Why Real Estate Agents Refrain from Offering Commission to Buyers Agents and the Move towards Modern Practices

When listing a property for sale, why would some real estate agents choose not to offer any commission to a buyers agent? This decision, while seemingly counterintuitive, can stem from a variety of factors, ranging from the traditional structure of real estate transactions to a push towards more contemporary and client-centric practices. This article explores the reasons behind this practice and the potential shifts to a more modern model where buyers and sellers both pay for their own representation.

The Current Landscape of Real Estate Commissions

The current real estate market often operates under the model where the listing broker decides on the commission split, which can range from 50/50 to 60/40 or even less in certain markets. Not all brokers adhere to the same rules; some might offer a better split, while others adhere to a stricter interpretation.

The Multi-List Service (MLS) often only outlines the commission offers in general terms, with the full commission amounts disclosed only once the contract phase is reached. This can place buyers' agents in a difficult position, as their interests might be seen as conflicting with those of their clients. Similarly, buyers' agents' offices might have standard requirements for compensation. For example, if a house is listed at a certain price, but the buyers' agent's office policy requires a higher commission, the buyer would have to cover the difference.

These issues arise partially because of the reliance on brokerage splits, which can leave buyers' agents at a disadvantage. This has led to calls for a more transparent and client-friendly system, where each side compensates their own representation.

The Move to a Modern Practice

A school of thought argues that moving towards a system where buyers pay their own agent would bring real estate transactions more into line with modern practices. Similar to how a client hires an attorney, the buyer would compensate their agent for their services. This change would bring buyer agency out of the shadows and protect agents from the risks imposed by brokerage splits.

The removal of brokerage splits would eliminate some of the conflicts and operational difficulties faced by buyers' agents. Most importantly, it would give buyers' agents full independence and eliminate the need to navigate the complexities of brokerage policies. This modern practice aims to align more closely with the principles of fair compensation and client-first service.

Challenges and Potential Outcomes

Implementing such a system, however, requires additional clauses in the listing agreement to define the compensation for the listing agent/broker when they handle the entire transaction without a buyers agent. This would introduce another form of dual agency/designated agency issues, which would need to be carefully addressed.

While the concept of each side paying for their own representation has its merits, it is not common in most markets. It could be seen as a significant change from the traditional model where everyone was an agent of the seller. Over time, as each side becomes more detached from the old model and more directly responsible for their own representation, the issues of brokerage splits and under-offering of compensation could be mitigated.

Conclusion

The reluctance of some real estate agents to offer commissions to buyers agents reflects a wider struggle with the traditional real estate system. However, as the industry evolves, there is growing recognition of the need for a more transparent and client-centric approach. By moving towards a system where each side compensates their own agents, we may see a more streamlined and equitable real estate transaction process in the future.