A Summary of Updated Realtor Forms and Issues Relating to the NAR Settlement

The National Association of Realtors reached a settlement affecting residential real estate transactions that resulted in major changes to Realtor compensation practices effective August 17, 2024. These changes apply only to residential transactions and do not apply to commercial or land transactions.

The settlement is centered on two primary changes. First, Realtors may no longer use the Multiple Listing Service to advertise or disclose compensation information of any kind. Second, any Realtor working with a Buyer in any capacity must enter into a Buyer Broker Agreement or a Showing Agreement with the Buyer prior to touring or showing any property. This agreement must clearly disclose the compensation method.

Key Practical Implications of the Settlement

Although Sellers’ Realtors may no longer advertise Buyer Broker compensation through the MLS, Sellers may still offer concessions or payments through other means such as websites, social media, open houses, or other advertising materials. Realtors should not avoid showing properties solely because compensation is not advertised, as compensation issues may be addressed during contract negotiations.

Buyer Broker Agreements and Showing Agreements apply only to Realtors working with Buyers, not Sellers. These agreements must be executed before any property is toured, and the compensation must be stated as a specific amount. Compensation ranges are not permitted.

New and Revised Realtor Forms

As a result of the settlement, several new and revised forms were created. These forms generally fall into three categories and will likely be used in most residential transactions.

1. Revised Listing Agreements

The Listing Agreement remains the contract between a Seller and a Realtor to list property for sale. A key revision is the addition of Paragraph 3(c), which allows Sellers to authorize a set dollar amount for concessions or payments, including Buyer Broker compensation. This amount must be a specific dollar figure and may not be stated as a percentage.

All references to paying a Buyer’s Broker have been removed from the Listing Agreements. Paragraph 9 now expressly advises Sellers that they may, but are not required to, compensate a Buyer’s Broker upon closing. Sellers may choose to enter into a separate written agreement to do so or may approve the Broker to pay the Buyer’s Broker using one of the permitted compensation methods.

2. Compensation Agreements

New Compensation Agreements were introduced to address how Buyer Broker compensation is paid. There are two primary Compensation Agreement forms.

The first is the Seller’s Broker to Buyer’s Broker Compensation Agreement. Under this agreement, the Seller’s Broker pays the Buyer’s Broker, but the compensation may not exceed the amount stated in the Buyer Brokerage Agreement. This agreement binds only the Seller’s Broker, not the Seller. Therefore, a separate contract addendum should be used to obligate the Seller to fund the compensation arrangement.

The second is the Seller to Buyer’s Broker Compensation Agreement. This agreement allows the Seller to directly pay the Buyer’s Broker. This approach simplifies settlement statements, allows title companies to disburse compensation directly to each broker, and may reduce documentary stamp tax and title costs. This agreement may be executed in advance, with Buyer Broker details added later.

A third compensation scenario is no compensation being offered at the time of listing. In this situation, no Compensation Agreement is required. However, Buyers may still submit offers requesting compensation, which must then be addressed in a separate agreement if accepted.

3. Buyer Brokerage Agreements and Showing Agreements

Buyer Brokerage Agreements and Showing Agreements are now mandatory for Realtors working with Buyers. One of these agreements must be signed before the Buyer tours any property.

The Exclusive Buyer Brokerage Agreement is the most comprehensive option and allows the Realtor to represent the Buyer for all properties and locations. The compensation amount must be agreed upon in advance and stated as a specific amount. Any compensation received from a Seller or Seller’s Broker reduces the amount owed by the Buyer.

A Showing Agreement is designed for Buyers who wish to view only specific properties for a limited period of time. Either party may terminate the agreement at any time, but if a closing occurs on a property identified in the agreement, the Buyer’s Broker is entitled to compensation.

A Property Pre Tour Agreement is a simple one page agreement applicable to a single property. It may later lead to a Showing Agreement or an Exclusive Buyer Brokerage Agreement.

It is acceptable to include language allowing the Buyer to instruct the Realtor to show only properties where Buyer Broker compensation is paid by the Seller or Listing Agent. This may be especially useful for Buyers with limited cash.

Important Compliance Considerations

If a Buyer refuses to sign any of the required Buyer Broker or Showing Agreements, the Realtor may not show the Buyer any property. Realtors should start with the simplest agreement and progress to more comprehensive agreements as the relationship develops.

It is critical that Realtors use only the most current versions of these forms. Older forms do not contain the required provisions and may violate settlement requirements, including antitrust provisions.

Conclusion

As a result of the NAR settlement, communication and transparency are more important than ever. Compensation information can no longer be conveyed through the MLS, and Realtors must rely on clear agreements and open discussions with Buyers and Sellers. Understanding and properly using the revised forms is essential to completing compliant and successful residential real estate transactions.

Source: Barnes Walker Educational Series, November 2024