Lew Sichelman

Attention, buyers: How are you going to pay your share of the sales commission on the house you want to buy?

Under the terms of the gigantic $418 million antitrust settlement with the National Association of Realtors, commission splits have now been uncoupled, meaning each side is responsible for their share of the fee.

You’ll know what your agent expects in the way of compensation when you sign the buyer representation agreement. This agreement is what you’ll be asked to sign before you actually set foot in a house that’s for sale. But how you pay is up to you, your seller and your agents.

Consumer advocates are urging prospective homebuyers to sign contracts without any financial obligation, at least not until they actually settle on the place they intend to purchase. Toward that end, Zillow has produced so-called touring agreements for two dozen states that allow agents to work with buyers while meeting the requirements of the NAR’s class-action settlement.

Described as introductory contracts that allow agents to explain the services they provide and their compensation models, the pacts permit agents to still show potential buyers houses without tying them to each other. The pacts expire in seven days, at which time a buyer can sign a binding buyer-agent contract or walk away.

“To put it simply, most people want to date before becoming exclusive,” Zillow explains. “This approach lets you and the buyer enter the first showing with a signed limited services agreement that satisfies requirements outlined in the NAR settlement.”

Finding the Money

Now, about how you are going to pay your agent: Start by asking the seller to reduce their price by the amount of your share of the commission. Since most sellers bake the cost of the total sales commission into their asking prices anyway, that shouldn’t be especially difficult.

According to Redfin, buy-side commissions have been falling since the NAR settlement and now stand at 2.55 percent. But the Consumer Federation of America believes buyers should shoot for 2 percent at most.

Next, you have to decide how you are going to come up with the extra cost. Buyers and sellers can still negotiate who pays what between themselves. And while listing agents are now prohibited from posting on their multiple listing services what share of the sale’s fee they will part with, they can still post that information on their own websites and those of their companies.

Listing agents can also take the full commission and then rebate the buy-side agent’s share at closing. Or sellers can offer cash concessions at settlement to their buyers equal to the buy-side agent’s fee, with that amount paid to the buyer’s agent at closing.

Buyers also have the option of paying cash to their agents. Or they can finance the fee as part of the mortgage. One bank in Massachusetts has even started offering a line of credit for buyers using a mortgage from them.

Tough Math

No choice is ideal. For example, it’s tough enough to come up with the money for a down payment. But it could be prohibitive if you have to pay your share of the commission out of your own pocket. Consequently, financing the charge may be the best way to go.

Here’s an example, using for simplicity purposes a $300,000 sales price with a 6 percent commission. The total commission would be $18,000, with each agent taking half, or $9,000. If you figure on making a 10 percent down payment – $30,000 – nine grand more is a lot of extra money most buyers don’t have.

With 10 percent down, your mortgage would be $270,000. But if you add your $9,000 share of the commission, you’d be borrowing $279,000. The difference in payments for those two amounts is $54 more a month – $1,619 vs. $1,1673 – which works out to $648 more a year or $6,480 over 10 years.

It would take almost 14 years to reach your breakeven point. After that, you’d be paying more than the original $9,000 fee. Any time before that, though, you’d come out ahead.

Waiting on Fannie and Freddie

But there’s a lot more to the financing equation than just money.

For one very important thing, the two quasi-government secondary market outfits that keep the mortgage money flowing by purchasing loans from primary lenders and rolling them into securities for sale to investors worldwide have yet to say whether they would buy loans that include commissions.

If Fannie Mae and Freddie Mac decide against making an exception for commission amounts, over half of all mortgages including the charge would be ineligible for purchase. And since most lenders follow Fannie and Freddie’s guidelines, a lot more loans than that will fall by the wayside.

Then there’s the question of your loan-to-value ratio. If the loan amount includes the commission, your LTV will be higher, which could kick you into another mortgage program with a higher interest rate and would require an even larger down payment. You might even be required to pay a higher mortgage insurance premium.

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.