A version of this story was originally published on May 1, 2024, under the headline, “NAR clarifies when a buyer contract will be required under settlement.” Inman has republished it in an effort to assist agents as commission rules change.
The National Association of Realtors’ proposed nationwide settlement agreement for antitrust commission cases requires brokers and agents to sign contracts with buyers they are “working with” before a buyer “tours any home.”
But what exactly does that mean?
NAR Chief Legal Officer Katie Johnson answered that question and others in May, offering some clarity about rules around the contracts. In her email, Johnson pointed members to NAR’s facts.realtor site and an updated FAQ page.
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‘Working with’ a buyer
Under the proposed settlement, just marketing services to a buyer or just talking to a buyer on the seller’s behalf — for instance, at an open house or showing a client’s listing to an unrepresented buyer — does not mean you are “working with” a buyer, according to NAR’s FAQ.
Therefore, buyers who attend open houses or who arrange to see a property through the listing agent do not have to sign anything to do so, under the NAR rule changes. The changes do not require that listing agents and buyers sign any agreements together so long as the listing agent remains solely a representative of the seller.
But providing actual brokerage services to a buyer, i.e. identifying potential homes, arranging a showing with the listing agent, negotiating for the buyer, presenting the buyer’s offers, or performing other services for the buyer, are “working with” a buyer, the trade group said.
“If the MLS participant is working only as an agent or subagent of the seller, then the participant is not ‘working with the buyer,'” the FAQ says.
“In that scenario, an agreement is not required because the participant is performing work for the seller and not the buyer.”
Alternatively, in a situation where the agent is an authorized dual agent and/or in a designated agency situation where the broker represents both the buyer and the seller but has different agents work with both, he or she is working with the buyer, as well as the seller, so a contract would be required before a home tour.
Asked when dual agency is created, a NAR spokesperson told Inman, “Agency is a matter of state law, including how dual agency is defined, what disclosures are required, and whether it is a lawful choice for consumers.
“Typically, dual agency requires a brokerage seeking to provide brokerage services to the seller and buyer in the same transaction to obtain consent and enter into a written agreement with both the seller and buyer. Dual agency is not typically created when a listing broker answers a buyer’s questions or shows a home to an unrepresented buyer.”
According to NAR, a written buyer agreement is required when an MLS participant performs “ministerial acts,” but not if the participant doesn’t expect to be paid for those acts and hasn’t taken the buyer to tour a home.
“Like dual agency, ministerial acts are generally defined by state law,” NAR’s spokesperson said.
“Typically, ministerial acts are acts performed by a brokerage that are purely informative or clerical and do not involve providing brokerage services or active representation.”
‘Touring’ a home
First things first: A home is a residential property of between one and four dwelling units, according to the FAQ.
“Touring a home means when the buyer and/or the MLS participant, or other agent, at the direction of the MLS participant working with the buyer, enter(s) the house,” the FAQ says.
“This includes when the MLS participant or other agent, at the direction of the MLS participant, working with the buyer enters the home to provide a live, virtual tour to a buyer not physically present.”
A written agreement doesn’t necessarily mean a written agency agreement
On Aug. 6, NAR updated its FAQ to specify that an MLS participant working with a buyer can enter into the written agreement with the buyer “at any point but must do so by no later than prior to the buyer ‘touring a home,’ unless state law requires a written buyer agreement earlier in time.”
While many interpreted the requirement for a buyer agreement to mandate an agency agreement, that is not the case, according to NAR.
“MLS participants and buyers will still be able to enter into any type of professional relationship permitted by state law,” the FAQ says.
“NAR policy does not dictate:
- What type of relationship the professional has with the potential buyer (e.g., agency, non-agency, subagency, transactional, customer).
- The term of the agreement (e.g., one day, one month, one house, one ZIP code).
- The services to be provided (e.g., ministerial acts, a certain number of showings, negotiations, presenting offers).
- The compensation charged (e.g., $0, X flat fee, X percent, X hourly rate).”
But the agreement must specify the compensation charged
According to the proposed settlement, if an agent or broker will receive compensation from any source, the written agreement with the buyer has to specify the amount or rate of compensation to be received or how that amount will be determined, but the amount has to be “objectively ascertainable” and can’t be “open-ended.” For example, the contract can’t say “buyer broker compensation shall be whatever amount the seller is offering to the buyer,” the settlement says.
In addition, the deal specifies that the compensation an agent or broker receives for brokerage services can’t exceed the amount or rate to agreed to in the agreement with the buyer.
But that does not mean that brokerages can only have one agreement with a buyer, the FAQ says, once again referring to the components of a contract that NAR policy does not dictate.
“Compensation continues to be negotiable and should always be negotiated between MLS participants and the buyers with whom they work,” the FAQ adds.
Active agreements should be amended before the MLS policy change
While the policy changes in the proposed settlement were enacted over the weekend, if an agent or broker will be working with a buyer after the policy goes into effect, then he or she “should take steps to ensure that the buyer has agreed to the necessary terms required by the settlement agreement,” the FAQ says. This includes terms where compensation is currently not “objectively ascertainable” or is “open-ended” or where the buyer broker is allowed to keep any offers of compensation exceeding the amount agreed to with the buyer.
MLS participants are required to disclose that compensation is not set by law and is fully negotiable, but they can disclose that separately and therefore don’t have to amend active agreements to add that disclosure, according to the FAQ.
Regarding active listing agreements, if the agreement tells the listing broker to offer compensation to the buyer broker without referring to the MLS, the agreement doesn’t need to change.
“But if the listing agreement specifies that offers of compensation be made ‘on the MLS,’ then the listing broker should work with the seller to amend the listing agreement before the MLS policy change is implemented, to make it clear the listing broker will not make an offer of compensation on the MLS and will not be violating the listing agreement by failing to make an offer of compensation on the MLS,” the FAQ says.
Michael Ketchmark of Ketchmark & McCreight, lead plaintiffs’ counsel in the Sitzer | Burnett case, declined to comment on NAR’s reading of the agreement.
“Under the law, once the settlement is finally approved, anyone covered by the agreement is required to abide by it,” Ketchmark said. “If we believe, as class counsel, that somebody is not abiding by the agreement, we can take appropriate steps.”