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There is a lot of confusion about the National Association of Realtors (NAR) commission details and the resulting business changes. Compliance expert Summer Goralik is here to help answer some of the questions that scare us so we can move forward together as an industry.
Read the whole series.
This week’s question
As a buyer’s agent, how do we make sure that the seller is willing to compensate the buyer’s seller? How can we ensure this? I am not talking about the seller’s approval.
Response from compliance professionals
This week’s question about ensuring buyer and seller compensation reflects a concern shared by many Realtors in today’s real estate environment.
Since the proposed agreement of the National Association of Realtors (NAR) emerged in March, discussions about commission structures have taken center stage. These changes, prompted by the commission’s antitrust class action lawsuit, disrupted the long-standing practice of international compensation through the multiple listing service (MLS).
Historically, the MLS has been the primary means of offering compensatory advertising among Realtors. These offers were based on commission arrangements established between listing agents and sellers. However, with the NAR amendment, the MLS will no longer be able to use this function, leaving Realtors to navigate the new real estate commission process.
We have moved beyond the initial shock, and many agents are now adapting through training, new forms and updated policies. However, answering practical, day-to-day questions is very important, especially about how buyers and agents can ensure they are compensated in this changing environment.
Additionally, as many Realtors weigh their next steps, I believe risk is an important 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 works primarily with brokerage clients, the risk often involves potential questions or investigations by government real estate departments or the threat of civil litigation.
However, real estate licensees are now facing 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 extra vigilance emphasizes the importance of strictly adhering to new practices and getting compensation agreements right.
If we return to the question at hand, it is important to first point out that ensuring the compensation of the buyer and the seller now starts with the agreement of representation of the buyer.
This agreement, which is already required in some states, will become the standard for Realtors across the country. It clearly outlines the services provided by the seller and their agent, including the disclosure of the commission, and, importantly, strengthens the negotiation of commission rates.
It’s worth noting that some realtors may have already been using buyer representation agreements before NAR charges or commission suits, but for many Realtors, this is a new tool.
One important purpose of this binding agreement is to ensure that commission negotiations between buyer’s agents and their clients start here.
The DOJ has made it clear that it wants commission negotiations to take place between buyer’s agents and their clients – not predetermined by listing brokers or dealers. This change, which aims to promote transparency and prevent potential manipulation, allows consumers to negotiate compensation with their representatives.
Once the consumer representation agreement is in place, what happens next? Admittedly, various side effects can occur, which may explain why some doctors question or worry about the procedure.
To illustrate, consider the following examples:
- In one case, the buyer instructs their agent to inquire about the buyer’s agent’s compensation to the seller. The listing agent does not guarantee anything but indicates that the seller is open to an offer. The buyer then sends an offer asking for compensation to their agent, and the seller can accept, decline or negotiate terms in writing.
- In one case, the buyer’s agent talks to the listing agent during a showing, and the listing agent suggests that the seller might be willing to pay up to 2 percent of the buyer’s agent’s compensation. However, if multiple offers are received, the terms may change, and the seller may choose to make a different offer that does not include any compensation request.
It is important for buyer’s agents to understand that, like the seller’s consent offer, any verbal or informal discussions about buyer’s agent compensation paid by the seller are not binding until the terms are formalized in a written contract. Including a disclaimer in the purchase agreement ensures transparency and disclosure for all parties, protects agents and allows the seller to consider all offers on the table fairly.
Of course, there is always the risk of non-compliance or illegal behavior, such as a listing agent misrepresenting the terms of compensation in favor of their buyer in a dual agency situation.
This concern is not readily apparent to many ethical Realtors facing new practice changes. I have seen similar incidents 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 the transaction and earn more commission.
In fact, some time ago, I co-wrote an article on this subject, which was published by DRE. The article encourages presenting all offers to the seller in writing and for the seller to accept or decline in writing. This management approach not only maintains honest duties but also helps prevent, or even close, false complaints against listing agents regarding undisclosed contributions.
Moving forward in this new climate, buyer’s agents must rely on written agreements to ensure compensation.
Although change may feel uncertain, Realtors will continue to adapt, and the process of negotiating and confirming commissions, and including Buyer’s agent compensation paid by seller on purchase offers where applicable, will be adjusted over time.
In my opinion, including compensation terms in the purchase agreement is not only consistent with the NAR agreement and supported by consumer groups and the DOJ, but is also an effective way to ensure transparency and protect both agents and customers.
As Realtors gain more knowledge of these changes and other jobs effectively embrace this new variable commission, uncertainty will decrease, and the industry will settle into the new normal.
To conclude with a warning – as a compliance consultant, it is only appropriate – real estate agents should consider their country’s laws and regulations, as well as seek guidance from their brokers, before fully accepting this new idea.
This is important to ensure that the changes are made correctly and in a way that is considered in their operation. All of these factors are important in shaping how agents move forward, and their success will, in large part, depend on them.
Accordingly, 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, revised forms and disclosures, and revising or establishing office policies.
These policies should not only address the new regulations and outline the broker’s expectations for compliance but also comply with national laws and regulations.
To bring us full circle, agents must be well informed and educated about the new changes. They must be equipped to clearly explain these changes to clients, effectively communicate and negotiate terms that include any buyer claims for broker-dealer compensation and other agents, and confidently prepare the necessary documents for transactions involving such claims or terms agreed upon in relation to the brokerage. compensation.
With effective transaction policies, proper guidance and thorough training, both listing agents and buyers can thrive, and the concerns expressed in this week’s question will gradually diminish.
Editor’s note: Licensed real estate agents should always check with their responsible vendors for direction, guidance and policy regarding new operational changes, and licensed real estate agents would be wise to consult with a licensed attorney for clarification and legal 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 Housing and should not be considered or relied upon as legal advice. You should consult your brokerage, and/or the appropriate legal representative in your area, for further clarification.
Summer Goralik is a real estate compliance consultant and former CA DRE investigator in Huntington Beach, California. Connect with him on LinkedIn.
