By: Trey Van Dyke, Esq.
August 19, 2024
On August 17, the practice changes outlined in the NAR Settlement Agreement will go into effect for covered people and entities. What does this mean? Who is covered? How does this affect me? All three questions are answered below (with the caveat that the answer to the last question depends on who is reading this article).
What does this mean?
Assuming readers are at least aware of the class-action anti-trust commission lawsuits that NAR and several brokerages have been defending: a broadly inclusive settlement was reached by NAR and the several national brokerages in April. In this settlement agreement, NAR paid quite a bit of money to the class-action plaintiffs and agreed to incorporate specific practice changes into the procedures of affiliated local associations, multiple listing services (MLSs), and individual Realtors®. NAR and affiliates were given until August 17, 2024, to implement these practice changes.
In July, the California Association of Realtors® (C.A.R.) issued several form changes and entirely new forms in an effort to put the practice changes that NAR agreed to into the daily practice of California Realtors®. Since the new forms have been issued, responsible brokers across the State have been working fervently to make sure that their agents use, read, and most importantly: understand how to use these new forms and stay within the bounds of the new rules. Although it has always been a best practice to use only the C.A.R. forms in every transaction, recently many national brokerages have foregone previously time-tested forms such as the Residential Listing Agreement (RLA) for their own attorney-drafted listing agreements. Regardless of which forms are used, brokers and agents need to comprehensively understand what is required of them now under these new rules.
Who is covered?
NAR members, NAR-affiliated local associations, NAR-affiliated MLSs, and unaffiliated local associations and MLSs if they complied with the settlement agreement’s opt-in procedures.
How does this affect me?
Please keep in mind that the following is a summary for ease of reference and readers are encouraged to read the entire agreement for themselves at:
If you lead any of the following organizations or their subsidiaries: NAR, MLSs, Associations.
Your organization must eliminate and prohibit rules that sellers must make offers of compensation to buyer brokers, and eliminate and prohibit rules such offers, if made, must be blanket, unconditional or unilateral.
Your organization must eliminate and prohibit any requirements conditioning MLS participation on offering or accepting offers of compensation to buyer brokers.
Your organization must not create, facilitate, or support any non-MLS mechanism for listing brokers or sellers to make offers of compensation to buyer brokers, unless the MLS is providing data that is unknowingly being used directly or indirectly to facilitate such a non-MLS mechanism, or the MLS data is being displayed by a subscriber along with offers of compensation to buyer brokers but only on listings from their own brokerage.
Your organization must make rules for MLS subscribers/participants and/or agents that create the following obligations for them, rescind any rules that conflict with these changes, provide educational materials consistent with these rules, and eliminate inconsistent materials.
If you are a Realtor®/Participant/Subscriber:
Listing agents and sellers may not (a) make offers of compensation on the MLS to buyer brokers, or (b) disclose on the MLS listing broker compensation or total broker compensation.
Listing agents must disclose to sellers and obtain approval for any payment or offer of compensation to another broker or buyer broker, and the disclosure must be in writing, provided before payment or agreement to pay, and must specify the amount or rate of any such payment.
Buyer agents must enter into a written agreement before the buyer tours any home, and the agreement must: (1) state a specific amount or rate of compensation; (2) the amount may not be open-ended; (3) the agent may not receive an amount over what the buyer and agent agreed to.
Agents may not tell a client their services are free, unless they do not receive compensation from any source for their services.
All agents must disclose to buyers and sellers that commissions are not set by law and are fully negotiable, in the following documents unless government specified (C.A.R. is a trade association, not a government entity): (1) in the listing agreement; (2) in the buyer representation agreement; (3) and in pre-closing disclosure documents.
Nothing in these rules prohibits agents from: making offers of compensation off of the MLS, or sellers offering buyer concessions on a NAR-affiliated MLS, as long as the “concession” is not limited or conditioned on payment to a cooperating broker.
Conclusion
The authority for changes is based on the brokers’ and agents’ affiliation with NAR, and their inclusion in the protections offered by this settlement agreement on their behalf. While NAR, C.A.R., MLSs, and local associations have been working very hard to prepare the industry for these sudden changes, it is ultimately up to Realtors®, both brokers and agents, to make sure that they understand and follow these new rules.
It has recently come to our attention that brokers are having issues with closing transactions that straddle the onset of these new rules. It has been reported to us that the C.A.R. legal hotline has recommended to some brokers that they retain a real estate attorney to draft an agreement or escrow instructions that help “bridge the gap” to satisfy the new requirements when the transaction started on old forms. If you’re in such a situation, we also recommend reaching out to a real estate attorney to assist in closing while meeting the new requirements.
The information presented in this article is not to be taken as legal advice. Every situation is different. If you are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.
