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The NAR Settlement – The Basics That You Need to Know

by | Mar 22, 2024 | Agent Liability, Broker Practice, Commissions

BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

This past week, the National Association of REALTORS® (“NAR”) announced a settlement in the Sitzer/Burnett v. NAR, et al. (“Sitzer”) case. The Settlement Agreement is 91 pages long and is still subject to approval by the Judge in the Sitzer case, which is not anticipated for several months.  We anticipate that the settlement will be finalized and effective by mid-July 2024.

 

SOME KEY POINTS OF THE SETTLEMENT AGREEMENT ARE THE FOLLOWING:

 

  • The “Effective Date” as specified in the Settlement Agreement is mid-July.

 

  • Even though the settlement has not been approved by the judge in that case, the recommendation from the California Association of REALTORS® is that all real estate licensees start acting as although the settlement will go into effect in July (the required changes will take time to implement, so Realtors should start preparing now).

 

  • Brokerage entities owned by NAR members that had a residential transaction sales volume of $2 billion or below are released from liability nationwide.

 

  • NAR and all state and local associations of REALTORS® are released from liability, as are all MLSs that are wholly owned by one or more REALTOR®

 

  • Under the terms of the agreement, NAR will pay $418 million over approximately four years.

 

  • MLS participants acting for buyers will be required to enter into written agreements with their buyers before touring a home.  The buyer representation agreement with the buyer must contain the amount of compensation to be owed to the buyer’s agent on a sale meeting the terms of that agreement. The buyer’s agent cannot receive more total compensation from all sources than the amount specified in the agreement (including amounts paid by the seller).

 

  • NAR shall institute a new MLS rule prohibiting offers of broker compensation through the MLS. Offers of compensation will no longer be displayed in MLS or their public feed.  Compensation to agents will be negotiated between the buyers, sellers and agents.

 

  • The settlement expressly provides that sellers may communicate seller concessions (i.e. seller paying buyer closing costs) through the MLS PROVIDED THAT such concessions are not conditioned on the use of or payment to a buyer broker.

 

  • MLS participant listing brokers will be required to conspicuously disclose to sellers and obtain seller’s written approval prior to any payment or offer of payment that the listing broker or seller will make to another broker acting for buyers.

 

  • MLS participants are prohibited from filtering out or restricting MLS listings communicated to their buyer clients based on the existence or level of compensation offered to the buyer broker.

 

HOW WILL THIS CHANGE BROKER PRACTICE AFTER THIS SETTLEMENT AGREEMENT?

 

  1. BUYER REPRESENTATION AGREEMENTS

 

A. You will need a written Buyer Representation Agreement with your buyer client prior to touring property which specifies the amount of compensation you will receive in the transaction.

B. Buyer’s agent cannot receive payment from all sources which when combined total more than the amount specified in that Agreement. Placing “$0” as compensation in the BRBC means you are working for no compensation.

C.  The form of the buyer representation agreement is not otherwise dictated by the Settlement Agreement. The CAR BRBC and other industry developed forms are acceptable for this purpose.

 

  1. BUYER BROKER COMPENSATION

 

A. MLSs will no longer have offers of compensation to buyer’s agents and no remarks will be allowed in MLS comments regarding sellers’ offers to pay buyer’s agent, nor compensation of buyers closing expenses which are conditioned on the use of, or payment to, buyer’s broker.

B.  Listing agents can make offers by a seller to compensate a buyer’s broker through escrow in all marketing and advertising media, social media, agent and broker websites, etc.

C.  If a buyer’s agent cannot determine whether a buyer’s side broker compensation is being offered by the seller or listing broker, agents should contact the listing broker and ask if either listing broker or seller will be offering buyer broker compensation. It is advisable to confirm that conversation in writing.

 

1)  If the answer is yes and the compensation is being offered by the listing broker, submit a Cooperating Broker Compensation (form CBC) to be signed by listing and seller broker prior to submitting the offer.

 

2) If the answer is yes and the compensation is being offered by the seller, then utilize paragraph 3G(3) and the SPBB form with your offer for the seller to sign with the signed offer or counter-offer.

 

3) If the answer is no, discuss with the listing agent if there is a way to negotiate with seller to assist this buyer to buy seller’s property.

D.  Listing agents must remember that they cannot offer any compensation to buyer’s broker without the prior written approval of the seller.

E.  Buyer agents must remember that they cannot receive total payment from all sources totaling in excess of the amount specified in your buyer representation agreement.

 

 

WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS.  This Weekly Practice Tip is an attorney-client privileged communication for the exclusive use of clients of Broker Risk Management and their agents.  It may not be reproduced or distributed without the express written consent of Broker Risk Management LLP.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.