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See Bernice Ross’s commentary here: These new MLS rules could kill future bombshell commission lawsuits.
Following increased scrutiny on the real estate industry’s commission structure, broker-owned multiple listing service Northwest MLS is once again breaking the mold, this time by specifying in its forms that buyer broker compensation will come directly from sellers, rather than listing brokers.
Effective October 3, Kirkland, Washington-based NWMLS, which has 32,000 subscribers, is set to change several of its rules and its transaction forms in a bid to boost transparency regarding agent compensation, offer buyers and sellers more options regarding compensation, and encourage innovation in brokerage models.
MLSs were built on the idea of listing brokers offering brokers who bring an eventual buyer to a sale a portion of their commission, known as cooperative compensation. This commission sharing is common to every known MLS, including NWMLS.
But now it will no longer be the default at NWMLS. NWMLS’s new rules and forms will specify that, when offered, compensation to the buyer broker will come from the seller directly. NWMLS CEO Tom Hurdelbrink told Inman he did not know whether NWMLS was the first MLS to make this change.
“NWMLS’ listing agreement has long included the seller’s direction as to the amount of compensation offered to the buyer’s broker,” he said via email. “This most recent change just takes an additional step in clarifying that the compensation offered to the buyer’s broker comes from the seller.”
Tom Hurdelbrink
Hurdelbrink added that NWMLS is not prohibiting the sharing of commissions between listing brokers and buyer brokers.
“Listing brokers may share a portion of their compensation, if they wish to do so,” he said. “That said, the listing agreement will now present the seller clear and distinct sections: one for the amount seller will compensate the listing broker and a second for the amount seller will offer for compensating the buyer’s broker.”
The latest changes will build on previous rule changes the MLS made in October 2019. At that time, NWMLS, which is not Realtor-affiliated, was the first MLS to allow public display of agent commissions and also eliminated a requirement that listing brokers offer buyer brokers a commission to submit a listing to the MLS. Two years later, the National Association of Realtors changed its rules to require MLSs to allow brokers and agents to display buyer broker commissions.
“Broker-owned NWMLS has once again led the industry in promoting a competitive and fair marketplace for brokers large and small, allowing firms to innovate and differentiate their services to consumers,” said Marty McClendon, designated broker for Redfin in Seattle, in a statement. “I can only hope the rest of the industry has the courage to follow NWMLS’s lead.”
NAR, which has 1.5 million members and counts the vast majority of the nation’s more than 500 MLSs under its purview, continues to require that listing brokers offer buyer brokers a commission to submit a listing to a Realtor-affiliated MLS. That particular rule is currently being contested in multiple federal antitrust lawsuits, including one that recently won class-action status and another one that is currently seeking class certification. The U.S. Department of Justice (DOJ) is also currently investigating the rule and the Consumer Federation of America has published numerous studies condemning the rule.
“The more recent actions by the DOJ, issues raised in industry litigation, studies by consumer organizations, discussions with industry participants, and other considerations afforded NWMLS the opportunity to again review and improve its rules and forms to allow brokers to continue to innovate the range of service and pricing models offered to consumers,” Hurdelbrink said.
“For more than 30 years, the compensation framework in the real estate industry was structured for the seller to pay the listing firm and for the listing firm to ‘share’ its compensation with the buyer brokerage firm,” Hurdelbrink said.
“This framework was a vestige from ‘sub-agency’ where every broker represented the seller and brokers did not work directly for the buyer. Sub-agency was eliminated in Washington by statute which also created buyer’s agency. Yet, the ‘commission sharing’ structure remained.”
NWMLS’s new residential purchase and sale agreement will include an item not currently included in the agreement, buyer brokerage firm compensation, which can be either auto-filled from the listing or inserted by the buyer’s broker if it’s not auto-filled. The compensation may be specified as either a percentage or dollar amount. The buyer and the buyer’s broker then decide whether to accept the compensation as offered in the MLS or to propose an alternative in an addendum, Hurdelbrink told Inman.
Snippet of NWMLS’s new residential purchase and sale agreement as of October 2022
“The purpose of this revision is to ensure that the buyer understands what compensation is offered by the seller and to create the opportunity for the buyer and the buyer’s broker to discuss and negotiate the offered amount with the seller,” he said.
The addendum specifies that the seller may offer no compensation to the buyer brokerage firm, may offer additional compensation in order to meet the buyer’s obligation per a buyer representation agreement, may offer a credit to the buyer, may reduce the compensation offered in the listing, or may offer an alternative to either of those options.
Snippet of NWMLS’s new buyer brokerage firm’s compensation addendum as of October 2022
NWMLS’s new listing agreement will also provide new options for broker compensation for transactions where a buyer is unrepresented, when a listing broker acts as a dual agent, and when the buyer broker is not a member of the MLS.
“For [the first two] situations, the seller and listing broker may want to agree to different compensation to reflect the different services the listing broker may provide,” Hurdelbrink said.
Snippet of NWMLS’s new listing agreement form as of October 2022
The new listing agreement contains another key change inspired by the DOJ’s probe: terms by which a non-NWMLS broker may access a lockbox. Discount brokerage REX Real Estate has previously condemned NAR rules limiting access to the lockboxes that provide licensed brokers with access to homes for sale to brokers who work for a NAR-affiliated MLS. A proposed settlement between NAR and the U.S. Department of Justice would have required NAR to adopt a rule that requires all member boards and MLSs to allow any licensed real estate agent or agent of a broker, to access, with seller approval, the lockboxes of properties listed on an MLS.
“[I]n late 2019 the DOJ raised concerns with NAR about property access for non-member brokers,” Hurdelbrink said.
“NWMLS’s current rules and forms changes gave us the opportunity to address access questions in the listing agreement. Property access is seller’s choice, and it is in the listing agreement now so listing broker and seller can discuss seller’s preferences before listing the property. If a seller elects to provide access to non-members, they then address how access will be provided and whether to require non-member brokers to sign an ‘access agreement’ prior to any preview or showing.”
Snippet of NWMLS’s new listing agreement form as of October 2022
Another change to NWMLS’s listing agreement form is that it no longer reminds sellers that Washington law says that buyers’ brokers and agents are not required to show property for which there is no written agreement to pay compensation to the buyer’s broker.
Asked why that reminder would be eliminated from the agreement, Hurdelbrink said, “We decided it is no longer necessary to restate the statute, particularly as there is an expected increase in the use of buyer representation agreements.”
NWMLS will clarify the compensation section of its buyer representation agreement forms to separately address compensation paid by the seller and compensation paid by the buyer, including a new section where, if the compensation offered by the seller is greater than the compensation agreed to between the buyer and the buyer broker, the parties agree to direct that portion of the compensation to the buyer brokerage firm, the buyer, or the seller, Hurdelbrink said.
Snippet of NWMLS’s new exclusive buyer’s agency agreement form as of October 2022
That compensation section also includes language that says the broker will not filter listings by the amount of the seller’s offer of compensation, unless the buyer and the buyer broker agree otherwise. Filtering listings by commission is one of the industry practices targeted by the DOJ as a possible tool of steering. NAR changed its rules in November to prohibit such filtering when it comes to public listing displays on websites, but not otherwise.
“Buyers should be fully aware about how and how much their broker is compensated,” said Stuart Heath, owner of Bellmark Real Estate and chairperson of the NWMLS board of directors, in a statement.
“And buyers should be given the opportunity to freely negotiate that compensation with their broker. These changes are a positive step to help the industry evolve.”
According to Hurdelbrink, the rule and forms changes will allow brokers to more easily differentiate themselves by creating their own representation agreements “to promote their services and pricing models, accommodate consumer needs and interests, and compete in the market.”
In a statement, he noted that NWMLS transaction forms are used in nearly every residential home sale in Washington State.
“We believe these changes are a significant step in the evolution of the real estate brokerage industry and will help brokers in the Northwest continue to lead the nation in better serving consumers,” he said.
Hurdelbrink also hinted that more changes may be coming to NWMLS.
“NWMLS continues to discuss opportunities to further the interests of its member brokers and the consumers they serve,” he said. “Continued change and progression is both inevitable and desirable.”
