Don’t offer buy-side compensation upfront, consumer group says 

Another consumer group has chimed in on the conversation about agent compensation and negotiation. 

As a supplement to the guidance released by the Consumer Federation of America in recent weeks, Consumer Advocates in American Real Estate (CAARE) offered additional recommendations for buyers and sellers ahead of the industry practice changes going into effect later this week.

Building on earlier guidance

The CFA, a consumer watchdog group spanning multiple industries, has been keeping an eye on real estate for the past several months. Most recently, it offered a blueprint for listing agreements and advised buyers to negotiate a flat fee with their agent rather than pay a percentage of the home sale price, a deviation from traditional compensation practices.

CAARE signaled its approval of these recommendations while providing some of its own.

Why CAARE got involved

The group, which focuses on residential real estate, said it was offering additional guidance because it believes "many agents will try to preserve artificially high compensation through workarounds that are harmful to consumers" after the Aug. 17 deadline comes to pass this week. 

Cooperative compensation, CAARE argued, "stripped buyers of the ability to negotiate fees with their own brokers." As a result, those fees "rose to anticompetitive" levels in the U.S., but the new rule changes will "empower buyers to negotiate these fees and lower the total cost of brokerage fees for all consumers."

Sellers should wait to offer compensation

CAARE had two pieces of advice for home sellers: Don't offer money directly to buyer brokers, and don't offer money to buyers upfront. 

These recommendations go against the recent trend of brokerage leaders coaching their agents to communicate the importance of offering buyer concessions or buyer agent compensation when presenting a listing agreement.

"Some may suggest that buyer agents won't show your home unless you offer compensation, but this isn't the case, and those encouraging buyers to 'skip homes' will likely face future legal complications," CAARE Executive Director Doug Miller and Deputy Director Wendy Gilch wrote. 

They added that adopting this approach can help sellers "keep more of their hard-earned equity" while lowering "overall brokerage fees" and "encouraging innovation."

Instead of offering money upfront to buyers, which CAREE said could "likely encourage more price fixing," sellers should wait for buyers to request a credit. 

"By considering concessions with offers, you could save money while still assisting buyers, especially those who may struggle with upfront costs. This way, both sides benefit, and you retain more of your proceeds."

Buyers need to learn how to negotiate

CAARE also had advice for buyers, recommending that they negotiate their agent's fee and request a credit when submitting their offer.

Similar to the CFA's recommendations, CAARE suggested that buyers should work out a fee that is not based on the home's purchase price. 

"This fee should be a flat amount that reflects the work you expect your agent to do," CAARE directors said. "Your agent should be focused on getting you the best deal, not benefiting from you paying more."

Additionally, CAARE told buyers to avoid agents who include a clause in their agreements asking if clients want to "skip homes" that don't advertise buy-side compensation. It is unnecessary, the group says, because buyers can still ask for concessions, and it only serves to "artificially inflate buyer brokerage fees." 

"Many sellers may not offer compensation upfront, but that doesn't mean you can't negotiate it in."