As you are probably aware, on Friday, March 15, NAR entered a nationwide settlement agreement that would resolve the broker commission lawsuits brought by home sellers against it. NAR agreed to implement several new rules and expects to do so by mid-July 2024. Keep in mind, the judge who presided over the Sitzer/Burnett trial must still approve the NAR settlement.
To clarify, NAR’s settlement does not replace KW's settlement, announced February 1, which also still requires court approval. It is crucial to understand that NAR’s settlement does not cover our franchisees or KW agents who are not members of NAR. Therefore, we remain vigilant in pursuing final approval of KW's settlement to ensure all of you and your businesses are protected.
Rule Changes
In the settlement, NAR agreed to make changes to its rules that will affect MLSs owned by REALTOR® associations (and any non-REALTOR® MLSs that opt into the settlement), agents who list or show houses on MLSs, and agents who are members of NAR. These changes will likely take effect mid-July 2024, and they are summarized below.
Buyer Representation Agreements Required. Agents working with buyers must sign a written buyer representation agreement with the buyer before the agent can show a home listed on an MLS.
Unless inconsistent with federal or state law, the buyer representation agreement must include at least these things:
1)Agents must disclose the amount or rate of compensation they will receive or how this amount will be determined.
2) The amount of compensation must be set in the agreement, such as a percentage or dollar amount, and cannot be open-ended. For example, the agreement cannot say, “buyer broker compensation shall be whatever amount the seller is offering to the buyer.”
3)Agents cannot receive compensation for brokerage services from any source more than the amount or rate agreed to in the buyer representation agreement. For example, an agent could not accept an offer of cooperative compensation for more than the amount or rate agreed to in the buyer representation agreement.
Offers of Cooperative Compensation Cannot Be Made On the MLS.
1)Agents cannot make offers of cooperative compensation on the MLS. MLSs must eliminate all broker compensation fields on the MLS and prohibit the sharing of offers of cooperative compensation in any other MLS field. NAR (and any MLSs released under the settlement) also cannot create or support any non-MLS mechanism (such as an internet aggregator’s website) for sellers or listing agents to make offers of cooperative compensation to buyer agents.
2) Sellers can offer concessions to the buyer in a public comment field in an MLS listing if the concessions are not conditioned on paying the buyer agent’s commission. However, as part of the negotiation of the purchase contract, sellers and buyers can agree to apply the concessions to the buyer agent’s commission. As a practical matter, even though it cannot be called cooperative compensation, the amount of a seller's concession can match the amount the seller would offer as cooperative compensation as part of the contract negotiations.
Offers of Cooperative Compensation May Be Made Off the MLS.
1)Nothing in NAR’s settlement prohibits sellers or listing agents from making offers of cooperative compensation to buyer agents off the MLS (e.g., by email, newsletter, calls, texts, etc. Be aware that all communications must always be TCPA compliant.) Before listing agents can offer compensation to buyer agents, they must disclose and obtain seller approval for any offer in conspicuous language that stands out and is clearly visible.
2)An MLS cannot require agents to make or accept offers of cooperative compensation as a condition to joining or participating in the MLS. MLSs also cannot require that offers of cooperative compensation, if made, be blanket, unconditional, or unilateral.
Brokers Can Publish Offers of Cooperative Compensation for Their Own Listings on Their Own Websites. Although MLSs are prohibited from publishing cooperative compensation offers, the settlement allows brokers and their agents to publish seller-approved cooperative compensation offers for their own listings (but not other brokers’ listings) on their own websites.
Agents Must Make Commission Disclosures. Agents must disclose in listing agreements, buyer representation agreements, and pre-closing disclosures that broker commissions are not set by law and are fully negotiable. NAR must require REALTOR® Boards and MLSs to include these disclosures in any form agreements they publish.
Scope of Release of Liability
The release in NAR’s settlement covers NAR, state and local REALTOR® associations, MLSs owned by REALTOR® associations, most agents who are members of NAR, and certain brokerages that had residential transaction volume of $2 billion or less in 2022. To be covered under NAR’s release, an agent must be a member of NAR when official notice of the settlement is sent to home sellers. This notice is expected to be sent in July 2024 or later.
NAR’s release does not cover any agents affiliated with HomeServices of America and its related companies. NAR’s release also does not cover agents who are employees of other corporate defendants named in the broker commission lawsuits.
The settlement creates a framework for future settlements with certain entities not released under the agreement. For brokerages with a 2022 transaction volume greater than $2 billion, plaintiffs will accept payment of .0025 of their average annual transaction volume over the previous four years. This amount would be $5 million if the average transaction volume were $2 billion.
For non-REALTOR® MLSs, the settlement payment would be $100 per subscriber. In both cases, if the broker or non-REALTOR® MLS has a good faith belief that it lacks the ability to pay the specified amount, plaintiffs agree to mediate to attempt to reach a settlement at a lower amount. We expect these entities to become immediate targets of new lawsuits unless they can reach settlements.
Over the next 30 days, we will be working to document best practices and updates to our models and systems to help each of you thrive in this evolving real estate environment.
As a next step, we recommend you register for the Value² free training. Value² is a top-to-bottom course that covers how you can build trust by helping your clients understand the value you bring to the table – including what you charge for, how you get paid, and what cooperative compensation is all about.
Onward.
Gary Keller Executive Chairman of the Board
Mark Willis CEO and President
Stacie Herron Chief Legal and Administrative Officer
Jason Abrams Head of Industry and Learning
John Clidy Vice President of Growth
Wendi Harrelson President of KWRI-Owned Regions
Keller Williams Realty, Inc. 1221 S. Mopac Expy., Suite 400 Austin, Texas 78746