Why Sellers Won’t Shift Buyer Commission Costs to Buyers

Aug 30, 2024

The Anxiety Around the NAR Settlement and BAC
The recent NAR settlement has sparked significant anxiety within the real estate community, particularly regarding the future of the Buyer Agent Commission (BAC). There’s concern that sellers will refuse to pay this commission, potentially shifting costs to buyers and increasing their closing expenses. However, this outcome is unlikely due to the inherent dynamics of real estate transactions. Let’s explore why.

The Role of Buyer Agents in Transactions
A critical point to understand is that 89% of home buyers use a buyer agent when purchasing a property. Buyer agents provide invaluable services, from helping clients navigate the complexities of home buying to negotiating favorable deals. Most buyers find significant value in having a buyer agent, and it's clear that this preference won’t fade anytime soon. While buyers could technically be asked to pay their agent directly, it’s more likely that the current system, where sellers pay the BAC, will remain dominant.

BAC and Cooperative Compensation
For decades, it has been standard practice for sellers to cover the BAC. Some have argued that this was primarily driven by the now-discontinued cooperative compensation agreements that were included in MLS listings. With those agreements gone, and many brokerages abandoning the practice, there’s been growing anxiety around whether sellers will continue to pay the BAC.

I challenge the idea that the cooperative compensation agreement was ever the main reason for this practice. Instead, sellers have consistently covered the BAC because of two fundamental reasons:

1) Sellers Focus on Net Proceeds and Terms
Sellers are primarily concerned with the net proceeds they’ll receive and the overall terms of the contract. If a deal offers favorable net proceeds and reasonable terms, sellers typically don’t care who pays what. For decades, sellers have accepted costs such as title policies and home warranties—expenses that directly benefit the buyer. As long as the net figure satisfies the seller, who gets paid what in the transaction is a secondary concern.

2) Buyers Are Cash Sensitive
Buyers often have limited liquid funds for closing, and any additional upfront costs can reduce their purchasing power. It’s much easier for a buyer to offer a stronger bid when the seller covers the BAC, as it lowers the buyer’s cash-to-close requirements. Given this dynamic, buyers are more likely to structure offers where the seller pays the BAC, making it easier for sellers to accept these offers and keep deals moving forward.

Market Standards Are Unlikely to Change
While some edge cases may arise where sellers question paying the BAC, the market standard has been firmly established for decades. The vast majority of transactions will continue with sellers covering the BAC. These dynamics are deeply ingrained in the structure of most real estate deals, and there’s no reason to believe this will change significantly. Sellers care about their net proceeds, and buyers will continue to craft offers that ask for the BAC to be covered.

Early Experiences with the New Rules
Our firm, operating in Austin, TX, has been navigating these process changes since they went into effect on August 13. With over two weeks of transactions under our belt and 100 agents actively working, we’ve seen a variety of responses. The vast majority of sellers have not objected to offers where they are asked to pay the BAC. However, there have been a few edge cases where sellers have focused on the BAC more than the purchase price itself.

In every one of these instances, we’ve successfully negotiated a solution that worked for both the seller and the buyer. Sellers ended up paying at least 80% of the BAC, and in most cases, they covered the full amount. This reinforces the idea that sellers will continue to focus on the big picture—favorable net proceeds and strong offers—rather than getting hung up on commission details.

The Path Forward: Education and Negotiation
As the real estate industry adjusts to these new rules, it’s important to focus on education and clear communication with clients. Sellers need to understand that paying the BAC is still in their best interest, as it leads to stronger offers and smoother transactions. Likewise, buyers will continue to benefit from reduced closing costs, and buyer agents will maintain their vital role in the transaction process.

While the NAR settlement has introduced uncertainty, the fundamentals of real estate remain unchanged. Sellers care about their bottom line, buyers are cash-sensitive, and the structure of most deals will continue to support a seller-paid BAC.

I’d love to hear your thoughts on how these changes are playing out in your market. Let’s connect and discuss!