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As an Aug. 17 deadline to comply with National Association of Realtors rule changes approaches, the nation’s largest multiple listing service is rolling out adjustments days in advance in an attempt to prepare its approximately 110,000 agent, broker and appraiser subscribers by letting them know what they can — and can’t — do.
At a webinar last week titled “Your New World After 8/13,” CRMLS CEO Art Carter noted than an MLS in Indianapolis had decided to implement the rule changes even earlier, on July 1, and had had more than 5,400 listings entered into its system since then, only 39 of which garnered fines. (The MLS, MIBOR, told Inman 4,400 listings had been entered since July 1.)
One of those incidents was “pretty interesting,” according to Carter.
“In the backyard, they had taken a drone, flown it up about 150 feet over the house, they had the gardener cut the [buyer broker] commission into the grass, and it could be seen on the multiple listing service in the photo,” Carter said.
“Don’t do that. Don’t get creative. We know. We are going to tell you where you can communicate these forms of compensation if they have been negotiated with your seller.
“But don’t do it in the multiple listing service. Don’t add an addendum. Don’t add anything that can be displayed to all of the users of the multiple listing service because there will be a fine attached to it.”
Photos similar to the one Carter referenced have proliferated online, including in the Real Estate Mastermind Facebook group. It was unclear if the photo Carter mentioned was among those memes, but at least two observed by Inman appeared to be created using artificial intelligence, and all appeared to be posted in jest.
In March, NAR entered into a proposed nationwide settlement to resolve antitrust claims brought by homesellers in multiple class-action lawsuits. The deal includes a prohibition on listing brokers making offers of compensation to buyer brokers on MLSs, sellers no longer being required to offer buyer-broker compensation, and a requirement that brokers and agents sign contracts with buyers they are working with before a buyer tours a home.
Art Carter
During the webinar, Carter noted that CRMLS had done perhaps 50 or 60 live presentations on the topic, but only about 50 percent or 55 percent of CRMLS’s subscribers had attended.
“That kind of concerns me,” Carter said. “It is going to be a painful lesson for some people.”
On Aug. 13, in order to comply with the settlement, CRMLS removed compensation fields from non-closed listings in its Paragon and Matrix MLS systems, following the removal of those fields from its Flexmls system last week.
In addition, CRMLS also updated its closing concessions field to add a category list requiring users to break down concession amounts into separate categories: closing costs, property improvement costs, financing costs, buyer broker fee or other costs.
CRMLS also added warning messages to its listing input to alert users that putting compensation in the MLS is no longer permitted and fines would be imposed on those who violate that rule.
“Violating CRMLS Rule 7.15 (Offering or Conveying Buyer’s Agent Compensation on the MLS) will result in the immediate removal of the offending language from the MLS and a fine of $2,500,” CRMLS told some 2,000 attendees at its Aug. 8 webinar.
During the webinar, CRMLS General Counsel Ed Zorn called the amount “a serious fine.”
“It’s one of the largest fines that we have because by the terms of the settlement agreement, as an MLS, we are required to make sure that these changes in practice actually occur and so we’re going to be judged by others on the outside: Did we do a good job on that or not?” Zorn said.
Ed Zorn
“The liability of CRMLS is at risk if we don’t do a good job on formulating and supporting these practice changes. That’s, by the way, consistent across all MLSs. I’ve heard from all kinds of MLSs that the fines are [$2,000, $3,000]. I think I heard one that was $7,000. So they’re definitely on the very high end because of the importance of this issue.”
Other rules whose violation will also result in a $2,500 fine include:
- Rule 7.16: Insufficient Disclosure of Compensation to Seller/Landlord
- Rule 7.19: Disclosure of Listing Broker’s Compensation
- Rule 9.1: Showing Listed Property w/o Written Agreement w/ Buyer; Insufficient Agreement w/Buyer
- Rule 19.2.21: Display of Offer of Compensation – IDX
- Rule 19.3.26: Display of Offer of Compensation – VOW
CRMLS will begin levying fines immediately because it will have given its users ample warnings before they violate the rules, according to Carter.
“We want to make it intentional in our system that if you ever get a fine out of CRMLS, it’s because you’ve gone through multiple, multiple stop signs,” Carter said.
In a presentation slide, CRMLS listed the measures it was taking to ensure compensation would no longer appear on its platforms after Aug. 13.
“CRMLS is actively communicating this information through email, REcenterhub articles, MLS system pop-ups, social media and the CRMLS.org website,” the slide said.
“Additionally, warning messages in bold red text will appear within listing inputs on Private Remarks, Public Remarks, and Showing Instructions text fields. Private Remarks will also display a pop-up message titled ‘Private Remark Warnings and Errors,’ indicating that a prohibited word was entered and that it may result in a violation.
“Based on the recent NAR settlement, CRMLS is required to take this action to ensure compliance and help reduce potential broker liability.”
Realtor members and brokerage firms covered under the settlement can only keep their coverage if they adhere to the deal’s terms, Zorn reminded attendees.
“Each of you that are Realtor members or brokerage firms that are under that $2 billion club, you’re receiving a release in this settlement agreement, and that release is conditioned specifically on you individually, as an individual Realtor, following Rule 9.1 that you will have a written agreement before showing a property,” Zorn said.
“So if you violate that rule, or you try to skirt or get around that rule, realize, not only are you going to get a $2,500 fine if CRMLS finds out about it, but you’ll have lost the provisions of the release that protects you.
“That means you can be sued individually by a lawyer for these kinds of claims and so that’s really important for your brokerage firms, your broker-owners. Managers, realize if you have agents that are violating this, you lose your release, and that’s a very big deal.”
Under the settlement, listing agents don’t have to have written agreements with buyers just going through an open house, according to Carter.
“But a fine line for CRMLS is if there are discussions that occur about taking that buyer to view other houses, or making an offer on the house that you’re holding open, obviously at that point, that’s the line,” Carter said. “It’s been crossed, and you need to enter into a buyer-broker representation agreement at that point.”
During the webinar, Zorn reiterated part of a presentation he also gave at Inman Connect Las Vegas two weeks ago, where he described the “consumer-centric model” he hoped would prevail after the deadline.
Instead of propping up the old commission-sharing system, Zorn said, listing agents should talk to sellers only about their own fee. Buyer agents, meanwhile, should negotiate their compensation with buyers and put that in a written agreement before showings. And buyers should, if needed, ask for their agent’s compensation in a purchase offer, which the U.S. Department of Justice (DOJ) has specifically said would be permissible.
“It’s going to, for the first time, let the buyers participate in negotiating the fee,” Zorn said.
“If you’re a really, really good buyer’s agent and buyer’s broker, this is great for you as well because now you get to control the value and the amount of money — consistent with your experience and skills — of the value you bring to the transaction.
“You’re not limited to some number that a listing agent and a seller decided you’re worth. You get to sell yourself and your skills, and you get to establish a fee that’s consistent with what you are worth in the transaction.”
“The closing statements are actually going to look the same,” Zorn added. “The sellers, for the most part, will still be paying the buyer’s broker, just like they always have.”
He noted the California Association of Realtors had changed its transaction forms to no longer support commission-sharing.
“So there’s really no longer offers of compensation on the MLS or off the MLS because the listing agreements don’t accommodate that anymore,” Zorn said.
If listing brokers still want to offer to share their commission with a buyer broker, they’ll have to have their own form, since C.A.R.’s form doesn’t accommodate that, according to Zorn.
Carter said CRMLS recognizes that many brokerages are creating their own buyer and seller agreements and that there could be offers of compensation allowed in those forms.
“I’m not going to speak to those,” he said. “You really need to talk to your broker and have some training on whatever forms that they’re putting together.”
The compensation fields have been removed from the following listing types: Coming Soon, Active, Active Under Contract, Hold and Withdrawn. The following listing types will still have compensation fields “for historical purposes,” but will not be able to be edited, according to CRMLS: Pending (unless it moves back to Active), Closed, Expired, and Cancelled.
“The numbers that historically actually occurred will remain because we think it’s super important for you to have access to that information and that data as you guys do comparative market analyses (CMAs) [and] as appraisers do appraisals,” Zorn said.
“It’s important for us as an industry to make sure we have the truth of what happened on a transaction in the past. We’re not going to take that information away from you.”
Regarding what can be entered into the public and private remarks of the MLS, Zorn said listing agents can, with the seller’s permission, say they’re offering a certain percentage or dollar amount in concessions, but cannot indicate that that money will go toward the buyer agent by using words like “bonus,” “compensation,” or “commission.”
Both Zorn and Carter emphasized that concessions and compensation are not the same.
“Here’s the big distinguishing factor between concessions and compensation: a concession is that the buyer gets to decide entirely how to spend the money,” Zorn said.
“If there’s an offer or an advertisement of the seller providing some kind of concession, the buyer gets to decide how to use that … whereas an offer of compensation can only be used to incentivize or provide value to a buyer’s agent, not the buyer.”
“It is still okay to advertise a benefit for the seller helping the buyer get the home, but we’re not going to focus on or limit that in any way to that benefit going to the buyer’s agent,” he added.
Zorn emphasized that compensation offers are not valid unless they’re in writing.
“You’re allowed to make offers of compensation off of the MLS,” Zorn said.
“I should say you can advertise that you’re willing to share some commission off the MLS. It’s really not appropriate to call it an offer, because it’s really not an offer, it’s an advertisement that you’re willing to share.
“But in California, we have a thing called the statute of frauds, which means every agreement regarding real estate has to be in writing. So realize that if you’re going to do some kind of commission sharing off of the MLS at all, you’re going to have some written agreements you’re going to have to create to have that happen.
“Recognize if it’s not in writing, it ain’t real.”
So if a buyer broker or agent calls the listing agent and that agent says the seller is offering a certain percentage or dollar amount in concessions or compensation, “unless it’s in writing, unless you guys are putting it into the offer, it ain’t real. There are no guaranteed offers of compensation through the multiple listing service or part of that process anymore,” Zorn added.
His “biggest fear” is that what happens in commercial real estate will start happening in residential real estate, he said.
“People walk away from the end of escrow not getting paid because they didn’t put anything in writing,” Zorn said. “I don’t want that to happen to people because it’ll be a very expensive one-time lesson, but I don’t want people to have to learn that lesson.”
Asked about touring agreements to see homes, Zorn said an agreement that is open-ended or conditioned on something in the future will not fulfill the terms of the settlement.
“The written agreement that has to be entered into before you show a property has some very, very specific items to it, and one of them is that the amount of money from any source and from any time frame that the buyer broker is going to receive as they work with this buyer must be specified in the written agreement before you show a property. That’s the first sentence,” Zorn said.
“The second sentence says, specifically anticipating, let’s just call it … the creativity of the real estate industry, the second provision and term says that the agreement and the money part of the agreement cannot be open-ended. It cannot be conditioned on something in the future. They even use an example that says, ‘The amount will be whatever a seller offers in the future.’
“So it’s very specific that you can’t have an open-ended agreement that is blank or has nothing in it and we’ll just fill it out later. That’s clearly a violation of that provision.”
Some touring agreements he’s seen say the contract is only for touring and that the agent will charge zero for that, which Zorn said “is totally fine.”
But if the touring agreement says that if the agent provides other services they’ll enter into a new contract later, that won’t work, according to Zorn.
“That would fail the terms of the settlement agreement, where it says, no matter what source the money comes from, or when that money is paid, it has to be in the agreement before you open that door,” Zorn said.
Carter ended the presentation by answering this question: Is this the end of real estate as we know it?
“Surprisingly, I’m going to say yes, but it’s not the end of real estate,” Carter said.
“It’s not the end of buyer brokerage. You guys are very resourceful. You are business people. You’re going to get through this, but it is not going to be the same type of business as we move forward. It is a business of transparency, both to the buy side and to the sell side.
“You guys have gotten used to doing presentations to your sellers. You’re going to have to do buying presentations to your buyers as well now and really delineate your value as you move forward.”
Email Andrea V. Brambila.
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