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There is much confusion surrounding the details of the National Association of Realtors (NAR) Commission lawsuit settlement and the resulting changes in business practices. Compliance expert Summer Goralik is here to help address some of the immediate issues so we can move forward together as an industry.
This week’s question
Are we allowed or not allowed to let the customer know upfront if no concession is offered (this being California, the messaging is very unclear, is this a good practice or guidance to consider)?
Answers from Compliance Experts
The question highlights the unease some licensed professionals feel as they try to make sense of the new rules of practice. As a real estate compliance consultant and former investigator for the California Department of Real Estate, I realize the importance of clarifying this issue, especially during a time of significant change in the industry.
Of course, concerns are just a reaction to recent shifts in industry practices that are different from the traditional real estate environment that agents and brokers have long known. Additionally, some state associations have introduced new versions of representation agreements, and certain Multiple Listing Service (MLS) portals have been modified to reflect these changes—only to be accidentally modified again, as seen in California. This changing landscape creates a challenging environment for licensed real estate professionals.
To add insult to injury, multiple entities are overseeing the adoption of these new rules, including the MLS (which, according to the NAR, will enforce the Buyer Representation Agreement), certain state governments (depending on their jurisdiction and regulations), consumers, whistleblowers, Private attorneys and even the Department of Justice (DOJ).
Regarding the issue of disclosing offers, it is necessary to re-examine the basic principles of real estate transactions. Seller concessions are a common aspect of real estate contracts that can be negotiated at the beginning of the offer process, or often after the buyer has inspected more information about the condition of the property.
Fortunately, the new regulations that come into effect on August 17 do not fundamentally change this aspect of the buying process. Buyers can still ask for concessions and these terms will be negotiated and agreed to by the parties involved. In turn, the real estate agent will remain responsible for representing the client’s interests as the parties negotiate concessions.
As for concerns about the “S” word, or turnA Frequently Asked Questions (FAQ) posted by the NAR on its website specifically assures licensed members that the new practice rules will actually help reduce the risk of this type of illegal activity.
That is, the written buyer agreement will outline broker compensation terms up front; MLS participants may not receive compensation from any source for brokerage services in excess of the amount or rate agreed upon in the agreement with the buyer; brokers working with the buyer may not receive compensation for brokerage services from any source that exceeds the amount or rate agreed upon in the agreement with the buyer; of more compensation. This makes any number supply Compensation independent of the buyer’s agent’s compensation.
Overall, these practice changes have eliminated any theoretical Diversion; a real estate agent will not receive more compensation by directing a buyer to a specific listing because that listing has a higher compensation offer.
When it comes to advertising offers on the MLS, NAR’s FAQ confirms that there is no specific policy regarding this practice. The local MLS reserves the right to display or omit information about a seller’s offer from the listing unless the offer is contingent upon payment to any cooperating broker, buyer’s agent, or other buyer’s representative. Therefore, depending on the MLS, a property listing may or may not include details about whether the seller is willing to make an offer.
It is worth noting that “will” is the key term here. Any offers shown in the MLS are non-binding. Concessions must be clearly negotiated and agreed upon in a fully executed contract.
Additionally, to alleviate some of the anxiety surrounding this topic, and perhaps to best address the issue, consider the opposite scenario: What if an agent failed to inform their client of known concessions associated with a property listing?
In my opinion, this would constitute a failure to perform one’s statutory duties as a real estate licensee. After all, this issue falls within the scope of disclosure, and licensed real estate professionals should be fully aware of the importance of honest and open communication with their clients.
As a fiduciary, the agent’s duty is to communicate all relevant information to clients, act in their best interests and faithfully carry out their instructions. If I were a home buyer, I would want to know about any potential offers on the property I’m interested in.
Ultimately, if a property listing doesn’t include details about offers and the listing agent doesn’t provide any specific information in that area, buyers are still free to request offers in their offer — which remains standard practice.
In fact, some experts and experienced real estate agents believe the safest time to offer or negotiate concessions, including payment of buyer’s agent compensation, is during the contract signing process. Additionally, it is the agent’s responsibility to guide buyers through the process and ensure they understand their options and make an informed decision when preparing an offer to purchase.
In summary, real estate agents should inform their clients about seller offers if this information is available. Doing so is consistent with their fiduciary duty to act in the best interests of their clients. Given the rapid growth of the real estate business, agent communication, honesty and transparency are critical to maintaining compliance and client trust.
Editor’s Note: Licensed real estate agents should always consult their responsible broker for guidance, direction and policies regarding new practice changes, and licensed real estate agents are advised to consult with a licensed attorney for legal clarification and support.
The opinions, suggestions, or advice contained in this discussion are based on Summer Goralik’s experience working with the California Department of Real Estate and knowledge of the laws enforced by the California Department of Real Estate and should not be construed as legal advice or relied upon as legal advice. You should consult your brokerage firm 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.
