Advocus National Title Insurance Company

NEW BUYER BROKER COMPENSATION AGREEMENTS CREATE TRAPS FOR THE UNWARY    The recent National Association of Realtors® settlement (NAR Settlement, August 2024) resulted in significant changes to the way buyer brokers’ commissions are documented and paid at closing. All title agents should consider the following information to ensure buyer broker commission payments are handled correctly.     Look for Two Statements in Every Transaction Each buy-sell transaction should now include two commission statements, one from teach broker, in the documents submitted to the title company prior to closing when submitting figures.     Understand the Documentation There are multiple new documents that articulate how commissions are paid.  * Buyer Compensation Agreement * Closing Cost Credit Clauses in the Contract * Commission Addendum Attached to the Contract * Commission Statements   Careful Lawyering Will Prevent Trending Issues from Getting in the Way of a Smooth Transaction: Obtain two commission statements to prevent the following issues:    Lender Approval: If a buyer is paying any part of the buyer’s broker commission and the buyer is obtaining financing, the lender must be made aware of the buyer-paid commission amount as it impacts the lender’s figures, which could pose problems if the underwriter is not provided documentation of the commission agreements. Always check with the lender at the start of the transaction to confirm what commission documentation they may need to provide their underwriter. This is particularly important when buyers are paying all or part of their broker’s commission as an out-of-pocket closing cost.     Conflicting Expectations of Brokers: There is an emerging trend of brokers neglecting to include the $495 MLS fee in the commission agreements. Check with both brokers in advance of closing to confirm that the agreements fully address the fees paid to and by brokers to avoid commission statements that may conflict with the actual commission agreement.    Closing Costs Credits – What They Cover: Often times the parties agree to a closing cost credit that is intended to cover the buyer’s actual closing costs, rather than commissions specifically. Do not assume a closing cost credit is intended to cover a buyer’s broker commission.   Closing Cost Credits that Do Not Cover the Entire Amount Stipulated in the Buyer Broker Compensation Agreement: If a closing cost credit is being given by the seller to the buyer to cover the buyer’s broker commission as a buy-side closing cost, please confirm that the credit covers all the commission due the buyer’s broker pursuant to the Buyer Compensation Agreement.   While the new structure was meant to promote transparency in the payment of commissions, it has created considerable confusion in the early days of its implementation. Careful lawyering will prevent these issues from getting in the way of a smooth transaction.