5 Questions to Ask Your Realtor Now That You Might Be Paying Their Commission

New rules could mean homebuyers may soon have to pay for their own real estate agent.

Until now, the home seller typically paid for the buyer’s agent. This made hiring an agent a low-risk proposition for the buyer.

But things could soon change.

A whirlwind surrounds the recent battle between the National Association of Realtors (NAR) and the Department of Justice (DOJ). Nothing has been legally finalized, and appeals are ongoing. Everything, for the most part, remains status quo in the real estate industry, for now.

Home buyers should prepare themselves for the changes on the horizon. Depending on your timeline, the home buying process can take a while, and you don’t want to hire a Realtor today without knowing how they plan on handling things if the new rules go into effect this summer as the DOJ hopes.

Buyers should be ready with interview questions for potential real estate agents. It’s important to understand an agent’s experience, professional style, availability, and more.

But in addition to doing your due diligence, let’s review five questions you should ask a Realtor in light of the changing real estate industry.

But before discussing some of the questions you may want to ask your potential real estate agent, let’s review the two main components of the DOJ/NAR settlement.

A Change In The Way Buyer’s Agent Compensation Is Advertised

Part of the proposed agreement between NAR and the DOJ is that the buyer’s agent commission paid by the seller can’t appear within the Multiple Listing Service (MLS) system. The MLS is the main database most Realtors use to market a home for sale. From there, data about the home gets syndicated to websites like Zillow and Realtor.com.

Currently, the seller compensates their real estate agent with a percentage of the purchase price. From there, the seller’s agent (also called the listing agent), offers a portion of that commission to the buyer’s agent and advertises that amount in the MLS.

Technically, the ruling will not stop the seller from paying the buyer’s agent. It will just stop the advertisement of such on the MLS system. However, thanks to a lot of public misunderstanding of the ruling, many believe the seller now does not have to pay the buyer’s agent via a cooperative compensation agreement.

If this misinterpretation of the ruling becomes the new norm, the buyer could be on the hook for paying their own agent in many cases.

Written Agreements Could Become Mandatory

Currently, at least a dozen states already require that a buyer and their Realtor have a written contract prior to working together. While each state’s policies vary, the intention is that both parties are clear on the terms of their arrangement. These contracts typically include whether the agreement is exclusive, the length of the agreement, conditions of termination, and how much a buyer has to compensate their agent, whether that comes from the seller or their own pocket.

As part of the DOJ/NAR settlement, the use of this type of agreement will become mandatory across the U.S. It remains to be seen whether every state will have to use the same document or if states will have some level of autonomy to create the document themselves.

One thing is clear, though. Homebuyers should prepare to put a lot more effort into hiring a Realtor than they used to.

5 Questions To Ask Your Realtor

Due to the changes, many homebuyers are wondering how they should interview a potential agent. Let’s review some of the major questions that should be on your list.

These questions are based on the assumption that the two previously discussed components of the settlement do take effect. Even if they don’t, these are good questions to ask if a Realtor mentions you may have to pay them.

1. What Fees Do You Charge?

Don’t be blindsided by your agent’s bill during or after the process. Will they charge a non-refundable retainer fee? Will they charge a fee per door unlocked? A fee per contract submitted? Or a fee for all in-person meetings you request their presence at (or that they are required to be at per local or state laws)? They may only choose to charge you one overall fee, but knowing in advance will help you set the right expectations – and your budget.

2. When Will I Have To Pay You?

A retainer fee or a door unlocking fee may have to be paid upfront, while the remainder of the commission may not be due until closing. Any fees due at closing might be covered by a closing cost credit from the seller, but you will have to be ready to pay any upfront fees out-of-pocket. Some agents may be willing to take all payment at closing, but knowing upfront when you will owe the money can help you budget and prepare for the process.

3. Do You Charge A Flat Fee or A Percentage?

Some agents may be willing to offer a flat fee for their services, as they know a percentage of the sales price might be too cost-prohibitive for a home buyer to afford. Other agents may insist on being paid via the more traditional method of making a percentage of the sales price. Depending on the price point of the home you are buying, either option could work in your favor or may end up being more than you can afford. For example, if you are purchasing a $200,000 home but the buyer’s agent has a flat fee of $10,000, that’s more than if they charge you 3% of the purchase price. But conversely, if you are purchasing an $800,000 home, a $10,000 fee would be a bargain.

4. Will The Price You Charge Change Based On How Many Homes I See, Contracts I Submit, Or Another Metric?

A substantial amount of a buyer’s agent’s time and expense is taken up by the process of showing you homes. Between the cost of gas, the value of their time, and the software and tools they need to have to successfully show a home, tours can be where a buyer’s agent makes their largest investment. As Realtors are typically self-employed and therefore do not make a salary, they have to account for these costs upfront. So it’s important to find out if your agent will be setting a limit on how many homes they will show you or how many days of home tours they will do before their fee increases.

The same goes for making an offer. A good buyer’s agent will spend substantial time reviewing comparable home sales to suggest the right offer price to you, communicating with the listing agent prior to submitting the offer, and of course, making sure all the legal documents they are submitting on your behalf are complete and correct. Buyer’s agents may eventually charge more for submitting more contracts on your behalf.

There may also be other areas of the process where they charge for their involvement. Confirm upfront their fees for various services.

5. What Services Do You Include For Your Fee?

Some agents may offer you a full package from start to finish, but others may suggest a reduced level of services to suit your needs and budget.

Don't try to piecemeal services too much. Most agents will not be able to properly represent you without taking on most aspects of the transaction. Still, it’s important to establish what services they provide and their fees.

For example, some agents may be willing to work with you virtually, where you see homes at open houses or with the assistance of a local agent who just unlocks the door for you. Hiring a virtual agent may make it cheaper for you. This could be a good option if you know what home you’d like to buy but still need someone to write up the paperwork and advise you, or if you are comfortable touring properties without a representative onsite.

Next Steps as a Homebuyer

In the midst of all these changes to the real estate industry, homebuyers must prepare for potential shifts.

As you interview potential real estate agents, ask about how they plan to navigate the upcoming industry changes. Armed with that knowledge, you can ensure you make informed decisions when choosing the right Realtor to help you buy your next home.