A version of this article was originally published on May 1, 2024 with the title “NAR clarifies when buy-side contract required at settlement.” Inman has republished it to assist agents if commission rules change.
The National Association of Realtors’ proposed nationwide settlement of antitrust commission cases would require brokers and agents to sign contracts with buyers they “work with” before they “visit any home.”
But what does this mean?
NAR Chief Legal Officer Katie Johnson responded to this and other questions in May, providing some clarification on the contract rules. Johnson recommended NAR’s facts.realtor website and updated FAQ page to members in the email.
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“Collaborate” with buyers
Under the proposed settlement, merely marketing your services to a buyer or merely speaking to a buyer on behalf of a seller (for example, at an open house or showing a client’s listing to an unrepresented buyer) does not mean you are “working with the buyer” ”, according to NAR’s FAQ.
Therefore, under the NAR rule changes, buyers who attend open houses or schedule viewings through listing agents do not need to sign any documents. These changes do not require the listing broker and buyer to sign any agreement together, as long as the listing broker remains solely a representative of the seller.
However, providing actual brokerage services to a buyer, that is, identifying potential homes, arranging showings with listing agents, negotiating for the buyer, presenting the buyer’s offer, or providing other services to the buyer, is “cooperating” with the buyer , that is, the trading group said.
“If an MLS participant works solely as an agent or subagent for the seller, then the participant is not ‘working with the buyer,'” the FAQ states.
“In this case, no agreement is required because the participants work for the seller, not the buyer.”
Or, in the case where the agent is an authorized dual agent and/or in the case of a designated agent, the agent represents both the buyer and the seller, but has a different agent working with both parties, and he or she also works with the buyer as Seller, therefore a contract needs to be signed prior to home tour.
When asked when dual agency is established, a NAR spokesperson told Inman, “Agency is a matter of state law, including how dual agency is defined, what disclosures are required, and whether it is a legal choice for consumers.
“Typically, dual agency requires a brokerage firm seeking to provide brokerage services to both a seller and a buyer in the same transaction to obtain the seller’s and buyer’s consent and enter into a written agreement. When a listing broker answers a buyer’s question or provides an unrepresented When a buyer shows a home, a dual agent is not typically created.
According to the NAR, a written buyer’s agreement is required when an MLS participant performs “ministerial acts,” but is not required if the participant does not expect to be compensated for those actions and does not show the buyer the home.
“As with dual agency, ministerial conduct is generally defined by state law,” a NAR spokesman said.
“Typically, ministerial actions are actions performed by a brokerage firm that are purely the provision of information or paperwork and do not involve the provision of brokerage services or active representation.”
“Tour” a home
First, according to the FAQ, a home is a residential property with one to four dwelling units.
“A home tour is when a buyer and/or MLS participant or other agent enters the home under the direction of the MLS participant working with the buyer,” the FAQ reads.
“This includes the MLS participant or other agent entering the home with the buyer at the direction of the MLS participant to provide a live virtual tour for the buyer who is not present.”
A written agreement does not necessarily mean a written mechanism protocol
On August 6, NAR updated its FAQs to state that MLS participants working with buyers can enter into a written agreement with the buyer “at any time,” but must do so before the buyer “tours the home.” Requires a written buyer agreement in advance.
Although many interpret the requirements of the buyer’s agreement as mandatory mechanism According to NAR, this is not the case.
“MLS participants and buyers will still be able to enter into any type of professional relationship permitted by state law,” the FAQ states.
“NAR policy does not provide for:
- The type of relationship the Professional has with the potential buyer (e.g., agency, non-agency, subagency, transactional, client).
- The length of the agreement (e.g., one day, one month, one house, one zip code).
- Services provided (e.g. ministerial conduct, presentation of a certain number, negotiation, making an offer).
- Compensation charged (e.g., $0, X flat fee, X percentage, X hourly rate).
However, the compensation fee charged must be clearly stated in the agreement.
Under the proposed settlement, if the agent or broker will receive compensation from any source, the written agreement with the buyer must specify the amount or rate of compensation to be received or how the amount will be determined, but the amount must be “objectively ascertainable.” And it cannot be “open”. For example, the settlement says the contract cannot provide that “the buyer’s agent’s compensation shall be any amount provided by the seller to the buyer.”
Additionally, the transaction provides that the agent or broker may not receive compensation for brokerage services in excess of the amount or rate agreed upon in the agreement with the buyer.
But this does not mean that the brokerage firm can only enter into an agreement with the buyer, and again the FAQ mentions that there are no contractual components specified in the NAR policy.
The FAQ adds: “Salary remains negotiable and should always be negotiated between the MLS participant and the buyer they are working with.”
Effective agreements should be modified before MLS policy changes
Although the policy changes in the proposed settlement were enacted over the weekend, if an agent or broker will be working with a buyer after the policy takes effect, he or she “should take steps to ensure that the buyer agrees to the terms required by the necessary settlement agreement” ,” the FAQ says. This includes clauses where compensation is currently not “objectively determinable” or “unlimited”, or which allows the buyer’s agent to withhold any compensation offer in excess of the amount agreed with the buyer.
According to the FAQ, MLS participants are required to disclose that compensation is not required by law and is entirely negotiable, but they can disclose this individually and therefore do not have to amend the valid agreement to add that disclosure.
For active listing agreements, if the agreement tells the listing broker to provide compensation to the buyer’s agent without reference to the MLS, the agreement does not need to be changed.
“However, if the listing agreement provides for a compensation offer to be made ‘on the MLS,’ then the listing broker should work with the seller to amend the listing agreement prior to the MLS policy change being implemented to make it clear that the listing broker will not make a compensation offer on the MLS. , and will not breach the listing agreement by failing to make a compensating offer on the MLS,” the FAQ reads.
Michael Ketchmark of Ketchmark & McCreight, lead plaintiffs’ attorney for Sitzer|Burnett, declined to comment on NAR’s interpretation of the agreement.
“By law, once a settlement is ultimately approved, anyone covered by the agreement must comply,” Kechmark said. “As class counsel, if we believe someone is not complying with the agreement, we can take appropriate action.”
Send an email to Andrea V. Brambila.
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