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There’s a lot of confusion around the particulars of the National Association of Realtors (NAR) commission lawsuit settlement and the resulting business practice changes. Compliance expert Summer Goralik is here to help clear up some of the looming questions so that we can move forward together as an industry.
This week’s question
Are we allowed, or not allowed, to let clients know upfront if there is not a concession offered (California here, and messaging is very unclear if this is a good practice or considered steering)?
Compliance expert answer
This question highlights the uneasiness some licensed professionals are feeling as they attempt to understand the new practice rules. As a real estate compliance consultant and former investigator for the California Department of Real Estate, I recognize the importance of clarity on this issue, especially during this time of significant industry change.
Of course, apprehension is just one response to the recent shifts in industry practices that differ from the traditional real estate environment agents and brokers have long known. Additionally, some state associations have introduced new versions of representation agreements, and certain multiple listing service (MLS) portals have been modified to reflect these changes — only to be unexpectedly revised again, as seen in California. This evolving situation has created a challenging environment for licensed real estate professionals.
Adding to this complexity, multiple entities are overseeing the adoption of these new rules, including MLSs (which, according to NAR, will enforce buyer representation agreements), certain state governments (depending on their jurisdiction and regulations), consumers, whistleblowers, private attorneys and even the Department of Justice (DOJ).
Regarding the question about disclosing concessions, it’s essential to revisit the fundamentals of real estate transactions. Seller concessions are a common aspect of real estate contracts and can be negotiated at the onset of the offer process or often after the buyer’s inspections reveal more about the property’s condition.
Fortunately, the new rules taking effect on Aug. 17 do not fundamentally change this aspect of the purchase process. Buyers will still be able to request concessions, and these terms will be negotiated and agreed upon by the involved parties. In turn, real estate agents will remain responsible for representing their clients’ interests in negotiating concessions between the parties.
As for concerns about the “S” word, or steering, NAR’s frequently asked questions (FAQs) published on their website specifically reassure licensed members that the new practice rules actually help mitigate the risk of such unlawful activity.
Namely, written buyer agreements will outline brokerage compensation terms upfront; MLS participants may not receive compensation for brokerage services from any source that exceeds the amount or rate agreed upon in the agreement with the buyer; and a broker working with a buyer cannot receive more compensation than what was agreed upon in that agreement. This makes the amount of any offer of compensation irrelevant to the buyer-broker’s compensation.
Collectively, according to NAR, these practice changes have eliminated any theoretical steering; a real estate broker will not make more compensation by steering a buyer to a particular listing because it has a higher offer of compensation.
When it comes to the advertisement of concessions on the MLS, NAR’s FAQs confirm that there is no specific policy regarding this practice. Local MLSs have the discretion to display or omit information about seller concessions in listings, except where concessions are contingent upon payment to any cooperating broker, buyer broker or other buyer representative. As a result, depending on the MLS, real estate listings may or may not include details about a seller’s willingness to offer concessions.
It’s important to note that “willingness” is the key term here. Any concession information displayed in the MLS is not binding. Concessions must be explicitly negotiated and agreed upon in the fully executed contract.
Moreover, to alleviate some of the anxiety surrounding this topic, and perhaps to best address the question, consider the reverse scenario: What if an agent failed to inform their client of known concession information related to a property listing?
In my view, this would constitute a failure to fulfill their statutory duties as a real estate licensee. After all, this issue falls under the umbrella of disclosure, and licensed real estate professionals should be well aware of the importance of honest and open communication with their clients.
As a fiduciary, an agent’s role is to convey all pertinent information to their clients, act in their best interests and faithfully execute their instructions. If I were a homebuyer, I would want to know about any potential concessions associated with a property I was interested in. While this information might not influence my final decision, it’s crucial to have it during the home-search process.
Ultimately, if a property listing does not include details about concessions and the listing agent does not provide any specifics in this area, buyers are still free to request concessions in their offers — this remains a standard practice.
In fact, some experts and experienced real estate agents argue that the safest time to offer or negotiate concessions, including any payment of buyer-broker compensation, is during the contract process. Furthermore, it’s the agent’s responsibility to guide buyers through this process and ensure they understand their options and can make informed decisions when preparing a purchase offer.
In summary, real estate agents should inform their clients about seller concessions if this information is available. Doing so aligns with their fiduciary duty to act in the best interest of their clients. Given the rapidly evolving nature of real estate practices, an agent’s communication, honesty, and transparency are integral to maintaining compliance and client trust.
Editor’s note: Licensed real estate agents should always check with their responsible brokers for guidance, direction and policy regarding the new practice changes, and licensed real estate brokers would be wise to consult with a licensed attorney for legal clarification and support.
The opinions, suggestions or recommendations contained in this discussion are based on Summer Goralik’s experience working for, and knowledge of the laws enforced by, the California Department of Real Estate and must not be considered legal advice or relied upon as legal advice. You should consult with your brokerage, and/or appropriate legal counsel in your jurisdiction, for further clarification.
Summer Goralik is a real estate compliance consultant and former CA DRE Investigator in Huntington Beach, California. Connect with her on LinkedIn.
