BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
As most of our clients are aware, a jury verdict was reached last week in a class action against the National Association of Realtors and certain broker defendants in the amount of $1.78 billion. Those damages were trebled under anti-trust laws to $5.4 billion. The general allegations in that case were that the sellers were not aware that they were paying the buyer’s broker’s commission. This class action only involved Missouri sellers for a seven-year period. The decision is currently being appealed. NAR is currently posting a bond.
A new case was recently filed in Missouri Federal Court against NAR, Compass, eXp, Redfin, Weichert, Douglas Elliman, and two other national brokers on behalf of sellers across the United States with a more significant damages claim. That lawsuit further seeks a permanent injunction (court order) preventing the defendants from: (1) requiring sellers to pay the buyers’ broker; (2) continuing to restrict competition among buyer and seller brokers; and (3) engaging in conduct determined to be unlawful, among other relief. Another nationwide class action was filed in Illinois on behalf of buyers. It is anticipated that more copycat cases will be filed.
On November 6, 2023, BRM hosted June Barlow, the General Counsel of CAR, to discuss these issues. As discussed, CAR has been extremely proactive in addressing these issues since the filing of the initial complaint.
BRM has the following recommendations and practice tips moving forward:
- Buyer’s agents should consider using the Buyer Representation and Broker Compensation Agreement (BRBC).
- Agents should participate in a course regarding the use of the BRBC with buyers offered online by CAR. Please note that BRM provided a buyer representation webinar in February 2023, and will provide an updated webinar in early 2024 regarding practical aspects of using buyer broker agreements.
- Listing agents should communicate with their sellers regarding commissions and their options with transparency. Listing agents should document their file regarding this discussion with a seller to confirm the seller is aware of the commissions being paid, how much is being paid to the listing agent and how much is being authorized to pay the buyer’s agent.
- Make sellers aware that buyer’s agents can be paid in three ways: seller’s agent’s offer of compensation through the Multiple Listing Service; a cooperating broker compensation agreement; or a buyer requests the seller to pay the buyer’s agent through the purchase agreement pursuant to the BRBC and, when using the CAR forms, the Seller Payment of Buyer’s Broker form (SPBB).
- Do not engage in any discussions with any real estate licensees other than those in your own brokerage, or make any comments regarding specific compensation or commission amounts, strategies or policies. To do so can constitute an anti-trust violation with severe results.
The following are some questions and answers asked during the BRM webinar:
Q: How do we respond to a seller who has heard about the lawsuit and tells us that they do not want to pay a commission to the buyer’s agent? Do we tell them it does not apply to us yet?
A: Explain to the seller that they have no obligation to offer to pay any compensation through the MLS to a buyer’s broker. Ask the seller to think of this as a marketing decision. While the seller can choose not to offer any compensation through the MLS to a buyer’s agent, the buyer’s agent may later request that they be compensated by the seller either with a Cooperating Broker Compensation Agreement or at buyer’s request through the purchase agreement. Discuss with the seller that if there is no offer of compensation to a buyer’s agent, and a buyer has no available money to compensate their buyer’s agent, then that may impact the buyer’s ability to purchase seller’s property.
Q: If the listing agreement clearly indicates the buyer’s broker’s commission offered and you discuss that with the seller, does that cover us?
A: Yes, but you should ensure that your file reflects in writing that you had that discussion with the seller.
Q: As a standard of practice, should we stay away from describing our firm or any other firm as “discount” versus “full service”?
A: It is a preferred practice that you not disparage other firms as being discount. Rather, you should discuss with your seller your value proposition and the services that you offer.
Q: Do you have to disclose to your clients that you will be getting a referral fee when you introduce them to an agent in a different brokerage or even a different state?
A: Transparency with regard to referral fees or any compensation is recommended.
Q: When assisting a buyer to find a home, is there a fiduciary relationship created by these actions, even without a written buyer representation agreement?
A: A fiduciary relationship is created when you begin rendering real estate services to a buyer. At that time, an Agency Disclosure form should be provided to, and signed by, the buyer early in your relationship with them, but in any event no later than the signing of an offer.
Q: Will the buyer paying a buyer broker fee have ramifications for loan approval?
A: Any fees paid to a real estate broker by a buyer must be disclosed to a lender. However, it is anticipated that the lending community will be adapting to the new “norm” of agents entering buyer broker agreements with their buyers and, in some cases, the buyer will likely pay their buyer agent for representing them.
Q: Is it possible to charge a client per hour instead of as a percentage commission?
A: Yes, you could charge a client by the hour. However, it may be difficult to keep track of your hours and your broker will need to approve this arrangement.
FINAL TAKEAWAYS:
- Agents in California should not panic over the verdict which was very limited. The circumstances pursuant to which the verdict was issued are very different than the laws and market practices in California.
- Buyer’s agents should consider using buyer broker agreements with all buyers.
- It is not anticipated that there will be dramatic changes in the California market soon. However, in light of the various anti-trust cases that have been filed, and which may be filed in the future, agents and brokers should anticipate that the changes discussed here and by CAR will be coming in the near future.
- Agents should ensure they are completely transparent with a seller regarding how the commissions paid and the options available to them. Then, document your file regarding those discussions.
- BRM will continue to provide updates regarding these issues and recommendations for handling.
- If agents wish to watch BRM’s webinar from February 2023 regarding buyer broker agreements, please make arrangements with your manager to view the webinar.
- An updated webinar regarding buyer broker agreements will be offered by BRM in February 2024.
RESOURCES:
CAR Frequently Asked Questions at:
https://www.car.org/-/media/CAR/Documents/Your-CAR/PDF/NAR_FAQ.pdf
CAR Legal Q&A “Buyer Representation and Broker Compensation Agreement” at:
https://www.car.org/riskmanagement/qa/contract-forms-folder/BuyerRepresentationAgreement
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.