Understanding California’s new rules on buyer agent commissions—and how seller should approach things now.

The rules and laws have changed in California, but despite the changes intended to benefit both buyers and sellers, many agents are trying as hard as possible to keep things at the status quo. Many sellers are being told by their agents that they have to agree to “cover” buyer agent commissions, and not getting the full picture. Here’s the background on how things work following the CA rule and law changes.

Nowadays, as a seller, your agreement with your listing agent states the compensation you will pay them for the services they provide you as the seller. It should not address the compensation a buyer may be obligated to pay their agent, nor your willingness to "cover" it by taking it out of your sale proceeds at closing.

On the buyside, agents are now required to enter into an agreement with a buyer before representing them, including before showing them any potential homes. The agreement must clearly state how much the buyer is required to pay the agent for their services, and must clearly make this a buyer obligation. This makes sense because the agent is supposed to be representing the buyer, and the buyer should be the one to determine how much they want to pay the agent and what kind of services they want from the agent.

However, a buyer who makes an offer on your home may ask you to “cover" their buyer agent fee by taking it out of their offer proceeds. You as the seller would compare all offers and calculate which offer nets you the highest amount of proceeds, after subtracting any amounts they ask you to cover (such as their buyer agent fee, transfer taxes, the cost of a home warranty, etc. - what they ask for is totally specific to their offer and will vary across buyers).

If you decide to accept an offer that includes a reduction to cover the buyer's agent commission because it nonetheless nets you the highest amount of net proceeds, then the specified reduction for the buyer’s agent commission would get taken out of your sale proceeds at closing.

Note that a buyer's agent is prohibited from collecting any amount to "cover" their fee that exceeds the amount the buyer is obligated to pay them under the buyer's agreement with their agent. This is another way to ensure that the buyer's agent's compensation sticks to solely what the buyer agreed to pay them, rather than how it worked before where the seller effectively determined the buyer's agent's compensation even though they were supposedly representing the buyer.

The best approach for sellers is to stay silent regarding willingness to cover buyer's agent commission, or if asked, express openness to consider an offer that includes a reduction to cover the buyer's agent commission, so that you can consider all offers and determine which one nets you the highest amount of net proceeds (which could be an offer that includes a reduction for the buyer's agent commission, or one that does not).

Recommended Resources

"Who Are the Parties Involved in a Typical Real Estate Transaction"

"How to Tour Homes Without an Agent"