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There’s a lot of confusion around the particulars of the National Association of Realtors (NAR) commission lawsuit settlement and the resulting business practice changes. Compliance expert Summer Goralik is here to help clear up some of the looming questions so that we can move forward together as an industry.
This week’s question
As a buyer’s agent, how do we absolutely confirm that the seller is willing to compensate the buyer broker? How can we confirm this? I am not speaking about seller concessions.
Compliance expert answer
This week’s question about confirming buyer-broker compensation reflects a concern shared by many Realtors in today’s shifting real estate landscape.
Since the proposed National Association of Realtors (NAR) settlement emerged in March, discussions about commission structures have taken center stage. These changes, driven by antitrust class action commission litigation, have disrupted the longstanding practice of unilateral compensation offers via the multiple listing service (MLS).
Historically, the MLS was the primary method for advertising offers of compensation between Realtors. These offers were based on commission arrangements established between listing brokers and sellers. However, with the NAR settlement, the MLS can no longer serve this function, leaving Realtors to navigate a new commission process in real estate.
We’ve moved beyond the initial shock, and many agents are now adapting through training, new forms and revised policies. However, addressing practical, daily operational questions is paramount, particularly regarding how buyer brokers and agents can ensure they are compensated in this evolving environment.
Additionally, as many Realtors gauge their next steps, I believe risk is a significant factor in their decision-making process.
Risk has become a broader concept in the post-NAR settlement era. As a real estate compliance consultant who primarily works with brokerage clients, risk typically involves potential inquiries or investigations by state departments of real estate or the threat of civil litigation.
However, real estate licensees now face a new level of MLS enforcement and heightened scrutiny from the United States Department of Justice (DOJ). In my opinion, the latter is the most concerning, and this increased vigilance underscores the importance of strictly adhering to new practices and securing compensation agreements correctly.
Returning to the question at hand, it’s important to first point out that confirming buyer-broker compensation now begins with the buyer representation agreement.
This agreement, already required in some states, will become standard for Realtors nationwide. It clearly outlines the services provided by the broker and their agent, includes commission disclosures, and, importantly, reinforces the negotiability of commission rates.
It’s worth noting that some brokers may have already been utilizing buyer representation agreements prior to the NAR settlement or even commission suits, but for most of the Realtor population, this is a new tool.
One fundamental purpose of this mandatory agreement is to ensure that commission discussions between buyer agents and their clients start here.
The DOJ has made it clear that they want commission discussions to occur between buyer agents and their clients — not predetermined by listing brokers or sellers. This change, which aims to promote transparency and prevent potential steering, allows buyers to negotiate compensation with their own representatives.
Once the buyer representation agreement is in place, what happens next? Admittedly, a variety of outcomes could unfold, which might explain why some practitioners question or worry about the process.
To illustrate, consider the following examples:
- In one scenario, a buyer instructs their agent to inquire about buyer agent compensation from the seller. The listing agent does not confirm anything but indicates that the seller is open to offers. The buyer then submits an offer requesting compensation for their agent, and the seller can accept, reject or negotiate the terms in writing.
- In another scenario, a buyer’s agent speaks with the listing agent during a showing, and the listing agent suggests that the seller might be willing to pay up to 2 percent toward the buyer agent’s compensation. However, if multiple offers are received, the terms might change, and the seller could choose a different offer that does not include any compensation request.
It’s critical for buyer agents to understand that, much like the offering of seller concessions, any oral or informal discussions about seller-paid buyer agent compensation are not binding until the terms are formalized in a written contract. Including compensation in the purchase agreement ensures transparency and disclosure for all parties, protects the agents and allows the seller to consider all offers on the table fairly.
Of course, there is always the risk of non-compliant or unlawful behavior, such as a listing agent misrepresenting compensation terms to favor their own buyer in a dual agency situation.
This concern is not far-fetched for many ethical Realtors grappling with the new practice changes. I witnessed similar instances during my time at the California Department of Real Estate (DRE), where listing agents failed to disclose better offers to the seller in order to double-end a transaction and earn more commission.
In fact, some time ago, I co-authored an article on this very subject, which was published by the DRE. The article advocates presenting all offers to the seller in writing and having the seller acknowledge or reject them in writing. This approach not only upholds fiduciary duties but also helps prevent, or even quash, false complaints against listing agents regarding undisclosed offers.
Going forward in this new real estate climate, buyer agents must rely on documented agreements to secure compensation.
While the transition may feel uncertain, Realtors will continue to adapt, and the process of negotiating and confirming commissions, as well as including seller-paid buyer agent compensation in the purchase offer when relevant, will become more familiar over time.
In my opinion, incorporating compensation terms into the purchase agreement is not only compliant with the NAR settlement and supported by consumer groups and the DOJ, but it is also an effective way to ensure transparency and protect both agents and clients.
As Realtors gain more experience with these changes and more transactions successfully embrace this new commission dynamic, the uncertainty will lessen, and the industry will settle into a new normal.
To conclude on a cautionary note — as a compliance consultant, it’s only fitting — real estate agents must consider their state laws and guidelines, as well as seek guidance from their brokers, before fully embracing this new paradigm.
This is essential to ensure that changes are implemented correctly and thoughtfully in their practice. All of these factors are crucial in shaping how agents move forward, and their success will, in large part, depend on it.
Ideally, brokers, who are responsible for overseeing and managing their agents, have already done their due diligence by providing training on the new rules, MLS changes, updated forms and disclosures, as well as revising or establishing office policies.
These policies should not only address the new regulations and outline broker expectations for compliance but also align with state laws and regulations.
To bring us full circle, agents must be well-informed and educated on the new changes. They should be equipped to clearly explain these changes to clients, effectively communicate and negotiate terms involving any buyer requests for seller-paid brokerage compensation with other agents, and confidently prepare the necessary documents for transactions that involve such requests or agreed-upon terms regarding brokerage compensation.
With effective brokerage policies, proper guidance and thorough training, both listing and buyer agents can thrive, and the concerns raised in this week’s question will gradually diminish.
Editor’s note: Licensed real estate agents should always check with their responsible brokers for guidance, direction and policy regarding the new practice changes, and licensed real estate brokers would be wise to consult with a licensed attorney for legal clarification and support.
The opinions, suggestions or recommendations contained in this discussion are based on Summer Goralik’s experience working for, and knowledge of the laws enforced by, the California Department of Real Estate and must not be considered legal advice or relied upon as legal advice. You should consult with your brokerage, and/or appropriate legal counsel in your jurisdiction, for further clarification.
Summer Goralik is a real estate compliance consultant and former CA DRE Investigator in Huntington Beach, California. Connect with her on LinkedIn.