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A new law came into force on the commissioning of real estate brokerage in the US. Traditionally, the responsibility for the payment of the commission was paid by the seller (owner) and divided between the buying agent (broker who represents the buyer) and the selling agent (broker who represents the owner). The new law brought transparency to the theme and advantages for all parties involved.
Who pays the broker’s commission?
Before the new law, the owner (seller) paid the total commission on the purchase and sale operation of the property.
At the time of the transfer of the deed, a phase known as “closing” (closure), the amount of the commission was deducted from the final sale price of the property and divided between the buying agent and the selling agent.
For example, in the case of a property sold for US$ 500,000 (five hundred thousand dollars) with a commission of 6%, the total amount of the commission, which would be US$ 30,000 dollars, was divided between the buyer agent and the selling agent, each receiving US$ 15,000 dollars.
This has always been the market practice / tradition. Obviously, there are cases in which commissions are negotiated between all parties, so it was never mandatory to pay these commissions, in these percentages, or even to pay any commission at all.
It is even possible to sell a property in Florida without hiring brokers, a situation we call FSBO (For Sale By Owner).
Of course, everything has its advantages and disadvantages. Selling directly, without the guidance of an experienced broker in the market, can bring numerous risks to the process, including selling at prices considerably below market value. In the article “What is FSBO and why you should not do it” we bring details about this sales format.
What changes with the new law?
In practice, nothing changes! The law only brought light to the process, making it more transparent and benefiting experienced brokers who, in fact, bring value to the business.
What happens from now on is that the owner (seller) is no longer responsible for paying the buyer’s commission.
Theoretically, even before the law, the owner also did not need to bear this responsibility. It happens that, by default, at the time of registering the property for sale, there is a field where the owner must indicate a “compensation” to the buyer agent, that is, a commission for the buyer agent for the work of bringing the potential customer to the operation. This compensation, in practice, was half the percentage of the commission.
Registration is done in the MLS (Multiple Listing Service) system, a unique system where all properties listed in Florida are exposed and any licensed agent has access.
This “compensation” field could be left blank, or with another percentage, but it rarely was, since it is fair that the purchasing agent receives the commission for bringing the customer. A buying agent would hardly bring a client to a negotiation without earning anything in return, after all, this is your job.
With the new law, this field will no longer be available and the payment of this commission can now be negotiated and paid by both the buyer and the seller.
The buyer, indirectly, already paid these 3%. The amount was deducted from the sale of the property at the time of closing. That is, they paid indirectly. With the new law, the buyer must pay the commission amount directly to the buyer agent (broker who represents him).
The seller, in turn, instead of paying the total commission, for example, 6% of the value of the property, will pay half of this percentage to the selling agent.
The total value of the commission would remain, in this example, the same 6% on the total value of the property.
In practice, therefore, nothing changes. By separating the commission payment responsibilities, the process becomes more transparent for both the buyer and the seller. Each party may be free to negotiate the amount of the commission with its brokers.
Why the law is beneficial to the sector
Many brokers were frightened by the new law. From the way it was disclosed, it seemed that the broker responsible for the purchase (Buyer Agent) would no longer receive commission for his work, which is, at least, inconsistent, since no one works without remuneration.
The law only directed the responsibilities.
The buyer broker will obviously only provide services to the client who remunerates him.
A broker’s services go far beyond simple real estate research. The purchase process is extremely complex and full of risks. In this article we explain why hiring an experienced broker makes all the difference in the process.
The law, even in this sense, requires the buyer broker to sign a term of commitment with his client, called ‘Buyer Agreement’. It is a beneficial and protective way for the broker’s work. We will explain in detail in the next topic!
Buyer’s Agreement: What you need to know
Another change that the new legislation brought was the requirement of a ‘Buyer Agreement’, that is, a term of commitment between buyer and Buyer Broker (agent representing the buyer).
This Buyer Agreement must be signed before visiting the properties (take a tour of the properties) and, during this phase, the commission / remuneration of the Buyer Broker must be negotiated and specified in the Term of Commitment.
The new format aims to create a more transparent and professional relationship between buyers and their real estate agents.
Before the law, a buyer could contact several brokers to visit the properties. With the new law, the broker must be formally contracted through the Buyer Agreement. This choice of the broker will probably take place through an interview, based on your qualifications.
In a way, the new law brings transparency to the purchase process, since only the most experienced brokers will be prioritized.
On the other hand, brokers with little experience and who do not seek updating and constant learning, will increasingly lose space in a highly qualified market that requires experience.
“Every change requires adaptations and creates some resistance on the part of the market. However, the new law on commissioning, in my view, is beneficial, even in the sense of valuing the work of the good professional. The fact that there is now a Term of Commitment, formalizing the hiring, is something beneficial for all parties,” comments Heloisa Arazi, broker and owner of AMG International Realty.
About AMG International Realty
AMG International Realty is a global real estate agency specialized in Florida and aimed at the foreign public. If you want to know more about how the process of buying a property in Florida works or know the investment opportunities in the region, contact me right now and talk to me by WhatsApp: +1 305 498 6327 (Silvana Recalde). You can also access our presentation and learn more about our company and the purchase process.
