As of August 17, 2024, all approved real estate contracts in the state of Colorado have replaced the term "commission" with "compensation."
Due to recent legislation, Americans looking to (re)enter the housing market are reading sensational headlines about a significant change in how homes are bought and sold.
The catalyst for all this brouhaha? A $418 million settlement reached by the National Association of Realtors in response to an antitrust lawsuit. This decision is set to abolish the longstanding and widespread practice of expecting buyer and seller agent commissions to be paid from the seller’s net proceeds. The legal action stems from a staggering $1.8 billion verdict in Kansas City, Mo., which cited industry practices that — as the plaintiffs argued — artificially inflated commission rates. Faced with numerous similar lawsuits, the association opted for a nationwide settlement.
Under current practices, the seller typically pays the real estate agent's fee, which is then split between the agents representing the buyer and seller. However, the settlement mandates the elimination of any expectation that the seller covers both agents' fees. Moving forward, buyers may have to assume the responsibility of compensating brokers for their services, with written agreements mandated as part of the settlement terms. Pending approval by a federal court, the settlement is slated to take effect in mid-July.
Seismic Shift in Colorado Real Estate Commissions? Not Quite.
“It’s important to remember that Colorado real estate commissions have always been negotiable,” said Ryan Belinak, Chief Managing Broker of Corcoran Perry & Co.
“Real estate commissions are — and have been — determined through agreements between sellers and their listing agents, as well as between buyers and their agents,” Belinak continued. “This flexibility allows for varying commission structures and rates depending on factors such as market conditions, property value, and the level of services provided by the agent. Negotiating real estate commissions empowers both sellers and buyers to tailor agreements that align with their specific needs and preferences.”
So, while the country is focused on this shift (and commission negotiability will likely remain at the forefront of transactions for months to come), profound industry changes aren’t expected. For sellers, negotiating commissions will continue to support their management of costs and help them secure high-quality service from an agent. And while buyers may not have historically paid their agents' commissions directly out of pocket, these costs were typically included in the final purchase price of the property. Sellers commonly factor in the commission expenses for both the listing agent and the buyer's agent when determining the asking price for their homes. Therefore, buyers indirectly contribute to their agents' compensation through the overall transaction. In the future, buyers will negotiate this cost directly, via the Buyer Agency Agreement instead.
“At Corcoran Perry & Co. we strongly believe that both buyers and sellers benefit from having a fiduciary on their side during the buying or selling process. There are a myriad of legal, financial, and/or safety issues that can, and do, surface during a transaction that only an experienced agent will know how to handle. This fiduciary relationship can only be established by entering into a buyer’s or seller’s agency agreement,” explained Jon Larrance, CEO & Owner of Corcoran Perry & Co. “Without such an agreement, Colorado law dictates that real estate licensees must treat buyers and sellers as ‘customers’ which then exposes them to worrisome ‘buyer beware’ situations.”
Why Buyers Should Hire an Agent
Buyers' agents play crucial roles in ensuring that buyers make informed decisions and avoid costly mistakes. Their responsibilities extend way beyond merely setting up saved property searches and showing homes.
Professional Expertise and Advocacy
Buyer's agents act as advocates for their clients' interests, leveraging their professional expertise and experience to protect buyers' rights and ensure a smooth transaction process.
The Buyer Agency Agreement: Buyer agency is a contractual relationship between a buyer and a real estate agent, wherein the agent acts as the buyer's fiduciary representative. This means that the agent is legally obligated to act in the best interests of the buyer throughout the homebuying process.
While buyer agency primarily serves the interests of the buyer, it also provides benefits for the seller. By working with a buyer's agent, sellers can ensure that potential buyers are represented by qualified professionals who understand their rights and obligations. This helps minimize misunderstandings, reduces the likelihood of disputes, and promotes a cooperative and transparent transaction process.
Representation and Guidance
Buyer's agents provide guidance and representation to their clients, helping them navigate the complexities of the real estate market. They advise on potential risks, negotiate purchase offers, and facilitate communication between buyers and sellers, empowering buyers to make confident and well-informed choices.
Access to Listings and Resources
Real estate agents have access to comprehensive listing databases and resources that may not be readily available to the general public. They can identify off-market opportunities and provide valuable insights into property histories and market comparables.
Market Research and Property Search
Agents conduct market research to help buyers identify suitable properties based on their preferences and budget. They also assist in scheduling property viewings and provide insights into local market conditions and trends.
Offer Preparation and Negotiation
Buyer's agents are skilled negotiators who advocate for their clients' interests during price negotiations and contractual discussions. They work to secure the best possible terms and conditions for the buyer by determining appropriate offer prices, drafting contract terms, advocating for seller concessions, and ensuring favorable contract contingencies.
Transaction Management
Agents streamline the homebuying process by providing buyers with a dedicated point of contact and a trusted advisor to guide them every step of the way. Throughout the transaction, buyer’s agents facilitate communication and address any concerns or questions that may arise. They also coordinate various tasks, such as scheduling inspections, obtaining financing, and ensuring all contractual obligations are met within the specified timelines, ensuring a seamless and efficient transaction experience.
Why Some Sellers Might Still Consider Paying a Buyer Agent’s Commission
Despite the recent changes in real estate anti-trust laws allowing for more flexibility in commission structures, home sellers may still find it advantageous to pay the buyer agent's commission. Here's why:
Ensures Professional Representation
By offering a buyer's agent commission, sellers can attract experienced and professional agents who can facilitate a smoother transaction process. Agents can guide buyers through the complexities of purchasing a home, reducing the risk of errors or delays.
Increases Buyer Pool
Offering a competitive buyer's agent commission can make a listing more appealing to a broader range of buyers. Buyers working with agents may feel more confident and motivated to pursue a home where their agent's compensation is guaranteed.
Supports Negotiation
Sellers who offer a buyer's agent commission may have an advantage in negotiations. Buyers' agents may be more inclined to negotiate favorable terms for their clients when they know their compensation is secure.
Potentially Higher Sale Price
Statistics from the National Association of Realtors (NAR) suggest that homes sold with the assistance of a real estate agent result in higher sale prices (to the tune of nearly $100,000, on average) than those sold by owners. By ensuring that buyer's agents are compensated, sellers can potentially maximize their home's sale price.
Ensures Professional Standards
Offering a buyer's agent commission helps uphold professional standards and expectations within the real estate industry. It encourages cooperation between agents, fostering a more collaborative and efficient marketplace.
Colorado Real Estate Commission Changes (In a Nutshell)
The real estate landscape is undergoing some shifts, driven by recent legal actions and evolving consumer expectations. While the changes to agent commission structure may seem like a seismic change, the core principles of buyer and seller representation remain unaltered. Both buyers and sellers stand to benefit from professional guidance, negotiation skills, and market expertise provided by dedicated agents. As the industry adapts to new practices around Colorado real estate commissions, the importance of transparent communication, informed decision-making, and tailored service offerings will become increasingly vital. While the mechanisms for compensating agents may evolve, the foundational values of trust, advocacy, and expertise will continue to define successful real estate transactions.
Whether you're a buyer navigating a complex market or a seller aiming to maximize your property's value, partnering with a knowledgeable agent remains a key strategy for achieving your homeownership goals.
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