The National Association of REALTORS®’ (NAR) new rules on offers of agent compensation kick in August 17. That’s when offers of agent compensation can no longer be included with listings on the Multiple Listing Service (MLS). Additionally, buyer agents must have written buyer representation agreements in place before taking their buyer clients to tour homes.
The new rules are part of the landmark $418 million antitrust commission lawsuit settlement NAR agreed to in March. However, regulators at the Department of Justice (DOJ) have indicated they don’t want any offers of agent compensation made by seller agents to buyer agents to appear “anywhere.”
As a result, how and where agent compensation is communicated remains unclear—especially for smaller brokerages and MLSs throughout the country. In some ways, it looks like the Wild West with many companies figuring it out as they go.
Many of these smaller real estate brokerages and MLSs that opted into the NAR agreement ahead of the August 17 rule change did so out of practicality. And others say their hands were tied financially.
“We are a break-even organization, and the opt-in decision for us was based on the fact that we simply do not have the resources to defend against even one lawsuit,” says Terry Amalfitano, executive director of Spanish Peaks MLS based in Southeastern Colorado. “Most of our members know each other and how our organization functions, and understand why we chose this path.”
Amalfitano says his organization is watching how the lawsuits proceed through the system and how things evolve. As a small MLS, though, “our role here is totally that of a spectator at this point,” he notes.
“We will be focusing on maintaining our organization’s viability and its usefulness to our members in this shifting industry landscape,” Amalfitano adds.
Uncertainty remains without a clear process for communicating agent compensation
Looking ahead, the real estate industry as a whole needs to get on the same page about how they’ll communicate compensation offers. This will help avoid some of the questionable—and potentially fraught—workarounds being floated in real estate circles, says Marilyn Wilson, CEO and founding partner of real estate consulting firm WAV Group.
Wilson consults with countless brokerages and MLSs across the country and says the upheaval of the settlement agreement and additional DOJ involvement is creating uncertainty, particularly with the ball now being in agents’ court to negotiate and communicate their own commissions.
“I’m glad they’re trying to do the right thing; that’s a really good thing,” Wilson says of firms looking for viable solutions. However, she adds, “they’re not sure exactly what the right thing is yet, and no one is clarifying it.”
She continues, “There are two things that I’m hearing now; the first one is some states are offering a buyer’s broker agreement form…and then lots of people push back on it because, for whatever reason, they didn’t think it was consumer-friendly enough.”
She notes that eXp Realty offers a simple, one-page buyer representation agreement that’s straightforward and provides an excellent example to other brokerages unsure of what to do. However, in some states, buyer representation agreements are unclear about timeframes, which may necessitate signing multiple agreements or extension addendums.
“(The agents) are asking a lot of logistical questions like that, and some states are much more directive,” Wilson explains. “Other states are not doing that…and are giving them multiple options and kind of letting the brokers figure it out. So I think that’s the bigger struggle right now.”
Understanding the MLS’ role in compliance post-settlement
Historically, MLSs have traditionally been viewed as the industry’s regulatory backbone, ensuring standardized practices and data integrity in a centralized place. This role has changed, though, now that agent compensation information is barred from being included in MLS listings.
Previously, MLSs weren’t typically required to verify listing agreements, but they could request them for disputes or brokerage transfers, Wilson explains. Additionally, the MLS’ role in compensation transparency positioned the organization as a central compliance authority. However, post-settlement, the responsibility has now shifted to brokerages and their agents.
At its midyear conference, NAR said that MLSs are responsible for compliance, Wilson points out, noting that MLSs are pushing back. After all, they no longer have access to data on agent compensation or buyer-broker agreements, so there’s no way for them to enforce compliance, says Wilson.
Sources close to NAR reaffirmed just last week that the organization is still putting the onus of enforcement on individual MLSs.
To minimize the risk of being sued, some MLSs are implementing hefty fines against brokers who put agent compensation data into their listings, Wilson explains.
“(MLSs) want to be compliant, so they’re going to make sure everybody that’s part of the network is going to be compliant, too,” Wilson says. “It’s putting the MLS in a position of being a tough guy to protect everybody’s best interest…to protect the MLSs and any brokerage or agent that’s participating, particularly the brokers.
“They’re not suing agents; they’re suing brokerages,” Wilson points out.
The overall effect of these changes is adding to the swirl within the industry, with brokerages ultimately bearing greater responsibility for training their agents—and making sure they comply with NAR’s new rules.
Hasty workarounds could lead to more litigation, further erode consumer trust
Real estate brokers are coming up with their own solutions to communicate agent compensation offers, such as collaborating on a platform outside of the local MLS to add listing details and compensation offers, says Wilson. She adds that these short-term solutions might create more problems than they solve.
“There’s a lot of people trying to find end-arounds, and it’s like, do not pass go. And there’s two or three products out there now that are trying to do the same thing (publish agent compensation information),” Wilson says.
“I’m hearing really dumb things like people will put in the REALTOR® remarks that this is a REALTOR®-friendly transaction. Or they’ll put three apples on top of a microwave in a photo (to communicate the compensation percentage). It’s like, are you people kidding me? Just call the person up and ask them all of this stuff. Answering the phone is going to become much more important.”
In a recent LinkedIn post, NextHome CEO and Co-Founder James Dwiggins wrote that participating in portals or workarounds that publish agent compensation data will result in more lawsuits. And agents and brokerages, in particular, will end up paying dearly.
“If you or your agents are using one of these portals to share commissions after August 17, be prepared to get sued at some point,” Dwiggins wrote in a recent LinkedIn post.
“If you are a member of NAR when the class notice is issued next month and are benefiting from the settlement (which is basically almost all of you), you are bound to follow the release terms,” he wrote. “If you or your agents are violating those terms, you are opening yourself up to further litigation for breaching the settlement.”
Dwiggins noted in his post that the plaintiffs’ lawyers are watching the space like hawks and are looking for their next gaggle of defendants to sue, which includes the brokerages.
“If your agents are supplying this information to any ‘aggregator website,’ you are violating the terms of the settlement,” Dwiggins points out.
He continues in his post, “Brokers: You better put a practice in place immediately to make sure your agents aren’t doing this. If they violate that practice, you should hand them their license back immediately. The lawyers will have no issue suing you and them, and bankrupting your business if you can’t pay. Not sure why people aren’t taking this seriously, but I guess people will have to learn the hard way.”
