Explore the Impacts, Implications and Possible Solutions to Changing Compensation Models

Meeting the Challenges of Today’s U.S. Real Estate Market

Exploring the impacts, implications and possible solutions to changing compensation models for real estate professionals.

This is Part II of a two-part blog series about U.S. real estate trends. Part I focuses on general market trends, impacts to mobility programs and possible policy adjustment solutions – check it out here. 

Amid calls for greater transparency about U.S. housing transaction costs, the way mobile employees and mobility managers will work with real estate agents is changing. Since many U.S. real estate professionals are members of the National Association of Realtors® (NAR), agents and brokers were bound until recently to the association’s cooperative compensation rule, which stated in the listing the amount of commission a buyer’s agent would receive from the seller as a condition of inclusion on Multiple Listing Service (MLS). This rule became the focus of lawsuits across the country and NAR reached a settlement that changes the way buyers and sellers will work with, and compensate, real estate agents. 

This adds another layer of complexity to the relocation process and creates more decisions for companies and mobile employees to navigate. To ensure positive relocation experiences, mobility professionals will need to be able to explain the implications of changes in commission practices on employees’ home purchase or sale processes – and provide guidance on what choices may be best for each mobile employee. 

Graebel has played an active role in the industry as this news has progressed. Here are insights into the evolving compensation landscape, potential impacts to relocations and possible solutions to explore. 

Changes to the Real Estate Professional Compensation Model 

There are three primary agent compensation changes outlined in the NAR settlement that will shift the way homes are bought and sold in the U.S.: 

• Commission negotiation. Traditionally, home sellers have paid for both the commissions to their own agent and also to the buyer’s agent. Under the new rules, commission, including the amount, for each home purchase and sale will need to be negotiated on a case-by-case basis among the sellers, buyers and their respective agents. This could mean anything from sellers continuing to pay commissions to their agents and the buyers’ agents, to buyers paying their agents’ commissions – it’s all up for discussion.  

• Commission displays. Brokers can no longer display a commission rate to buyers’ agents on MLS listings; instead, buyers must be part of negotiations for the buyer agent compensation. Some sellers may choose not to compensate buyers’ agents, leaving buyers to pay their agent. Some buyers may choose a more limited menu of buyer agent services, to reduce their costs versus a traditional commission. All of this adds another layer of complexity and uncertainty, as buyers won’t have a full picture of the cash needed at closing until after negotiating with sellers, the listing agent and their agent. 

• Buyer agency agreements. Moving forward, buyers will be required to sign a buyer agreement with their real estate broker, outlining expectations and compensation. While the widespread adoption of such agreements is new, the concept is not – prior to the NAR settlement, these 18 states already had buyer agency agreement requirements:
   

Be aware that the NAR settlement does not cover brokers who are not members, and the settlement specifically excludes some very large real estate companies. These companies may agree to similar changes in practices in the future and they are expected to do so. 

Implications for Talent Mobility Programs and Mobile Employees 

The biggest question circulating throughout the industry is, “What do these changes mean for my mobility program and mobile employees?” 

While there are still a lot of unknowns, there are a few implications mobility managers should outline for mobile employees: 

• For buyers, the changes may mean added expense to cover the cost of a real estate agent’s services formerly paid for by the seller, depending on how commissions are negotiated. Buyers may need more cash at closing to cover their agent’s commission, in addition to the downpayment and other closing costs. They may need to negotiate this with sellers, the listing agent or their own buyer agent. All of this adds ambiguity and worry to the transaction. However, having an agent’s support and expertise is important for creating a positive experience. Agents can help guide families towards smart decisions, while writing the contract, negotiating the sales price, inspections and contingencies and managing other specialized parts of the home buying process.  

• For sellers, they may pay less if they choose not to pay a commission to the buyers’ agent. But not compensating buyers’ agents may mean the home requires extended marketing time or sells more slowly or for less than the original asking price if the seller’s relocation benefits program does not include their company paying a listing and buyer agent commission.   

• The terms of every buyer-broker agreement could be different based on negotiations; mobile employees should understand potential agreement structures and impacts. Some agreements may include a more a la carte approach – paying a flat fee for an agent’s time – while others may create a more traditional agent-buyer partnership. Before mobile employees sign any agreements, they should consult with their company’s relocation management company (RMC).   

RMCs need to communicate with mobile employees about changing real estate professional commission practices and offer advice on how to navigate the new buying and selling landscape, including resources for information and assistance, and which benefits are and are not offered.
 

Hannah, our enterprising fictional intern from the State of Mobility Mobile Employee Journeys, is back to help us understand the implications of the NAR settlement and shifting agent compensation regulations. View the full infographic journey.

Questions to Ask to Work Towards Possible Solutions  

While addressing changing real estate agent compensation will be ongoing, there are a few questions for mobility managers to explore, to ensure mobile employees still have a positive home purchase experience, and mobility program budgets remain in-check. 

Will this impact buyer representation? 

With real estate professionals facing so much uncertainty regarding commissions to represent buyers, industry experts are speculating that many agents may jump ship and only represent sellers. This consolidation would leave mobile employees without the expertise or support needed to market and sell their homes in a timely manner and get fairly compensated.  

Mobility professionals and mobile employees should be able to rely on their RMC partners to facilitate introductions to trusted, vetted supplier partners, including real estate professionals. Here are a few questions to ask RMC partners as they navigate potential consolidation in the industry:  

• Have you heard discussions of or seen a shift in your supplier partners switching to only support sellers?  

• What are you doing to ensure mobile employees have access to supplier partners that work with buyers?  

• If you’re bringing new agents/brokerages into your network to make up for the speculated consolidation, what standards do you hold your partners to, to ensure high quality of service?  

How will this impact supply chain costs?  

We may begin to see buyer agent fee structure changes to make up for potential losses in commissions. For example, just as airlines began charging for bags or seat changes, buyer agents may begin adding ancillary charges – like lockbox fees – to supplement their incomes.  

Here are a few questions to consider, and talk through with RMC partners, to navigate this potential shift: 

• What are the implications, particularly to program cost and mobile employee experience, of working with agents that charge ancillary fees?  

• What are your recommendations for mobile employees on how to navigate or negotiate those fees?  

• Will these costs be financed under home loans, or will they be treated the same as commissions? Would they be taxable expenses?  

Can we provide buyer commission benefits?  

Companies should consider what kind of support they can provide mobile employees to cover buyer agent commissions, knowing the benefit could go a long way in helping families accept a relocation.  

Yet given the financial – and tax – implications, it’s a decision that mobility professionals should work with RMC partners to evaluate, to ensure smart, strategic decisions.  

Here are a few questions to analyze with RMC partners: 

• Should we make any adjustments on the seller side compensation benefit? How would that impact the selling experience? 

• How can we structure the buyer compensation benefit to support mobile employees while protecting mobility program budget?   

• Do we need to offer a buyer compensation benefit to ensure the mobile employee accepts the transfer? If yes, do we have the budget to simply add that to the relocation package?  

• If the budget isn’t available, what benefits can or should we cut to find money for buyer compensation? Are there any benefits/funds that can be reallocated?  

• Should we structure a buyer compensation benefit as tax protected? What are the implications either way?   

Despite the unknowns, as the industry works to understand the intricacies of changing compensation models for real estate professionals, there are several paths forward; mobility professionals need to see which might be the best fit for their programs. 

Graebel is available to help you feel prepared to establish benefits and policies that work for your program, while also ensuring your mobile employees have the information they need to accept relocations and buy or sell real estate with confidence. 

Contact us to schedule time to review your program and evaluate your options for balancing cost management, the mobile employee experience and properly incentivizing relocations. 

Members of the Graebel Partner Alliance Lending Network provided insights that supported the development of this content.