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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
The direction of NAR seems to be different than that of the state level associations, such as CAR’s requirements for the settlement agreement and the requirements of the Department of Justice (DOJ) seem to be completely confusing, could NAR and/or CAR leadership not be directly involved and let the DOJ finalize this issue instead Make an entire industry question every move? Is it possible to share/promote sellers who want to offer offers? The information here is so complex…
Answers from Compliance Experts
This question resonates deeply because I’ve been grappling with the same problem. As August 17th (the effective date of the practice changes) approaches, we should have a clear path forward. That said, our ducks should be in a row now. Unfortunately, the closer we get, the greater the uncertainty seems to be.
The initial shock of the new practice changes has been conceptually resolved, but actual implementation is still pending. The challenge is meeting the needs of multiple audiences: Practitioners must comply with the NAR’s proposed settlement, satisfy the DOJ’s requirements, and appease consumers.
In addition, we must consider private attorneys who may bring actions against the licensee on behalf of the public.
To address the disconnect in guidance between NARs, state associations, and the Department of Justice—which highlights the challenges practitioners are grappling with—let’s review what’s available. This response will focus on cooperative compensation and concessions, as information in these areas has become unclear.
Cooperation compensation
First, NAR’s FAQ on Nationwide Class Action Settlement states that real estate agents can still collaborate with other agents for compensation, but the Multiple Listing Service (MLS) will no longer advertise or facilitate such offers.
This marks a significant shift from the traditional method of processing compensation offers through the MLS. However, NAR clarified that cooperative compensation arrangements are still allowed under the settlement agreement, but must be conducted outside of the MLS.
The confusion arises because of inconsistencies between some associations and the forms they create for their members to help implement these changes. Initially, the listing and buyer representation agreement appeared to exclude only provisions related to MLS and partnership compensation.
But some associations, such as the California Association of Realtors, have now completely eliminated any broker-to-broker indemnification provisions from such agreements. It’s important to note that it’s not just associations making these changes; Some brokerage firms are creating their own forms for agents to use and are choosing not to implement cooperative compensation.
This raises a basic question and highlights a glaring inconsistency: If cooperative compensation is still allowed, why do some states abandon it entirely? Why do some industry members claim collaborative compensation may continue, while others warn of the risks of maintaining past practices?
The answer may point to the Justice Department’s comments on cooperative compensation and its efforts to decouple it from commissions, as well as the issues at the heart of some class-action lawsuits across the country. This creates an undeniable conflict or disconnect that thoughtful practitioners are recognizing and trying to resolve.
What should you do?
Overall, proceed with caution. As a real estate compliance consultant, I always recommend a conservative approach. In this case, do your research thoroughly and take incremental steps.
It is critical for real estate professionals to monitor developments in their local jurisdictions. One moment, you think you know what’s going to happen with the proposed table and MLS portal changes, and the next moment, a sudden shift in momentum leads to further changes. The real estate industry and the home buying and selling public will be watching closely to see how this all unfolds.
If you are a broker, consult with legal counsel or an expert who is familiar with NAR settlement agreements, state laws in your practice area, and the Department of Justice’s statements of interest in various court cases. Review any forms you plan to use, and perhaps cross-check them with the Consumer Federation of America’s guidance on home sales contracts. Make sure you understand the tables thoroughly and resolve any inconsistencies. Don’t hesitate to ask your local board, their leadership, and legal counsel to find out. Once you have a firm grasp on how to do it, train your agents accordingly.
If you are an agent, discuss with your broker and their trusted advisors the forms you should use, which should be fully vetted. Seek extensive training from your responsible broker, local association or other organization.
Read proposed listing and representation agreements (as well as any new compensation disclosures, which seem to be on the rise) and ask questions until you fully understand them and can confidently explain them to clients.
discount
The NAR Settlement Agreement does not prohibit the promotion of seller offers on the MLS, provided that those offers are not limited to the retention or payment of a cooperating broker, buyer’s agent, or other buyer’s representative, and are not contingent upon the cooperating broker, buyer’s agent, or other buyer’s representative. reservation or payment. This also means that discretion and policies regarding offer advertising will be governed by the individual MLS.
Therefore, some MLSs may choose to include a franchise field in their listing portals, while other MLSs may not.
For example, the California Regional MLS initially decided to add a seller offer field to its platform, allowing listing brokers to specify how much sellers are willing to offer. But later it modified this option. The offer field now contains a simple yes/no question asking the seller if they would like to consider the offer.
What should you do?
Investigate how your local MLS (or any MLS you will use) handles offers, and be sure to read and understand the rules regarding these fields. Remember, even if these fields exist, you don’t have to use them.
If you are an agent, don’t forget the recommendations and policies of the broker you are responsible for. They may agree with a directive that agents should not enter any franchise information into the MLS and allow discussions about such details to occur naturally as the offer process proceeds and the parties negotiate terms.
Additionally, as an agent representing a seller, you must follow the seller’s instructions and always put their interests first. Ultimately, you will discuss these options with your client and proceed according to their wishes.
stay alert
Even if you don’t have all your ducks in a row, the last thing you want is to be a sitting duck. Get actively involved in your business, especially during this critical time of change. Stay proactive and informed. Do not accept a form without understanding the form and its compliance with the NAR Settlement Agreement.
Don’t just use the franchise fields on the MLS because they are available. Point out and address any disconnects now, as inconsistencies between requirements and practices can lead to liability. Customers will be better served by those who proactively consider potential problems and mitigate them through preparation and risk management.
Over time, we are likely to see the impact of these practice changes through further modifications to industry formats (and therefore staying current), new litigation, DOJ comments and enforcement actions, and possibly new state laws. Agents and brokers will need to deal with these changes after August. 17 Possess a solid foundation of knowledge, education, training, alertness, and reliance on reliable resources.
It is also important to pay attention to the war stories of colleagues in the field. I always stress the importance of learning from other people’s mistakes as it can sometimes provide invaluable and free legal advice.
Editor’s Note: The opinions, suggestions, or recommendations contained in this discussion are based on Summer Goralik’s experience and knowledge of the laws enforced by the California Department of Real Estate and should not be construed 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.
