As of August 17, 2024, many real estate professionals nationwide will be asking buyers to enter into a written agreement prior to touring a home. But what if you are just attending an open house? 

Here’s what you should know:

• I am attending an open house without an agent. Do I need a written buyer agreement in order to tour the home? No. If you are simply visiting an open house on your own or asking a real estate professional about their services, you do not need to sign a written buyer agreement.

• Is an agent who is hosting an open house required to enter into written agreements with the potential buyers who attend the open house? No. In this case, since the agent is only there at the direction of the listing broker or seller, the agent is not required to have a written agreement with the buyers touring the home.

• When will I be asked to sign an agreement with an agent? After you begin “working with” an agent and at any point before you tour your first house together. 

• What does “working with” an agent mean? A buyer is “working with” an agent as soon as the agent begins to provide services, such as identifying potential properties and arranging tours. Agents who are simply marketing their services or speaking to a buyer—at an open house or by providing a buyer access to a house they have listed—are not considered to be working with the buyer.

• What does it mean to “tour” a home? Under the terms of the settlement, a “tour” is when a buyer who is working with an agent enters a home that is for sale or directs their agent to enter the home on their behalf. This includes when the buyer’s agent provides a live, virtual tour to a buyer not physically present.

• What is the purpose of written buyer agreements? Clarity and transparency. Written buyer agreements lay out the services your real estate professional will provide and what they will be paid. Buyers should not sign anything that includes terms they do not agree with or do not understand. You are in the driver's seat with these agreements, which are fully negotiable.

If you’re a homebuyer working with an agent who is a REALTOR®, it means you are working with a professional who is ethically obligated to act in your best interest. As of August 17, 2024, you will be asked to sign a written buyer agreement after you’ve chosen the professional you want to work with. 

Here’s what you should know about these agreements:

1. What is a “written buyer agreement?” What does it do? A written buyer agreement is an agreement between you and your real estate professional outlining the services your real estate professional will provide you, and what they will be paid for those services.

2. Why am I being asked to sign an agreement? Written buyer agreements became a nationwide requirement for many real estate professionals as a part of the National Association of REALTORS®’ proposed settlement of litigation related to broker commissions. The requirement went into effect on August 17, 2024.

3. Are these agreements new? In some places, yes. Many states have required them for years, while some have not. As a result, it is entirely possible you or others you know have not used them in the recent past. Regardless, they are now a nationwide requirement for many real estate professionals.

4. Are these agreements negotiable? Yes! You should feel empowered to negotiate any aspect of the agreement with your real estate professional, such as the services you want to receive, the length of the agreement, and the compensation, if any. Compensation between you and your real estate professional is negotiable and not set by law. In the written agreement, the compensation must be clearly defined (e.g., $0, X flat fee, X percent)—and not open-ended or a range. Only sign an agreement that reflects what you have agreed to with your real estate professional.

5. How do I benefit from these agreements? These agreements clearly lay out what services you (as a homebuyer) expect your real estate professional to provide, and what your real estate professional will be paid. These agreements make things clear and reduce any potential confusion at the outset of your relationship with your real estate professional.

6. When do I need to sign an agreement? You will be asked to enter into a written buyer agreement with your real estate professional before “touring” a home with them, either in-person or virtually. If you are simply visiting an open house on your own or asking a real estate professional about their services, you do not need to sign a written buyer agreement.

7. Does this mean I have to pay my real estate professional out of pocket? Not necessarily. While you are responsible for paying your real estate professional as outlined by your agreement, you can still request, negotiate for, and receive compensation for your real estate professional from the seller or their agent.

8. Do agreements dictate a specific type of relationship I need to have with my real estate professional? No—you are allowed to enter into any type of business relationship with your real estate professional allowed by state law where you are purchasing a home.

9. Can I change or exit an agreement? Yes. You and your real estate professional can mutually agree to change your agreement. Agreements may have specific conditions under which they can be exited, so read the text of the agreement and speak with your real estate professional if you would like to change or exit your agreement.

10. How long is the commitment? The agreement can last up to 90 days. However, this period can be adjusted based on your needs and current market conditions.

11. What if I don't find a home within the agreed time frame? If you haven't found the right home within the agreed time frame, we can extend the agreement.

12. Can I cancel the agreement if I change my mind about buying a property? Yes, if you decide not to move forward with purchasing a home, we can terminate the agreement.

As of August 8, 2024 the rules of financing buyer's broker compensation are:

• Can real estate commissions be financed? No. Financing commissions is not feasible under the current structure of the residential mortgage finance system, and there is no clear short-term legislative or regulatory fix. Banks would treat such a loan as a personal loan that would have higher rates and they would limit access to those loans to borrowers with better credit profiles. That personal loan would add to the buyers' liabilities and make it harder to qualify for the mortgage they are seeking. Fannie Mae, Freddie Mac, and the FHA do not allow commissions to be added to the balance of the mortgage. Several rules that make up the foundation of mortgage finance would need to be changed by the regulators and Congress to make this change.

• What are interested party contributions? Fannie Mae, Freddie Mac, and the FHA specify limits on how much a seller or broker can contribute to the buyer to pay for services typically paid by the buyer. These payments are called interested party contributions (IPCs).

• Is compensation paid by a seller or listing broker to a buyer broker considered an IPC? No. Cooperative compensation is considered a fee that is “customarily” or “traditionally” paid by the seller. The FHA, Fannie Mae, and Freddie Mac exclude these types of fees from the IPC calculation.

• Does the NAR settlement change that? Is compensation paid by a seller or listing broker to a buyer broker now an IPC? The settlement would preserve the choices consumers have regarding real estate services and compensation. After the new rule goes into effect, on August 17, 2024, listing brokers and sellers can continue to offer compensation for buyer broker services, but communicating such offers is prohibited on an MLS. Based on our interpretation of current guidance from Fannie Mae, Freddie Mac, and the FHA, we do not expect compensation paid by a seller or listing broker to a buyer broker to become an IPC.

• Does the settlement change access to mortgages for buyers? No. Under the settlement, buyers still have the same options when it comes to compensating their real estate representatives. That is, the listing brokers can compensate the buyer broker, the seller can compensate the buyer broker, or the buyer can compensate their broker directly. Buyers will still be able to get financing from Fannie Mae, Freddie Mac, and the FHA under these scenarios. The FHA confirmed this in a letter after NAR sought to affirm our interpretation of existing guidance. Likewise, Fannie Mae and Freddie Mac published explicit confirmations that commissions for buyer brokers paid by the seller would not count against the buyer. However, none of these agencies will allow the buyer to finance a commission into the mortgage at this time. (Updated 7/8/2024)

• What about VA loans and the prohibition on buyers paying commissions directly? The Department of Veterans Affairs (VA) recently announced that it has temporarily lifted its ban on buyers paying for real estate agent representation. Veteran buyers now have more options, ensuring they can have professional access to representation in their home buying process. The VA’s policy takes effect on August 10. The VA is evaluating the need for a formal rulemaking process on this issue. NAR has strongly advocated for this change as we want to ensure veterans maintain access to the VA home loan program, which has been a significant tool in helping service members achieve the American dream of homeownership. NAR recently submitted a letter to VA urging them to make this revision to their policies. (Updated 7/8/2024).

• What is NAR doing to promote access to financing for home buyers? NAR is working with our partners in the lending community to gain greater clarity on guidance from the agencies and to maintain the steady flow of funding for closing home purchases.

Tap Into My Qualifications for a Clear Financial Picture

As a first-time home buyer or home seller in the Greater Los Angeles area, it's essential to be aware of the various costs involved in a real estate transaction that often go unnoticed. These unexpected expenses can impact your budget and financial planning. I understand the importance of transparency and helping you make informed decisions. That's why I'm here as an LGBTQ Friendly real estate professional to provide you with valuable tools and expertise to calculate and anticipate these costs. With my guidance, you can approach your real estate transaction with confidence and clarity, knowing that you're prepared for any financial commitments that may arise.

1. Buyer Closing Costs: These are expenses incurred by buyers when purchasing a home, including fees related to the purchase price, down payment, loan type, and negotiated adjustments. Typically, these costs range from 2% to 5% of the home's purchase price. Cash buyers are also responsible for covering their portion of closing costs, even though they don't have mortgage-related fees.   

2. Seller Closing Costs: These are the costs incurred by sellers during the home-selling process, including agent commissions, transfer taxes, title insurance, escrow and closing fees, prorated property taxes, NHD disclosures and, if applicable, HOA fees.

3. Lender Fees:  Lenders may impose various fees on home buyers, such as origination fees, application fees, appraisal fees, credit report fees, underwriting fees, document preparation fees, title search and title insurance fees, private mortgage insurance (PMI), discount points, homeowners insurance and mortgage broker fees. While buyers usually pay most of these costs, some costs may be negotiated to be paid by the seller. Lenders are bound by regulations that specify which closing costs sellers are allowed to cover for buyers and the maximum amount sellers can contribute. NOTE: Buyers have the option to lower their interest rate by purchasing mortgage discount points, which requires paying higher upfront closing costs. No-closing-cost mortgages allow the lender to roll the closing costs into the loan balance or interest rate.   

4. Earnest Money Deposit (EMD): The buyer's upfront deposit, typically amounting to 3% of the offer price, is submitted within 3 days of an accepted offer. This deposit is held in a third-party account and will be credited toward the down payment on the closing day. However, in the event of a deal cancellation based on purchase contract contingencies, the refund or payment to the seller will depend on the terms outlined in the contract.  

5. Home Inspections: These are professional inspections conducted to uncover hidden property issues, with costs varying based on home size and location. Hiring a professional home inspector can help identify hidden issues such as structural problems, plumbing or electrical issues or the need for major repairs. The cost of a home inspection can range from a few hundred dollars and upwards. In addition to standard home inspections, certain properties may require specialized inspections such as asbestos inspections, pest (termite) inspections or septic tank inspections.

6. Home Warranty: A home warranty can provide coverage for certain repairs and replacements of major systems and appliances within a specific period typically ranging from a few hundred and upwards. Paid by the Seller or Buyer.

7. Property Taxes and Assessments: Property taxes can vary significantly based on the location and assessed value of the property. Additionally, there may be special assessments for community improvements which can add to your monthly expenses.

8. Homeowners' Insurance: Homeowner's insurance is a type of property insurance that provides financial protection to homeowners in the event of damage or loss to their property. It typically covers the structure of the home, personal belongings, liability for accidents or injuries on the property, and additional living expenses in case the home becomes uninhabitable. Insurance rates can vary based on factors such as location, property value and coverage limits. Required if you have a mortgage.

9. Homeowners' Association (HOA) Fees: Ongoing fees contributing to common area maintenance and amenities for properties in an HOA.

10. Moving Expenses: Whether you hire professional movers or opt for a D.I.Y. approach, there are expenses involved in packing materials, truck rentals, moving services and any storage needs during the transition.

11. Land Leases: A land lease is an arrangement in which the owner of a property leases the land from a landowner and pays regular rent to utilize the land where the home is situated. These leases often have lengthy durations, spanning several decades or even longer. This practice is prevalent in areas like Palm Springs and mobile home parks.

12. Homeowner's Association (HOA) Special Assessments: In addition to regular HOA fees, there may be unexpected special assessments imposed by the HOA for significant repairs or improvements, for example a new roof. These assessments can be a one-time fee or spread out over a specific period, so it's important to inquire about any potential special assessments and their associated costs.

13. Private Mortgage Insurance (PMI): Insurance that is typically required for buyers who make a down payment of less than 20% on a conventional loan. PMI adds an additional cost to the monthly mortgage payment. This insurance remains in effect until the buyer has paid off at least 20% of the loan amount.

14. Homeowner's Association Transfer Fees: Fees associated with transferring ownership within an HOA.

15. Property Appraisal Fees: A property appraisal fee is a charge incurred usually by the borrower during a real estate transaction to assess the value of the property being purchased that is required by a lender. This fee is typically paid to a licensed appraiser and covers their professional services in evaluating the property's worth based on various factors such as location, condition, comparable sales, and market trends. Additionally, some home sellers choose to have their property appraised before listing it for sale to assist them in determining an appropriate asking price.

16. Utility Connection and Setup Fees: When moving into a new property, you may need to establish utility services such as electricity, gas, water, security and internet. Utility companies may charge connection fees or require deposits, which can vary depending on the provider and location.

17. Title Insurance: Title insurance has distinct roles for home sellers and buyers. When selling a home, the seller obtains title insurance, known as a "seller's policy," to safeguard the buyer's ownership rights by ensuring a clear title. Conversely, home buyers purchase their own title insurance, referred to as a "buyer's policy," which offers ongoing protection against potential title defects or disputes such as undisclosed liens, errors in public records or fraudulent ownership claims that may arise during their ownership. In summary, the seller's policy ensures a clear title during the sale, while the buyer's policy provides continuous protection for the buyer's ownership rights.

18. Escrow Fees: Escrow acts as a reliable intermediary, holding funds and legal documents until all terms and conditions of the agreement are satisfied, allowing for a secure and efficient transfer of property ownership. Seller and Buyer generally each pay their own portion.

19. Co-op Association Fees: Co-op fees cover a range of expenses, including maintenance, utilities, taxes, and management fees, and are paid by cooperative housing shareholders. In contrast, condo fees are payments made by condominium owners specifically for the maintenance and insurance of common areas.

20. Appraisal Discrepancy Costs (Appraisal Gap): In the event of a discrepancy between the appraised value and the agreed purchase price, appraisal discrepancy costs may arise. If the appraised value is lower than the agreed purchase price and a contingency is in place, the buyer has the option to back out of the deal or the buyer and seller must negotiate the difference. Note: The lender will only provide financing based on the appraised value determined by the lender's appraiser.

21. Pest (Termite) Inspection and Treatment: Costs associated with inspecting and treating pest (termite) issues in the property, paid by either the seller or buyer.

22. Mello-Roos Taxes: Mello-Roos is a special tax assessment levied on property owners in specific California communities. It is used to finance public infrastructure and services, such as schools, parks, and utilities, within designated Community Facilities Districts (CFDs). Property owners within these districts are required to pay Mello-Roos taxes in addition to their regular property taxes to support the development and maintenance of these community facilities.

23. NHD (National Hazard Disclosure): Disclosure for California home buyers regarding known hazardous areas, typically paid by the seller.

24. Transfer Taxes: Taxes imposed by cities or counties on real estate transactions based on the sale price of the property.

25. Historic Preservation Fees: Additional fees for maintaining historical integrity in designated historic districts.

Navigating real estate can be complex, with unexpected twists around every corner, from a first-time home buyer to an experienced home seller in the Greater Los Angeles area. Whether you are buying or selling a home, having knowledge of the potential costs involved is crucial. I will empower you with the right information to make confident decisions each step of the way. From calculating closing costs to explaining complicated contracts in simple terms, I will provide the guidance you need to understand the process fully. With my help as your LGBTQ Friendly agent, you can count on reducing stress while pursuing your real estate goals.