Understanding Buyer-Broker Agreements: What Changed in 2024 and What It Means for You

The real estate industry underwent a major transformation in 2024, introducing new requirements that fundamentally changed how homebuyers and real estate agents work together. If you're planning to buy a home, understanding these changes is crucial to navigating the process successfully.

What is a Buyer-Broker Agreement?

As reported by The Close, a buyer's broker agreement is a contract between a homebuyer and a real estate agent that outlines the agent's responsibilities and ensures dedicated representation throughout the home-buying process. This legally binding document, which became mandatory for agents using the Multiple Listing Service as of August 17, 2024, specifies the terms of the relationship, including:

• The agent's duties and responsibilities
• Compensation structure and terms
• Duration of service
• Type of representation (exclusive or non-exclusive)

This requirement stems from significant industry changes aimed at increasing transparency and protecting both buyers and agents in real estate transactions.

Agreement Before Showing: The New Reality

Starting January 1, 2024, real estate agents in many states are now required to have a signed buyer's agency agreement in place before showing properties to potential buyers. This represents a fundamental shift in how the home-buying process begins.

Key Requirements:

1. Pre-Showing Documentation Agents must have a signed agreement, such as a one-time showing form or buyer agency agreement, before opening doors for property viewings. No more casual browsing without paperwork.

2. Clear Relationship Definitions The agreement explicitly outlines the type of relationship between the agent and buyer, as well as potential compensation terms. Everything is documented upfront.

3. Procuring Cause Protection This requirement ensures that all parties are aware of the agent's role as a "procuring cause" in introducing the buyer to the property, protecting the agent's right to compensation.

4. Negotiable Terms Buyers can negotiate the terms of these agreements, including duration and exclusivity. You have more control than you might think.

While this change may seem inconvenient to some buyers, it serves to clarify expectations and protect the interests of both parties involved in the real estate transaction.

How These Changes Impact You as a Buyer

The new buyer-broker agreement requirements have several significant impacts on homebuyers:

Increased Transparency

Buyers now have clearer information about agent services and compensation before beginning their home search. No more surprises about who pays what or what services you're actually getting.

Earlier Commitment Required

You must sign agreements before touring homes, which means you need to make more thoughtful decisions about agent selection upfront. The days of casually touring with multiple agents are largely over.

New Negotiation Opportunities

Buyers can now directly negotiate agent compensation and services, potentially leading to more competitive pricing. This puts more power in your hands.

Potential Out-of-Pocket Costs

If sellers don't cover the full agreed-upon compensation, buyers may need to pay their agent directly. This is a significant change from the traditional model where seller-paid commissions were the norm.

More Informed Decision-Making

The detailed agreements help buyers understand the scope of services they'll receive, enabling better comparisons between agents. You can make apples-to-apples comparisons when choosing representation.

These changes aim to empower buyers with more control and information in the real estate process, but also require them to be more proactive and engaged from the outset of their home search.

Understanding Contract Types: Exclusive vs. Non-Exclusive

When you're ready to work with an agent, you'll need to choose between two main types of buyer representation contracts:

Non-Exclusive Agreements

Pros:

• Work with multiple agents simultaneously
• More flexibility in your search
• Shorter or more flexible duration terms
• Easy to switch agents if needed

Cons:

• Agents only get paid if they directly assist in the purchase
• May receive less dedicated service
• Agents might prioritize exclusive clients

Exclusive Agreements

Pros:

• Guaranteed agent compensation leads to more dedicated service
• Stronger agent commitment to your search
• Agent more likely to invest time and resources
• Clear expectations and accountability

Cons:

• Bound to a single agent (typically for up to 90 days)
• Less flexibility to work with others
• May need to pay cancellation fees if you want to switch

Exclusive Right-to-Represent: The Most Common Choice

The exclusive right-to-represent contract is the most common type of buyer representation agreement. Under this arrangement:

• You work exclusively with one agent for a specified period (typically 3-6 months)
• The agent receives a commission regardless of who finds the property, even if you locate it independently
• Provides strong protection and motivation for the agent to dedicate resources to your search
• Often includes a "protection period" where the agent may still earn a commission for a set time after the agreement expires
• All terms are negotiable, including duration, commission structure, and cancellation options

While this type of contract offers benefits like dedicated service and clear expectations, carefully review all terms before signing to ensure you understand your commitments and rights.

How Buyer's Agent Compensation Now Works

The compensation structure for buyer's agents underwent significant changes following the 2024 National Association of REALTORS® (NAR) settlement. Here's what you need to know:

Fully Negotiable Fees

Buyer's agent fees are now fully negotiable and must be explicitly stated in a written agreement before touring homes. There are no "standard" rates anymore.

Multiple Compensation Structures

Compensation can take various forms:

• Percentage of purchase price (e.g., 2.5% or 3%)
• Flat fee (e.g., $10,000 regardless of home price)
• Hourly rate (e.g., $200/hour for services rendered)
• Hybrid models combining different approaches

Seller Contributions Still Allowed

Sellers can still offer to pay buyer's agent commissions, but this cannot be advertised on Multiple Listing Services (MLS). This is negotiated separately.

Buyer Responsibility

If the seller doesn't cover the full agreed-upon compensation, the buyer may be responsible for paying the difference. For example, if you agreed to pay your agent 3% but the seller only offers 2%, you'd pay the 1% difference.

The Reality: Price Remains Unchanged

Here's an important point: while buyers now technically negotiate and agree to pay agent fees, the overall price of the home typically remains unchanged. Here's how:

1. The seller sets the listing price to account for agent commissions, just as before
2. At closing, the seller transfers the commission amount to their agent, who then splits it with the buyer's agent
3. The buyer indirectly pays through the purchase price, which includes the commission

This arrangement allows the commission to be effectively rolled into the mortgage, as buyers finance the full purchase price. While you now negotiate your agent's compensation directly, the economic impact remains similar to the traditional model.

Why This Model Exists

The traditional model of seller-paid commissions was designed to make homeownership more accessible:

• Buyers, especially first-time homeowners, often struggle to come up with additional cash for agent fees on top of down payments and closing costs
• By including the commission in the home's sale price, buyers can finance these costs over the life of their mortgage
• Sellers factor the commission into their listing price, ensuring they receive their desired net proceeds while still covering agent fees
• This structure simplifies the transaction process

The key difference now is increased transparency and flexibility in how these fees are structured and communicated throughout the home-buying process.

The NAR Settlement: What You Need to Know

The National Association of REALTORS® (NAR) settlement, which became effective August 17, 2024, brought sweeping changes to real estate transactions:

Mandatory Written Agreements

All buyers must have written agreements with agents before home tours, specifying services and compensation. No exceptions.

MLS Advertising Ban

Buyer's broker compensation offers are prohibited from appearing on Multiple Listing Services (MLS). This levels the playing field.

Full Fee Negotiability

Agent fees are now fully negotiable and not set by law or industry standards. Shop around and negotiate.

Potential Payment Responsibility Shift

Buyers may now be directly responsible for covering agent fees if sellers don't pay. Budget accordingly.

Seller Concessions Still Available

Sellers can still offer buyer concessions, such as closing cost assistance, which can help offset agent fees.

These changes aim to increase transparency and consumer choice in real estate transactions, potentially leading to more competitive pricing for real estate services.

Key Takeaways: What You Should Do

The new buyer-broker agreement requirements represent a significant shift in the real estate industry. Here's what you need to know:

✅ You Have More Control

Buyers now have more control over agent selection and fee structures. Use this power wisely.

✅ Transparency is Paramount

The agreements foster trust and clarity between buyers and agents. Everything is documented and clear.

✅ Competition May Lower Costs

Increased transparency may lead to more competitive pricing in real estate services. Don't be afraid to negotiate.

✅ Read Before You Sign

Carefully review and negotiate terms before signing any agreement. Understand:

• Duration of the agreement
• Compensation structure and amount
• Services you'll receive
• Cancellation terms and fees
• Exclusivity requirements

✅ Interview Multiple Agents

Before committing to an exclusive agreement:

• Interview at least 3 agents
• Ask about their experience and track record
• Discuss their communication style and availability
• Negotiate compensation and services
• Get everything in writing

✅ Understand Your Financial Obligations

Know exactly what you might owe:

• What's the agent's compensation?
• Will the seller cover it?
• What happens if they don't?
• Can you finance it into your mortgage?
• What are alternative payment options?

The Bottom Line

As the industry adapts to these changes, buyers who educate themselves on the new requirements will be better positioned to navigate the home-buying process effectively and secure favorable terms with their chosen real estate agent.

These changes ultimately empower you with clearer information about services and compensation. While the agreements may seem daunting at first, they provide protection and transparency that benefits everyone involved in the real estate transaction.

Ready to start your home search? Now you know exactly what to expect when it comes to working with a buyer's agent. Take your time, ask questions, negotiate terms, and find an agent who will serve your best interests throughout the home-buying journey.

Additional Resources

For more information about buyer-broker agreements and the 2024 changes, visit:

• National Association of REALTORS®
• The Close
• HomeLight
• Investopedia Real Estate Guide

Disclaimer: This article is for informational purposes only and should not be considered legal or financial advice. Always consult with qualified professionals before making real estate decisions.