Moving Forward: The NAR Settlement, Updated Forms and the Future

On Aug. 17, 2024, new and extensive changes were introduced into the real estate industry. These changes arose from the settlement entered into in connection with the Sitzer | Burnett class action lawsuit [see https://bit.ly/3z9ioBj] filed against the National Association of Realtors and other defendants alleging that NAR had implemented anticompetitive rules and practices that require home sellers to pay commissions to the home buyer’s broker.

The NAR Settlement

On March 15, 2024, NAR proposed a settlement that would end the Sitzer | Burnett action. The settlement would apply to all other similar claims and put an end to the pending, as well as any future, litigation. As part of the settlement, NAR agreed to pay $418 million over four years and would not be required to admit any wrongdoing. NAR has “maintained—and [NAR] continue[s] to believe—that cooperative compensation and NAR’s current policies are good things that benefit buyers and sellers. They promote access to property ownership, particularly for lower- and middle-income buyers who can have a difficult-enough time saving for a down payment.” [See NAR Settlement FAQs (“NAR FAQs”) at https://bit.ly/3XLgnop]. A preliminary hearing to approve the final settlement is scheduled for Nov. 26, 2024.

The Effects of Two Major Changes Under the Settlement

Two major practice and rule changes under the settlement went into effect on Aug. 17, 2024. As detailed in the NAR FAQs, two of the key requirements under the settlement include: (1) the prohibition of offers of cooperating compensation being made on the Multiple Listing Service; and (2) the requirement that brokers enter into written agreements with buyers outlining the scope of services being offered and the specific compensation required to be paid. These new requirements have necessitated global changes in the forms that real estate brokers and agents currently utilize, as well as the implementation of new forms to address the various options relating to the payment of compensation to cooperating brokers.

No Offers of Cooperating Compensation
On the MLS or Facilitated Through the MLS

The first change requires that no offers of compensation are to be made on the MLS or facilitated by the MLS (e.g., use of ShowingTime or other similar services). Brokers and agents are now strictly prohibited from referencing any form of cooperating compensation regardless of the type of transaction (e.g., residential, commercial, vacant land, rentals, or any other type of real estate transaction). Additionally, no reference to any form of cooperating compensation may be made or included in the agent or public remarks field. This does not preclude an agent or broker from including a general link (in the public or agent remarks field) to the broker’s or agent’s general website (where a broker may advertise cooperating compensation).

May An Offer of Compensation Still Be Made?

While offers of cooperating compensation cannot be made on or through the MLS, or other services, they may still be made directly to and through the individual parties (i.e., broker, cooperating broker, seller, and buyer) to a transaction. Offers of compensation may be marketed specifically on a broker’s website, signs, flyers, billboards, social media sites, ads, and by phone and/or text. Clearly, this is a new way of doing business, and while it will take some time to get used to, the parties should be able to acclimate to the changes.

Seller Concessions Permitted, But NOT a Workaround
To Offering Cooperating Compensation!

Sellers, if they wish, may offer seller concessions to purchasers on the MLS to cover their closing costs. OneKey MLS, LLC has included a new field that allows a seller’s broker or agent to indicate whether a seller is offering a seller concession. If a seller elects to offer a seller concession, the broker or agent may include a specific amount agreed to by the seller, or the field may be left blank.

While under the settlement there is no specific requirement relating to NAR implementing any rules with regard to seller concessions, the settlement does require that “an MLS must ensure that the seller concessions are not limited to or conditioned upon the retention of or payment to a cooperating broker, buyer broker, or other buyer representative.” NAR indicates that it will be left up to local MLSs to determine whether they will include seller concessions.

It is important to note that seller concessions are negotiable and will only become binding if it is specifically included in a contract of sale. Therefore, the agents representing both sellers and buyers, must ensure that any terms, or amount, of a seller’s concession be included in the Memorandum of Sale provided to the parties’ attorneys, so they may be included in the contract of sale. HGAR has prepared a form of Memorandum of Sale that brokers and agents may utilize. Again, it is important to stress that brokers and agents should not attempt to use the seller concession field as a “workaround” or a way to make an offer of cooperating compensation.

New and Updated HGAR and NYSAR Forms

As mentioned, the settlement has necessitated expansive changes to current forms being utilized by agents and brokers, as well as the introduction of new forms. Both the Hudson Gateway Association of Realtors, Inc. and the New York State Association of Realtors have made these new forms available to their members. Below are some of the key forms that have been made available by either HGAR, NYSAR, or both (as noted below):

• Addendum to Exclusive Right to Rent Agreement (HGAR only)
• Addendum to Exclusive Right to Sell Agreement (HGAR only)
• Cooperating Compensation Agreement – Rentals (between Broker and Landlord) (HGAR only)
• Cooperating Compensation Agreement – Sale (between Seller and Listing Broker) (both HGAR and NYSAR)
• Cooperating Broker Compensation Agreement with Listing Broker (between Listing Broker and Cooperating Broker) (NYSAR only)
• Exclusive Buyer Agency (Compensation) Agreement (both HGAR and NYSAR)
• Non-Exclusive Buyer Agency (Compensation) Agreement (both HGAR and NYSAR)
• Exclusive Right to Sell Agreement (both HGAR and NYSAR)
• Exclusive Right to Rent Agreement (both HGAR and NYSAR)
• Memorandum of Sale (HGAR only)

It is important for brokers and agents to note that where a similar form has been made available by both HGAR and NYSAR, those forms do contain varying provisions. Every broker must carefully review each form, and ultimately determine which they would like to utilize.

Additionally, these are standard forms that have been prepared for the general use and benefit of the members of NYSAR and HGAR. However, like all forms, they may need to be revised and/or modified specifically for each real estate transaction. It is strongly recommended that if any of the parties wish to modify any of the forms, that they seek the advice of independent legal counsel before doing so. Brokers and agents should also always recommend that their seller and buyer clients review any and all agreements with their attorneys.

Clear and Conspicuous Language:
‘Compensation is Fully Negotiable and Not Set by Law’

One major requirement of the settlement involves the addition of specific language, in all agreements between sellers and buyers, and their respective brokers and/or cooperating brokers, that “clearly and conspicuously” states that compensation is not set by law (or by any entity) and that it is fully negotiable. All of the forms prepared by HGAR and NYSAR now include the required language. The compensation agreements must also indicate that the buyer’s and seller’s brokers are not permitted to receive any amounts in excess of the compensation agreed to in the agreements.

Written Buyer Compensation Agreements

Another critical change arising from the settlement is the requirement that all brokers must now enter into written agreements with any buyers they are “working with.” If an agent or broker is “working with” a buyer, then prior to “touring” a property with a buyer, a written agreement must be entered into with that buyer. It must also contain an “objectively ascertainable” amount of compensation (i.e., not “open-ended,” no ranges, etc.).

Compensation can be a fixed fee, a percentage of the purchase price, based on an hourly rate, retainer, it can be for a set fee in connection with a one-time showing or non-exclusive agency agreement, it can be based upon a geographic range, or it can be for a set time period. It can also be limited solely to those properties that offer cooperating compensation, provided this is clearly explained to the buyer prior to showing any properties or entering into any agreement.

Non-Exclusive and Exclusive Buyer Agency (Compensation) Agreements; One-Time Showing Agreements

There are customarily two types of agreements buyers and their agents, enter into: (1) an exclusive agency agreement, or (2) a non-exclusive agency agreement. HGAR and NYSAR have revised and made these forms available. One-time showing agreements have been also recently introduced. Basically, a one-time showing agreement is a type of non-exclusive agreement. HGAR and NYSAR have not provided one-time showing agreement forms.

While one-time showing agreements may be fine (and may comply with the settlement requirements)—if what is being sought is a non-exclusive arrangement, entering into a more comprehensive non-exclusive agency agreement, such as the forms offered by HGAR and NYSAR, is recommended. This would avoid the need for the buyer’s agent to enter into multiple one-time showing agreements, and would also allow for the inclusion of expanded rights, duties, obligations and remedies of the parties in one comprehensive agreement.

How Does a Buyer Request a Seller to Pay the Commission?

A buyer must also be made aware of the various options available when requesting that a seller pay the buyer’s broker’s commission. A buyer can choose one or more of the following options: (1) have the seller pay buyer’s broker the commission directly at closing; (2) have the seller provide the buyer with a credit to pay the commission; or (3) negotiate a seller concession. It is important for brokers to understand the various options and to transmit them to the listing broker along with the buyer’s offer.

Additionally, it is critical that brokers inform buyers that in the event the seller is not willing to cover all, or any portion, of the buyer’s broker’s commission, the buyer will remain responsible for the payment of the full commission, or any portion not covered by the seller. Again, the broker may not make more than what was originally agreed to, and if any additional compensation is offered, it would need to be used to benefit the buyer.

New Provisions Added Regarding Dual Agency

Both the Exclusive Right to Sell Agreement forms and the Buyer Agency forms include new provisions relating to the payment of commissions in connection with dual agency. It is important for the agents and brokers to familiarize themselves with these provisions so they can review and discuss the different options available to sellers and buyers with regard to compensation when there is a dual agency relationship.

New Forms Relating to Cooperating Compensation

New forms have also been made available for use by and between the buyer, seller, listing broker and/or cooperating broker, regarding cooperating compensation. HGAR has prepared two forms of Cooperating Compensation Agreement, one for a sale transaction and one for a rental transaction. These forms are for use between a seller, buyer, listing broker, and cooperating broker once the parties have agreed to the cooperating compensation arrangement. NYSAR has also prepared a form of Cooperating Compensation Agreement, however, this form is for use only between a seller and a cooperating broker.

Additionally, NYSAR has prepared a form of Cooperating Compensation Agreement to be utilized where a seller authorizes the listing broker to pay the cooperating broker its compensation directly from the commission due from the seller. This agreement is entered into between the listing broker and cooperating broker. At this time, HGAR has not prepared a separate form regarding this specific scenario and members may utilize the NYSAR form.

Additional Protections Included in New and Revised Forms

Existing dispute resolution provisions were also modified and expanded, and included in many of the forms. In the event the parties are unable to amicably resolve a dispute through mediation, the parties would be required to submit to mandatory binding arbitration (in lieu of commencing a lawsuit in court) in accordance with NAR procedures.

The forms also include important waiver provisions, namely: (1) waiver of trial (and jury trial), and (2) waiver of class action lawsuits. These waiver provisions avoid and protect against costly lawsuits and class action litigation. Because these provisions ask that the parties to waive important rights, they have been made “clear and conspicuous.” The parties must also initial these provisions and acknowledge that have they been provided with an opportunity to consult with their own legal counsel.

Legal Column author John Dolgetta, Esq. is the principal of the law firm of Dolgetta Law, PLLC. For information about Dolgetta Law, PLLC and John Dolgetta, Esq., please visit http://www.dolgettalaw.com. The foregoing article is for informational purposes only and does not confer an attorney-client relationship and shall not be considered legal advice. The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the views or positions of HGAR, its affiliates, or any other entity.