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. Read Part 1 of the article. What follows is a detailed look at additional scenarios and insights from 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 Multiple Buyer Representation Agreements
When a transferee signs multiple buyer representation agreements, it can lead to complications, especially if the agreements cover the same geographical area. Here’s a summary of expert responses on how to handle this situation:
RMC Perspective:
RMCs emphasized that this issue may have some variance by location. For example, a transferee looking at properties in different states covered by different brokerage firms may need multiple agreements. However, transferees should avoid signing multiple agreements for the same area and understand any “protection period” clauses in the agreements. If the issue arises, RMCs should work with relocation directors to find a solution, potentially involving legal counsel if necessary. They also recommended negotiating a shared percentage compensation between firms if a home is purchased.
Corporate Perspective:
Corporations typically have procedures to prevent such issues. In-house teams usually refer all transferees, ensuring that multiple agreements are not signed without their knowledge. If a second agreement is necessary, a release from the first broker is required before proceeding. In cases where multiple commissions might be owed, corporations would consider covering only one commission and advise employees against signing multiple agreements.
Broker Perspective:
Brokers highlighted the importance of clear communication with transferees. A reputable relocation-certified agent would ask if the transferee has signed another representation agreement and act accordingly. If multiple agreements are signed, the transferee could be obligated to pay more than one commission. Brokers within the RMC network generally work to minimize the impact, but if a non-network broker is involved, waiving commissions is less likely.
Other Perspectives:
Other experts stressed the need for thorough counseling from RMCs to ensure transferees understand the protocol of signing only one buyer representation agreement (unless necessary due to being in a multistate jurisdiction). They also pointed out practical challenges, such as extended homebuying processes due to coordination with multiple agents, which can affect the duration of house-hunting trips and temporary quarters. Additionally, the brokerage commission amounts may vary by firm, adding another layer of complexity.
Overall, the consensus was that clear communication, thorough counseling, and adherence to established protocols are essential to managing situations where multiple buyer representation agreements are signed.
Scenario: Transferee Foregoes Usage of a Buyer Agent
When a transferee decides to navigate the homebuying process without a buyer agent, relying instead on legal counsel or going it alone, several risks and challenges emerge, as highlighted by the survey respondents.
RMC Perspective:
RMCs stressed that transferees must understand the implications of being considered an “unrepresented customer/buyer.” This status means that anything said to the seller or listing agent can be used against them in negotiations. Transferees unfamiliar with local markets and real estate customs may overpay for homes or purchase properties with major issues. They may also face challenges related to local zoning, inspection requirements, and closing practices. Additionally, there is a risk of property scams and breaches of fair housing laws.
RMC experts also recommended advising transferees on the significant role buyer agents play. Agents provide insights on local schools, commuting times, and neighborhood nuances. They also handle inspections and negotiations, and assist with property access, which the transferee would otherwise need to manage independently. RMCs suggested that while transferees have the option to go without an agent, it is generally not recommended due to the support and representation agents offer.
Corporate Perspective:
Corporate policies often do not cover buyer closing costs unless a referred broker is used. One corporate expert noted that this approach could limit the homes a transferee considers or result in the transferee paying the buyer agent commission themselves. This could potentially discourage employees from transferring or moving. However, if sellers continue to cover both agent commissions, the impact might be minimal.
Broker Perspective:
Brokers highlighted that while attorneys can prepare contracts and closing documents, they do not have access to the MLS, reducing the number of properties available to transferees. Transferees would also need to rely on listing agents for property access and coordinate with various vendors for inspections and repairs. This additional burden can lead to a more taxing and negative relocation experience.
Other Perspectives:
Other experts emphasized the practical challenges of going without a buyer agent, such as extended homebuying processes and the need for thorough research on local schools, taxes, and commuting times. There are also concerns about potential poor homebuying decisions due to unfamiliarity with the new location and real estate practices. Legal issues and increased legal fees could arise from dissatisfaction with the home purchase process.
Overall, the experts agreed that while transferees have the option to forgo a buyer agent, it is fraught with risks and challenges that can impact the overall relocation experience negatively. Clear communication about these ramifications and the benefits of using a real estate professional is crucial for informed decision-making.
Scenario: Transferee Relocates to a Multi-State Area with Multiple MLS Networks
When a transferee relocates to an area spanning multiple states and MLS networks, managing the complexities of real estate transactions becomes crucial. Here is a summary of the responses on handling this scenario:
RMC Perspective:
RMCs emphasized that the issue may depend on local practices. For example, a transferee in the New York City area might look at properties in Connecticut, New Jersey, and New York, each covered by different brokerage firms. Transferees should avoid signing multiple agreements for the same geography and be aware of any “protection period” clauses in their agreements. In such cases, RMCs might need to work with real estate firms that can accommodate multistate searches and modify buyer’s agent agreements accordingly. They also recommended discussing the need for multiple agent referrals and ensuring transferees only view properties with the assigned agents for each area or state.
Corporate Perspective:
Corporations typically either use an RMC or have in-house programs to place all referrals and work with preferred brokers in multiple states. This approach helps manage the complexities and ensure consistent support across different regions. One corporate expert highlighted that this situation often results in varying “normal and customary” practices, which can create inequities in relocation support. This may necessitate future policy changes to accommodate multiple states and MLS networks, aiming to ease the administrative burden and create a more straightforward policy.
Broker Perspective:
Brokers suggested that transferees be represented by a relocation-trained buyer’s agent licensed in each of the states involved, with access to each MLS network. If this is not possible, transferees might need to sign agreements with multiple agents, specifying the areas and MLS each agent will cover. It’s crucial to ensure all agents involved are aware of the multi-agent representation. The best-case scenario is for RMCs to direct the referral to one agency with offices and agents in each state, negotiating compensation at the initial contact to minimize conflicts.
Other Perspectives:
Other experts noted that the cost of buyer brokerage commissions can vary significantly by state or local jurisdiction. This variability can exceed company reimbursement policies in one state but not in another. It’s important to understand and address these differences to ensure smooth transactions. Additionally, in adjacent city or border situations, working with a relocation director at a firm operating in both locations can help manage agent assignments and mitigate cross-MLS issues.
Overall, the responses emphasized the need for clear communication, thorough understanding of agreements, and strategic partnerships with real estate firms capable of handling multistate relocations. This approach helps address the unique challenges and ensure effective support for transferees navigating complex real estate landscapes.