Why this matters: Brokers and agents are accustomed to a model for price-fixing fees that is illegal and now rendered antiquated by the California Civil Code. How does a buyer broker (or agent) conduct discussions with a seller broker without falling back into consumer-unfriendly methods for representation and fee-setting inarticulately managed with an opposing seller broker?
The old paradigm
Until 2025 legislation put an end to it, buyer brokers and seller brokers colluded to split their fee at the local peer-pressure rate — typically 6%, 50/50. For some locations and types of property, the rate was 7% or 10%.
Neither broker independently negotiated with their client to set the fee they expected to earn and be paid on their leg of the proposed transaction — the sale or acquisition of an interest in real estate, be it the conveyance of a freehold estate or leasehold estate.
Though buyer brokers rarely used them, California representation agreements have for decades included a notice stating broker fees are negotiable between the broker and client. However, the brokerage industry sidestepped this public policy and continued to commonly set standard pricing for fees. The seller broker was used as the keystone to hold the line at 6% — because they could, via the fee splitting offer to buyer brokers implemented by the operational design of the local multiple listing service (MLS).
Thus, the seller was told the fees were 6%. The reasoning given was that buyer brokers demanded a 50:50 split, and they will not show a property offered for sale without their fee being 3%, the bait. It worked. Go figure.
In 2024, the National Association of Realtors® (NAR) lost a price fixing and antitrust violations case in Missouri, big time. The cost of the trade union allowing its tangential MLS operations to collaborate with big brokers to set the compensation for every buyer agent suddenly was extremely costly in antitrust violation penalties.
However, the settlement agreement for payment of the court-ordered penalty has not led to an appreciable change in how brokers and their agents structure their fees and establish employment agreements with clients — buyer and tenant users, seller and landlord owners. Mortgage loan originators (MLOs) negotiate fees on mortgage originations with the applicant buyer or owner, no longer with the lender like before 2010 cleanup of the mortgage origination business.
However, the California legislature grabbed the momentum of the moment to use the DRE to police licensees for bad conduct in sales transactions on a complaint from a client acquiring fee simple ownership. The enacted law mandated all types and varieties of buyer brokers — who expect a fee on a conveyance of ownership — to enter into employment agreements, called buyer representation agreements, with every buyer they assist now or later to acquire real estate of any type. [See RPI Form 103.1 and 103.2; Calif. Civil Code §1670.50]
But most brokers and agents are still only considering adjusting to the paradigm shift. They claim to be confused by the lack of direction from the industry for just what to do to get paid a fee. Don’t even ask why this situation exists — everyone knows, but it has to do with big broker profits.
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Buyer Representation Agreements: The end of the “gold standard”
A conversation today between a buyer broker and a seller broker
A buyer broker having a discussion with a seller broker about their broker fee arrangements might go something like this:
The buyer broker points out to the seller broker that according to the new legislation, the buyer broker fee is now totally severed, barring the seller broker from any conversation with the buyer broker about fees the buyer broker arranges with their client. None — as fees are the exclusive domain of each broker and client without external discussion or influence. All other professions long ago figured this one out.
Each broker must now independently set out the total fees they expect to receive when earned as evolved from a transaction negotiated as the client’s representative — agency law to the max.
In the end, any offer submitted by a buyer states only the fee due the buyer broker on conveyance of the property interest acquired in the transaction. The buyer broker and the buyer are not and cannot be a party to the seller broker fees arranged with their seller-client.
The reason for the continued inclusion of a fee provision in the purchase agreement for payment of the fee earned by the buyer broker on the deal is because the seller pays all broker fees on a sale of their property — the only rational holdover from past broker fee arrangements.
A buyer broker may need training, or other therapy, to tell the seller brokers that fees received by professionals are confidential, negotiated solely between the broker and their client. For buyer brokers, their fee has nothing to do with the seller broker anymore, and in no way restructures the transaction. However, it is set out in all offers to purchase as the seller pays the buyer broker through escrow on receipt of the buyer’s payment of the purchase price.
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Counteroffers — practice dictated by buyer representation agreements
Understanding that buyer representation agreements are confidential and not disclosed to opposing brokers and agents
Consider a buyer broker’s agent who has prepared a purchase agreement offer on behalf of their buyer-client for submission to a seller agent. Of course, the buyer and the buyer broker entered into a buyer representation agreement to document the broker fee negotiated.
The buyer agent asks their broker whether they need to also submit their buyer representation agreement to the seller broker along with the purchase agreement offer to justify the fee earned. The buyer agent has been conditioned to believe they need to cooperate with the seller broker on the fees.
The buyer broker informs their agent the buyer representation agreement is only between the buyer broker and the buyer-client. The agreement is for fees due the buyer broker for professional services in a transaction, independent of any other participant to the transaction — including the seller broker.
While the representation agreement is confidential, the amount the buyer broker earns on a transaction is stated in every purchase agreement submitted since the seller pays the fee from funds received from the buyer on closing.
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