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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
NAR direction seems to be different than state-level associations, such as C.A.R. There seems to be utter confusion around what is required per the settlement and what the Department of Justice (DOJ) wants, can NAR and/or C.A.R. leadership not go directly to the DOJ to hammer this out rather than leaving the entire industry questioning every move? Is it possible to share/market a seller wanting to offer a concession? The messaging here is so mixed…
Compliance expert answer
This question resonates deeply, as I have been grappling with the same concerns. As we approach Aug. 17, the effective date for practice changes, we should have a clear path forward in place. In other words, our ducks should be lined up neatly in a row by now. Unfortunately, the closer we get, the more uncertainty seems to arise.
The initial shock of the new practice changes has been absorbed conceptually, but the practical implementation remains unresolved. The challenge lies in addressing the needs of a multilayered audience: Practitioners must comply with the NAR’s proposed settlement, satisfy the DOJ and appease consumers.
Additionally, we must consider private attorneys who may pursue litigation against licensees on behalf of the public.
To address this question about disjointed guidance between NAR, state-level associations and the DOJ, which highlights the challenges practitioners are striving to resolve, let’s review the available information. This response will focus on cooperative compensation and concessions, as these are areas where the messaging has become unclear.
Cooperative compensation
First, NAR’s frequently asked questions regarding the nationwide class action settlement state that real estate brokers may still engage in cooperative compensation with other brokers, but the multiple listing service (MLS) will no longer advertise or facilitate such offers.
This marks a significant shift from the traditional method of handling compensation offers through the MLS. However, NAR has clarified that cooperative compensation arrangements are still permissible under the settlement but must occur outside the MLS.
The confusion arises because some associations and the forms they have created for their members to help implement these changes are inconsistent. Initially, it seemed that listing and buyer representation agreements would simply exclude provisions related to the MLS and cooperative compensation.
But some associations, like the California Association of Realtors, have now removed any broker-to-broker offers of compensation provisions in such agreements altogether. Notably, it’s not just associations making these changes; some brokerages are creating their own forms for agents to use and have chosen an approach where cooperative compensation will not be practiced.
This raises a fundamental question and highlights an obvious inconsistency: If cooperative compensation is still allowed, why are some states abandoning it entirely? Why do some industry members claim that cooperative compensation may continue while others warn of the risks of maintaining past practices?
The answer likely points to the DOJ’s commentary on cooperative compensation and its efforts to decouple commissions, as well as the core issues of certain class action lawsuits across the country. This creates an undeniable conflict or disconnect that thoughtful practitioners are recognizing and attempting to resolve.
What should you do?
Broadly speaking, exercise caution. As a real estate compliance consultant, I always advise a conservative strategy. In this case, conduct thorough research, and take incremental steps.
It is crucial for real estate professionals to monitor developments in their local jurisdictions. One moment you think you know what to expect with proposed forms and MLS portal changes, and the next, a sudden shift in momentum causes further changes. The real estate industry, along with the homebuying and homeselling public, will be closely watching how this all unfolds.
If you are a broker, consult with legal counsel or experts familiar with the NAR settlement, state law in your practice area, and the DOJ’s statements of interest in various court cases. Vet any forms you plan to use, perhaps cross-checking them against the Consumer Federation of America’s guidance on home buying and home selling contracts. Ensure you understand these forms thoroughly and address any inconsistencies. Don’t hesitate to question your local boards, their leadership, and legal counsel for clarity. Once you have a firm grip on how to proceed, train your agents accordingly.
If you are an agent, speak to your broker and their trusted advisors about the forms you should use, which should hopefully be fully vetted. Seek extensive training from your responsible broker, local association or other organizations.
Read the proposed listing and representation agreements (along with any new compensation disclosures, which seem to be on the rise), and ask questions until you fully understand them and can confidently explain them to clients.
Concessions
The NAR settlement does not prohibit the advertisement of seller concessions on the MLS, provided these concessions are not restricted to, or contingent upon, the retention of or payment to a cooperating broker, buyer broker or other buyer representative. This also means that discretion and policy regarding the advertisement of concessions will be managed by individual MLSs.
As a result, some MLSs may choose to include concession fields in their listing portals, while others may not.
For example, the California Regional MLS initially decided to add seller concession fields to its platforms, allowing listing brokers to specify the amount a seller is willing to offer. But it has since revised this option. The concession field will now only include a simple “yes/no” question about whether the seller is willing to consider concessions.
What should you do?
Investigate how your local MLS (or any MLSs that you will be using) handles concessions, and be sure to read and understand the rules regarding these fields. Remember, even if these fields exist, they don’t have to be used.
If you are an agent, let’s not forget the advice and policy of your responsible broker. It’s possible that they might endorse a direction where agents should not be entering any concession information into the MLS, and allowing discussions about such details to occur naturally as the offer process transpires and terms are negotiated between the parties.
Furthermore, as an agent representing a seller, you must follow your seller’s instructions and always put their interests first. Ultimately, you will discuss these options with your clients and proceed according to their wishes.
Stay vigilant
Even if you don’t have all of your ducks in a row, the last thing you want to be is a sitting duck. Be an active participant in your business, especially during this period of critical change. Stay proactive and informed. Don’t just accept forms without understanding them and their compliance with the NAR settlement.
Don’t just use concession fields on the MLS because they are available. Call out and address any disconnects now, as incongruencies between what is required and what is practiced can lead to liability. Those who proactively consider potential problems and mitigate them through preparation and risk management will better serve their clients.
As time progresses, we may see the impact of these practice changes through further modifications to industry forms (so stay up-to-date), new litigation, DOJ commentary and enforcement actions, and potentially new state laws. Agents and brokers will need to navigate these changes post-Aug. 17 with a strong foundation of knowledge, education, training, vigilance and reliance on credible resources.
Equally important, pay attention to the war stories from colleagues in the field. I have always emphasized the importance of learning from others’ mistakes, as sometimes it can provide invaluable and cost-free legal advice.
Editor’s note: 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.
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