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The National Association of Realtors’ proposed nationwide settlement agreement for multiple antitrust commission cases would require brokers and agents to sign contracts with buyers they are “working with” before a buyer “tours any home.” But what exactly does that mean?
Katie Johnson
NAR Chief Legal Officer Katie Johnson answered that question and several others in an email to NAR members Monday, offering some clarity about how the deal will impact its members on the ground. In her email, Johnson pointed members to NAR’s facts.realtor site and an updated FAQ page, noting that the answers to questions about buyer representation agreements are listed as questions 46 through 62 on that page.
“We will be releasing additional guidance about the timing of the practice changes required under the settlement in the coming days,” Johnson added.
“As a reminder, we received preliminary approval of the settlement on April 24, but it is still subject to final court approval. The final approval hearing is scheduled for November 26, 2024.”
Michael Ketchmark
Michael Ketchmark of Ketchmark & McCreight, lead plaintiffs’ counsel in the Sitzer | Burnett case, declined to comment on NAR’s reading of the settlement agreement.
“Under the law, once the settlement is finally approved, anyone covered by the agreement is required to abide by it,” Ketchmark said. “If we believe, as class counsel, that somebody is not abiding by the agreement, we can take appropriate steps.”
‘Working with’ a buyer
Under the proposed settlement, just marketing services to a buyer or just talking to a buyer on the seller’s behalf — for instance, at an open house or showing a client’s listing to an unrepresented buyer — does not mean you are “working with” a buyer, according to NAR’s FAQ.
But providing actual brokerage services to a buyer, i.e. identifying potential homes, arranging a showing, negotiating for the buyer, presenting the buyer’s offers, or performing other services for the buyer, are “working with” a buyer, the trade group said.
“If the MLS participant is working only as an agent or subagent of the seller, then the participant is not ‘working with the buyer,’” the FAQ says.
“In that scenario, an agreement is not required because the participant is performing work for the seller and not the buyer.”
Alternatively, in a situation where the agent is an authorized dual agent and/or in a designated agency situation where the broker represents both the buyer and the seller but has different agents work with both, he or she is working with the buyer, as well as the seller, so a contract would be required before a home tour.
According to NAR, a written buyer agreement is required when an MLS participant performs “ministerial acts,” but not if the participant doesn’t expect to be paid for those acts and hasn’t taken the buyer to tour a home. Inman has asked NAR what “ministerial acts” it is referring to and will update this story if and when a response is received.
‘Touring’ a home
First things first: A home is a residential property of between one and four dwelling units, according to the FAQ.
“Touring a home means when the buyer and/or the MLS participant, or other agent, at the direction of the MLS participant working with the buyer, enter(s) the house,” the FAQ says.
“This includes when the MLS participant or other agent, at the direction of the MLS participant, working with the buyer enters the home to provide a live, virtual tour to a buyer not physically present.”
A written agreement doesn’t necessarily mean a written agency agreement
While many interpreted the requirement for a buyer agreement to mandate an agency agreement, that is not the case, according to NAR.
“MLS participants and buyers will still be able to enter into any type of professional relationship permitted by state law,” the FAQ says.
“NAR policy does not dictate:
- What type of relationship the professional has with the potential buyer (e.g., agency, non-agency, subagency, transactional, customer).
- The term of the agreement (e.g., one day, one month, one house, one ZIP code).
- The services to be provided (e.g., ministerial acts, a certain number of showings, negotiations, presenting offers).
- The compensation charged (e.g., $0, X flat fee, X percent, X hourly rate).”
But the agreement must specify the compensation charged
According to the proposed settlement, if an agent or broker will receive compensation from any source, the written agreement with the buyer has to specify the amount or rate of compensation to be received or how that amount will be determined, but the amount has to be “objectively ascertainable” and can’t be “open-ended.” For example, the contract can’t say “buyer broker compensation shall be whatever amount the seller is offering to the buyer,” the settlement says.
In addition, the deal specifies that the compensation an agent or broker receives for brokerage services can’t exceed the amount or rate to agreed to in the agreement with the buyer.
But that does not mean that brokerages can only have one agreement with a buyer, the FAQ says, once again referring to the components of a contract that NAR policy does not dictate.
“Compensation continues to be negotiable and should always be negotiated between MLS participants and the buyers with whom they work,” the FAQ adds.
Active agreements should be amended before the MLS policy change
While the policy changes in the proposed settlement are expected to be enacted in late July, if an agent or broker will be working with a buyer after the policy goes into effect, then he or she “should take steps to ensure that the buyer has agreed to the necessary terms required by the settlement agreement,” the FAQ says. This includes terms where compensation is currently not “objectively ascertainable” or is “open-ended” or where the buyer broker is allowed to keep any offers of compensation exceeding the amount agreed to with the buyer.
MLS participants will be required to disclose that compensation is not set by law and is fully negotiable, but they can disclose that separately and therefore don’t have to amend active agreements to add that disclosure, according to the FAQ.
Regarding active listing agreements, if the agreement tells the listing broker to offer compensation to the buyer broker without referring to the MLS, the agreement doesn’t need to change.
“But if the listing agreement specifies that offers of compensation be made ‘on the MLS,’ then the listing broker should work with the seller to amend the listing agreement before the MLS policy change is implemented, to make it clear the listing broker will not make an offer of compensation on the MLS and will not be violating the listing agreement by failing to make an offer of compensation on the MLS,” the FAQ says.