April 5, 2024 — By Ian Johnston (Broker/Owner of NoCo Flex Real Estate)

The real estate industry has been upended by the recent NAR Settlement and this has left the door open for some very interesting compensation models for brokers. One that is particularly interesting is the idea of a ‘variable co-op commission’. What is this? Well, to understand, let’s first discuss how the typical buyer’s broker is compensated today. In the vast majority of cases today, a broker representing a buyer is actually paid by the seller. That’s because the listing broker negotiates compensation not only for themselves but also any successful broker that brings a buyer who closes on the property. Currently, this ‘co-op’ commission is set per listing and advertised to all brokers on the MLS. However, that is all going to change in just a few months (August 2024) when this practice will no longer be permitted by MLS databases across the country.

This opens up more possibilities for sellers to change what they offer other brokers who bring a buyer. They could simply choose to offer less money to a cooperating broker to save themselves a bit of cash, or they could even choose not to offer anything to a broker that brings a buyer (though this opens up another can of worms in how a broker representing a buyer would get paid in that case). But, what if a seller went a step further and decided to tie the amount they are offering a successful buyer’s broker to specific, performance-based criteria within a transaction? This opens up several possibilities to align the compensation of the buyer’s broker with certain criteria that is desirable for a seller. The possibilities are really exciting.

Here are a few ideas:

• Closing Timeline Incentives: One criterion for variable commissions could be the speed of closing the sale. For instance, a buyer’s broker could be offered a higher commission for facilitating a closing within 30 days as compared to a 60-day closing period. This approach incentivizes efficiency and benefits sellers looking for a quick transaction.
• Seller Concessions and Repair Credits: Another potential criterion involves the amount of seller concessions in a transaction. A buyer’s broker might earn a higher commission if the amount of seller concessions (like repair costs or credits) stay below a certain threshold, say $2,000. This setup encourages brokers to minimize the financial burden on sellers during negotiations.
• Price-Based Incentives: The listing broker might also link the co-op commission to the final sale price. For example, if the sale price exceeds the listing price or falls within a certain high-percentage of it, the buyer’s broker might be compensated more generously.

These are just a few ideas for how we could structure cooperating broker compensation in order to incentivize a better deal for our seller clients. While these are only some of the possibilities and these incentives align the interests of the seller and buyer’s broker, there are some potential snags that could be presented by this kind of arrangement as well.

In particular, this could present a challenge in situations where the buyer’s broker has a fiduciary duty (i.e. is representing their client as a buyer’s agent). This is because as a buyer’s agent or fiduciary a broker is contractually required to prioritize their client’s interests (i.e. the buyer), which might conflict with incentives tied to the seller’s benefits. Such a structure could be seen as potentially influencing the broker to compromise on their duty to the buyer, but there’s a simple solution to this issue. In most situations, this conflict could be avoided if the broker representing the buyer changes their representation status to ‘transaction broker’ or a similar means of representing a buyer that doesn’t require them to act as a fiduciary.

This program has the potential to deliver even more savings to our clients and to do it while incentivizing brokers that are bringing quality buyers with high-quality offers. However, we’ll need to wait until the MLS and other rule changes go into effect in mid August 2024 to fully implement this as an option for our seller clients. In the meantime, if you have any questions or would like to know more about NoCo Flex Real Estate does more than any other brokerage to put our clients first, don’t hesitate to reach out or call us at 970-237-4749!