Loop North News – New Realtor agreement will protect buyers and their brokers

An upfront, written agreement likely will soon be required in Chicago residential real estate transactions to specifically state that when commissions are disbursed at closing, the buyer’s agent will be compensated by the buyer.

By Don DeBat

4-Dec-23 – Exclusive buyer brokers, an honorable real estate profession, often have performed an excellent service protecting purchaser rights and interests, while sometimes struggling to collect their well-earned commissions.

Much of their battle is against greedy “double agents” who are eager to collect two-fold commissions from “representing” both buyers and sellers in a deal, essentially cutting out the buyer’s broker.

To protect buyers and their brokers, in the near future, an upfront, written agreement likely will be required in Chicago residential real estate transactions. The document specifically states that when commissions are disbursed at closing, the buyer’s agent will be compensated by the buyer.

“We all need to make sure there’s more transparency on where an agent’s commission comes from,” Laura Ellis (left), president of residential sales at Baird & Warner, told Crain’s in November. “It comes from the buyer.”

Typically, out of the proceeds of a home sale, sellers give their agent an amount for commissions – often, but not always, it is 5-6 percent of the sale price.

Traditionally, or conventionally, the seller’s agent generally pockets half of the commission and shares the other half with the agent representing the buyer, although the splitting of commissions varies greatly depending on company policies.

However, it is the buyer, through their purchase money, who actually funds the commissions for both agents. But buyers don’t always understand the process.

It has been argued in the courts for decades, most recently in a $1.78 billion federal antitrust verdict in Kansas City, and another case filed in October in Illinois, on the key issue of the conventional split of real estate commissions.

Finally, after decades of misunderstanding, it is clear that buyer brokers do more than just getting keys to the properties that a buyer wants to see.

The buyer agent also counsels the buyer on the overall home buying process, including determining whether the asking price is fair, giving helpful advice on the search for financing, and often recommending professional trades and an attorney for the closing.

FTC study concluded home buyers were misled

Historically, nearly all residential real estate agents were bound by law and statute to represent the best interests of the sellers.

However, a 1983 study conducted by the Federal Trade Commission reported that seven out of ten purchasers thought they were being exclusively represented in their real estate transactions, when in fact, they were not.