to adapt, the real estate market is also in a constant state of flux. New regulations, technologies and consumer expectations are reshaping our business landscape. The imminent changes to written buyer agreements serve as a prime example of this evolution. To stay ahead, we must not just adapt but thrive in the face of change. This is the key to continuing to provide excellent service and maintaining our competitive edge.
As we delve into the new requirements for written buyer agreements, let’s approach them with the same innovation and adaptability that propelled Netflix to success.
STEP #1
Cover the mandatory provisions of the NAR proposed settlement agreement.
(Depending on the size of your office, you could read each bullet point below or ask for volunteers prior to the meeting to read their bullet point assigned when called upon).
Explain: Pursuant to paragraph 58(vi) of the NAR proposed settlement agreement, written buyer agreements beginning August 17, 2024, an MLS participant who chooses to work with a buyer will be required to enter a “written” agreement with a buyer before showing properties in person, or virtual. Your agreement must:
- Specify and conspicuously disclose the amount or rate of any compensation the MLS Participant will receive from any source;
- The amount of compensation must be objectively ascertainable and may not be open-ended (e.g., “buyer broker compensation shall be whatever amount the seller is offering to the buyer”);
- Include a statement that MLS Participants may not receive compensation from any source that exceeds the amount or rate agreed to with the buyer;
- Disclose in conspicuous language that broker commissions are not set by law and are fully negotiable and
- Include any provisions required by law.
STEP #2
Explain your current company policy on commissions your office charges for buyer agreements and reiterate that the newly revised forms from your (state, local, or company) are now (or soon to be) updated to reflect the first bullet point, e.g., Specify and conspicuously disclose the amount or rate of any compensation the MLS Participant will receive from any source.
Explain to your group that you now want to look at a few of the bullet points from the NAR Settlement to ensure everyone is prepared for questions and possible responses to new requirements.
You have two options for conducting this next section of the meeting:
Option One – You may debrief this section as a town hall, taking each question one through six (or the questions you prefer to cover) and allowing the entire group to help you formulate possible responses. Don’t forget, you can customize this meeting to fit your style, marketplace and needs, so feel free to add, change or edit the questions as you like.
Option Two – Depending on the size of your office, form groups of three to four members and distribute questions to the groups to work on together. Questions are found in the handouts for the meeting. Have each group appoint a spokesperson to provide their responses when you are ready to debrief. After groups have had time to discuss and formulate responses, bring everyone back together to discuss the questions and solutions.
Choose Option one or two on how to proceed from this point:
Question 1 – “Why is it necessary to disclose to a buyer your compensation so clearly?”
Allow for responses from your team members.
Possible response: “I must disclose my compensation clearly to ensure full transparency in our working relationship. This way, there are no surprises about how I get paid, and you can trust that everything is upfront and honest. It also helps you understand exactly what you’re getting for my compensation, making the process more transparent and fairer.”
Ask: How can you prepare for this type of question should it be asked for you?
Are there any visuals, tools, or resources that would make your answer easier to explain to a buyer?
Question #2 From Buyer – “Who pays your commission, and will I have to pay any additional fees?”
Allow for responses from your team members.
Possible Response: “My goal is to collect my commission from the seller, so you won’t have to pay any additional fees for my services unless we specifically agree otherwise in writing. This will be clearly stated in the agreement to ensure there’s no confusion about where the compensation is coming from.”
Ask: How can you prepare for this type of question should it be asked of you?
Are there any visuals, tools, or resources that would make your answer easier to explain to a buyer?
Question #3 From Buyer – “What happens if the seller doesn’t pay your commission?”
Allow for responses from your team members.
Possible Response: “In most cases, the seller’s agent will encourage the seller to include the commission as part of their listing agreement. However, if the seller does not want to pay a buyer’s agent a commission, we will discuss alternative arrangements upfront and put them in writing. This ensures that you are fully aware of any potential scenarios and there are no unexpected costs.”
Ask: How can you prepare for this type of question should it be asked of you?
Are there any visuals, tools, or resources that would make your answer easier to explain to a buyer?
Question #4 From Buyer – “How does your commission rate compare to other agents?”
Allow for responses from your team members.
Possible Response: “Commission rates are negotiable, and there is NO SET FEE in our marketplace or among brokers and agents.
This is a good place for you as your company to remind your team of your company policy and the fee your organization has decided to charge consumers who want representation in a transaction.
What is important is to focus on the value and services you receive rather than just the rate being charged. I am committed to providing exceptional service, including market expertise, negotiation skills, and personalized attention throughout the buying process. My goal is to ensure you find the right home at the best possible terms. Our company charges the following rate/fee to represent buyers in a real estate transaction.”
Ask: How can you prepare for this type of question should it be asked of you?
Are there any visuals, tools, or resources that would make your answer easier to explain to a buyer?
Question #5 From Buyer – “What services are included with your commission?”
Allow for responses from your team members.
Possible Response: “My commission covers a wide range of services, including market analysis of the property, to ensure you will not overpay for the property in today’s real estate market. Property showings, negotiation on your behalf, handling paperwork, and guiding you through the entire home-buying process. I am dedicated to making this experience as seamless and stress-free as possible for you.”
Ask: How can you prepare for this type of question should it be asked of you?
Are there any visuals, tools, or resources that would make your answer easier to explain to a buyer?
Question $6 From Buyer – “If the seller pays your commission, does that mean you are working for the seller?”
Allow for responses from your team members.
Possible Response: “No, even though the seller pays my commission, I am legally and ethically obligated to represent your best interests as your buyer’s agent through this buyer’s agency agreement. It is important to note that compensation does not establish an agency between a customer and a principal.
My loyalty is to you, and my goal is to ensure that you find the right home at the best possible terms.”
Ask: How can you prepare for this type of question should it be asked of you?
Are there any visuals, tools, or resources that would make your answer easier to explain to a buyer?
STEP #3
Note, this could be Part II for the following week, should you choose to break the meeting up into two separate meetings.
Lecture this section of the meeting by using the notes below or summarizing in your own words.
Remind your team that: “The amount of compensation must be objectively ascertainable and may not be open-ended (e.g., ‘buyer broker compensation shall be whatever amount the seller is offering to the buyer’);”
Meaning: The buyer should know exactly how much the agent will be compensated, and this should NOT be dependent on external factors like the seller’s offer. This ensures a fair and transparent compensation structure.”
Examples:
- Not Objectively Ascertainable (Incorrect):
Example: “The buyer broker compensation shall be whatever amount the seller offers to the buyer.”
Reason: This statement is open-ended because it does not specify an exact amount or rate. It leaves the compensation undefined and dependent on the seller’s offer, which can vary. - Objectively Ascertainable (Correct): I would still encourage you to seek legal counsel for these examples.
Example 1: “The buyer’s agent will receive a commission of 2.5% of the final purchase price.”
Reason: This statement specifies a clear percentage of the sales price, making it easy to calculate the exact compensation based on the agreed sale price.
Example 2: “The buyer’s agent will receive a flat fee of $3,000, payable upon closing.”
Reason: This statement provides a specific dollar amount, ensuring no ambiguity about the compensation.
Reason: This statement provides a specific dollar amount, ensuring no ambiguity about the compensation.
Example 3: “The buyer’s agent will receive a commission of $500 plus 1.5% of the purchase price.”
Reason: This combines a fixed amount with a percentage, which is still specific and allows for the exact calculation of the total compensation.
Remind your team that commissions are negotiable and reiterate your company’s policy on the fees and charges your organization uses.
Important Information Your Agents Must Know!
Explain to your team that the final statement we want to discuss is #3, above, which states that agreements must – “Include a statement that MLS Participants may not receive compensation from any source that exceeds that amount or rate agreed to with the buyer;”
Meaning: The MLS Participant (the agent) must clearly disclose in the buyer agreement that they will not receive more compensation than the buyer has agreed upon, regardless of any other offers or incentives from different sources (e.g., the seller). This ensures the buyer knows the maximum amount the agent will be compensated and prevents potential conflicts of interest.
Example:
Incorrect Statement (Open to Misinterpretation):
- “The agent’s compensation may vary depending on the seller’s offer.”
Correct Statement (Clear and Specific):
- “The agent agrees not to receive compensation from any source that exceeds the amount or rate agreed to with the buyer. For example, if the agreed-upon commission is 2.5% of the purchase price, the agent will not accept a higher commission from any other source.”
Detailed Example in Context:
Imagine an agent and a buyer have agreed on a commission of 2.5% of the purchase price. The agent must include a clear statement in the agreement to ensure that the buyer understands this is the maximum compensation the agent will receive.
“This is important because it ensures there are no hidden incentives influencing my actions. My goal is to find the best possible home for you, and this clause makes sure that my compensation is transparent and agreed upon upfront. It builds trust and ensures that my interests are aligned with yours.”
Key Points of Emphasize:
Transparency: Clearly stating the maximum compensation ensures there are no hidden payments or incentives that the buyer is unaware of.
Trust: The agent demonstrates their commitment to the buyer’s best interests by capping the compensation at the agreed amount.
Compliance: Including this statement ensures compliance with the new NAR guidelines, protecting both the agent and the buyer legally.
CLOSING
Read the following to close your meeting:
As we wrap up today’s meeting, let’s revisit the story we began with, which is the tale of Netflix and Blockbuster. This story isn’t just about the rise and fall of two companies: it’s a powerful reminder of the importance of adaptation and forward-thinking in any industry. It’s a lesson that we, as professionals in this industry, can learn from and apply to our own strategies and decision-making processes.
Despite its initial triumph, Blockbuster needed to acknowledge the evolving landscape and adjust to new consumer preferences and technological advancements. In contrast, Netflix perceived the potential in streaming and reinvented itself to cater to the demands of a new era.
In our industry, we face a similar crossroads. The new requirements for written buyer agreements represent a significant shift in how we conduct our business. Like Netflix, we can embrace these changes proactively, ensuring that we remain transparent, trustworthy, and ahead of the curve.
This will require us to do business differently, possibly in a more consultative approach, have good scripts and be able to discuss and talk freely with consumers and customers about how our business model works, and why it is necessary.
The time to act is now; by doing so, we can position ourselves for success in this new era.
Closing Quote:
“The only way to make sense out of change is to plunge into it, move with it, and join the dance.” – Alan Watts
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