PURCHASE CONTRACT REVISIONS MAY COST SELLERS THOUSANDS OF DOLLARS:
Sellers should be mindful of recent changes to purchase contracts that could lead to significant additional costs. Traditionally, Sellers have compensated Buyer Brokerages through separate agreements when listing properties on the MLS. However, it has come to light that many Brokerages are now modifying purchase agreements to include clauses that allow them to receive both the commission specified in the purchase agreement and any prior compensation from separate agreements. This practice can substantially raise the closing costs for Sellers.
EXAMPLE: The revised purchase agreement used by a prominent Real Estate Brokerage in Northwest Ohio includes the following language: “COMPENSATION OF PURCHASER’S BROKER BY SELLER. Purchaser ▢ is not ▢ is requesting seller to pay ___$ or __% of the purchase price directly to purchaser’s broker to satisfy, in whole or in part, the fee purchaser owes to purchaser’s broker pursuant to the buyer representation agreement. Such payment shall be made at closing and through the settlement statement. This amount is in addition to any other compensation offered by the Listing Broker to purchaser’s broker and confirmed by a broker compensation agreement between the two brokers.”
Since the previous compensation agreement used by Ohio Broker Direct was solely between the Seller and the Buyer Brokerage, it was unclear if the Buyer Brokerage could claim additional compensation under such a clause. To avoid any confusion, Ohio Broker Direct has decided to remove this provision entirely.
Under NAR regulations, Buyers are now required to sign a Buyer Representation Agreement (Buyer Agency Agreement) with their Agent (Buyer Brokerage), detailing the compensation they will provide to their Brokerage. If the Buyer Agent seeks additional compensation from the Seller, they must negotiate this into the purchase agreement or related addendums.
In summary, Ohio Broker Direct has removed any mention of compensation from the Multiple Listing Service (MLS). Sellers are advised to carefully review any written agreements regarding compensation before accepting an offer. This strategy ensures that terms are negotiated in the Seller’s favor and prevents the risk of being double charged for compensation due to ambiguous language in purchase agreement at closing.
CONCESSIONS ARE TO BE NEGOTIATED IN THE PURCHASE AGREEMENT (CONTRACT):
Many Multiple Listing Services (MLS) now include fields for Seller-paid concessions on their platforms. Ohio Broker Direct LLC has adopted a policy to either leave this field blank or mark it as “NO” or “NONE” when necessary. All terms and conditions of the purchase agreement should be negotiated within the agreement itself. It is irresponsible to suggest or state that the Seller will offer concessions before reviewing the terms of the purchase offer. Either the Seller or the Buyer can provide concessions as a credit to the other party, as negotiated in the purchase agreement.
SELLER PAID CONCESSIONS: A Seller-paid concession is reflected as a credit to the Buyer on both the closing disclosure and settlement statement. The negotiation of this credit can involve either a fixed dollar amount or a percentage of the sales price. It can be applied to various expenses such as Buyer pre-paids, points, closing costs, Buyer-paid compensation (commission), or any other credit to the Buyer approved by the Buyer’s lender.
BUYER PAID CONCESSIONS: A Buyer-paid concession appears as a credit to the Seller on the closing disclosure and settlement statement. This credit can be negotiated as either a fixed dollar amount or a percentage of the sales price. It can cover various expenses, including Seller-paid compensation (commission), conveyance fees, property tax proration, title insurance policies, or any other credit to the Seller as mutually agreed upon by both parties.
EXAMPLES:
- Buyer and Seller agree that Seller shall credit 2% of the purchase price towards Buyer paid compensation/commissions, pre-paids, points, closing costs or any other items approved by the lender.
- Buyer and Seller agree that Buyer shall credit 2% of the purchase price towards Seller paid compensation/commissions, closing costs, conveyance tax, and/or property tax proration through the date of closing.
APPRAISAL GAP LANGUAGE:
Ohio Broker Direct encourages all Sellers to include APPRAISAL GAP LANGUAGE in their contracts to cover concessions and any potential gap between the contract price and appraised value if the appraisal falls short.
BUYER REPRESENTATION AGREEMENTS :
- Regulations require Listing Agents and Brokers to verify that a Buyer Agent has a Buyer Representation Agreement (Buyer Agency Agreement) in place. Buyer Agents do not need to provide the actual Buyer Representation Agreement to the Listing Brokerage or Seller. Acceptable evidence may include property specific Ohio Agency Disclosure Statement verifying the Buyer Agent is representing the Buyer signed by the Buyer or any other document verifying the existence of a Buyer Representation Agreement at the time of the showing. The Consumer Guide to Agency Agreements is not acceptable as it is merely a disclosure, not a binding document.
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