Disclaimer: The information provided below is intended for general education and informational purposes only. Individuals should consult with their legal, tax, or other counsels as appropriate regarding their specific situations.
The U.S. real estate industry is undergoing significant changes, particularly regarding buyer broker compensation. To better understand and respond to these changes, WERC asked talent mobility practitioners involved with WERC’s buyer broker litigation ad hoc group to share their thoughts on common scenarios that the talent mobility industry will likely have to navigate. The goal was to gather insights and best practices for handling complex scenarios related to buyer broker compensation within the context of talent mobility.
The responses from professionals across various sectors (i.e., relocation management companies (RMCs), brokers, corporates, and “other”) offer valuable guidance for ensuring smooth transitions for transferees. What follows is a detailed look at different scenarios and insights from the survey respondents.*
*If you have additional thoughts on any of these scenarios, we would love to hear them! Email our editorial team.
Scenario: Transferee Signs a Buyer Representation Agreement, Seller Pays Little or No Buyer Agent Commission
In this scenario, several strategies were proposed by experts across different sectors to address the gap when a seller pays little or no commission to the buyer agent.
RMC Perspective:
RMCs recommend that the client consider covering the outstanding compensation as an exception. If not, the transferee may need to explore other options:
- Find another home, which could necessitate an additional home finding trip.
- Negotiate to reduce the buyer broker compensation to minimize out-of-pocket costs.
- Pay the difference out of pocket, with the understanding that the client has already covered the departure commission, potentially providing more funds for the destination commission.
Another RMC respondent suggested that buyers can ask their employer to pay, negotiate the price and contract terms, or add the buyer's agent compensation to the selling price and request the seller to credit the agent at closing though it was also emphasized that the home will need to appraise and buyer compensation is not financeable. They emphasize the importance of consulting with the client to determine their willingness to cover part or all of the buyer agent commission.
Corporate Perspective:
Corporate experts suggested that transferees should contact the relocation team to decide whether finance/HR will grant an exception to cover the costs. One corporate professional noted that while their current policy does not cover commission for realtors on the buy side, given the changing landscape, such exceptions might be approved.
Broker Perspective:
Brokers highlighted that the buying transferee would be obligated to pay any difference between what the seller offers and the agreed amount in the agency agreement. They recommended negotiating an affordable commission and understanding all associated homebuying costs, including buyer agency representation fees.
Other Perspectives:
Some experts suggested upfront counseling for transferees about the buyer agent commission and potential outcomes. If the client does not cover these costs, transferees could use a miscellaneous expense allowance to reduce their out-of-pocket burden.
Additionally, experts proposed various alternative strategies, such as negotiating the sale price to cover the commission, exploring different commission structures (such as a fixed dollar amount), and considering employer-specific buyer brokerage agreements.
Overall, the responses emphasized the need for clear communication and proactive negotiation to manage buyer broker compensation effectively.
Scenario: Company Does Not Provide Financial Support for Buyer Agent Commissions
When a company decides not to provide financial support for buyer agent commissions, it places additional financial burdens on transferees. Here is a summary of the expert responses on managing this scenario:
RMC Perspective:
RMCs suggest several approaches for transferees:
- Be prepared to pay the buyer broker compensation out of pocket, possibly using funds saved from the departure commission.
- Utilize any miscellaneous expense allowance provided by the client policy.
- Request an exception from the employer to cover the costs.
RMCs also emphasized the negative impact on employee satisfaction and the increased time and effort required for the relocation process. They recommended counseling transferees on the obligations of the buyer agent agreement and advising them to request seller concessions for the buyer agent commission when presenting an offer. Transferees should be aware of the costs for their representation and request seller-paid concessions or adjust their offer price accordingly.
Corporate Perspective:
Corporations might consider exceptions to policy, but if not, transferees should be informed upfront to ask brokers to only show homes with cooperative commissions where possible. One corporate expert noted that not covering these costs could limit the homes transferees consider or result in transferees paying the commission themselves, potentially discouraging employees from transferring or moving. However, if sellers continue to cover both agent commissions, the impact might be minimal.
Broker Perspective:
Brokers explained that transferees can choose to work with a buyer’s agent and be responsible for compensating the agent. The fee could be a flat rate or a percentage of the sales price. If the transferee opts for agent representation, the agent has fiduciary responsibilities. Alternatively, transferees can engage a buyer’s agent on a transaction basis, where the agent has no fiduciary responsibilities and cannot provide advice, only public information. Transferees can also choose to go unrepresented, though this carries significant risks, as detailed in previous sections.
Other Perspectives:
Other experts warned of the broader implications of this policy:
- Potential candidates might not apply for positions requiring a move.
- Employees might reject or fail to complete the move, necessitating further recruitment efforts.
- Employees who complete the move but face high costs might ultimately leave the employer, again requiring new recruitment.
- Employees unable to purchase a new home within two years might lose the capital gains tax exemption.
Overall, the responses highlight the challenges and risks associated with not providing financial support for buyer agent commissions. Clear communication and proactive strategies are essential to mitigate these impacts and support successful relocations.
Scenario: Transferee Declines Relocation Program if Required to Pay Buyer Commission
When a transferee indicates they will decline a relocation program if required to pay any amount toward a buyer agent commission, it presents a critical decision point for the employer. Here is a summary of responses on managing this scenario:
RMC Perspective:
RMCs advised that the client must assess the talent need for the relocation to decide whether to cover the commission as an exception. Immediate notification to the client is crucial to determine the impact on talent acquisition. If the client is unwilling to support the buyer commission, the transferee might have to limit their property search to homes offering concessions or seek services from a network agent for a flat fee.t.
Corporate Perspective:
Corporate experts suggested considering an exception to policy. If an exception is not made, transferees should be informed upfront to ask brokers to work with them accordingly based on their particular circumstances. One corporate expert highlighted the risk of a hardline policy, noting that refusing to cover buyer agent commissions could deter employees from moving.
Broker Perspective:
Brokers warned that transferees may become frustrated with the employer, leading to potential dissatisfaction and the risk of seeking other employment. This scenario is particularly frustrating if the transferee is already committed to paying commissions on the sale of their current home and faces additional costs at the destination.
Other Perspectives:
Other experts emphasized that this decision is a business one. If retaining the employee is a priority, the company should review all offered benefits and either reallocate benefit spend or make an exception. Possible outcomes if the company does not support the commission include:
- The position remains unfilled for an extended period.
- The company needs to recruit another candidate or settling for a less qualified one.
- Negotiating to reduce another benefit to cover the commission, which may lead to a dissatisfied employee experience and potential turnover.
The consensus is that corporate sponsors should cover the buyer agent commission as part of the overall relocation cost, given its relatively small percentage of the full relocation expense. This approach helps retain talent and avoid the negative impacts of employee dissatisfaction and turnover.