Has the World Exploded? The NAR Settlement, Commission Law and Rules

What is a Broker to Do?

Let’s begin by saying that the world has not exploded. There are important changes taking place that have a particular impact on brokers who are REALTOR members. Earlier this year, the National Association of REALTORS® (NAR) entered into a settlement agreement in which it agreed to the following two practice changes, among other things:

1. Compensation offers are prohibited in a Multiple Listing Service MLS.
2. MLS participants working with buyers are required to enter into written agreements with their buyers before touring a home.

To have a full understanding of these practice changes and their relation to License Law and Commission Rules, brokers must understand that this change is mandated as part of a civil settlement between private parties and does not change or override License Law, or Commission rules. It involves members of NAR, state and local REALTOR associations, and various[KC1]  MLS entities. The Commission licenses and regulates brokers who are members of these various entities, but many of the Commission’s licensees are NOT members of any of these entities. Those licensees may be impacted but are not otherwise subject to these new rules.

Now let’s dive into the two major practice changes for brokers who are subject to the settlement.

A. Compensation Offers

Communication with buyers and sellers has always been essential, but in the post-settlement world, it is imperative. If you are a listing broker, you should discuss offers of compensation with your seller-clients at the time of listing and explain the pros and cons of offering compensation. If they are agreeable to such an offer, they can sign NC REALTORS® Form #220 (Cooperating Compensation Agreement) up front and you can have it ready for any prospective buyers. The seller can also delay agreeing to any offer of compensation until a later date or decide to do so on a case-by-case basis.

If you are seeking to represent a buyer, once you have made the proper agency disclosure utilizing the, “Working With Real Estate Agents” (WWREA) publication, a proper agency relationship should be established either orally or in writing to meet the requirements of Rule 58A .0104. As part of the creation of the agency relationship, you should disclose the full amount of your fee in your discussions and explain to your client that if they choose a home with an offer of compensation, and that offer is less than their fee, the client will be responsible for paying the difference. If there is no offer of compensation, the buyer will be responsible for paying the full fee to you at closing. When you identify properties that meet your buyer’s criteria, you should determine whether or not there are offers of compensation on each property and present that information to your buyer-client so they can determine which properties they want to view. In this way, the buyer is able to make a fully informed decision. If you cannot determine whether or not there is an offer of compensation, you should inform your buyer of that as well and remind them of the possible scenarios.

Here are a few important things to know about offers of compensation involving North Carolina brokers who are subject to the REALTOR settlement:

1. Are compensation offers eliminated? Absolutely not. They are prohibited from being offered in the MLS, but they may still be offered by either the listing firm/broker or the seller.
2. Can I attach a contingency to the standard offer to purchase making the offer contingent on an agreement to compensate me as the buyer agent? No. Commission Rule 58A .0112 prohibits this. Any offer to compensate a buyer broker is between the listing firm/broker or the seller and the buyer broker and should not be part of the contract between the buyer and the seller.
3. Can a buyer ask for seller concessions in their offer and use those concessions to pay their buyer broker? Yes. However, seller concessions can be used by the buyer for whatever purpose the buyer chooses and there is no guarantee they will be used to pay the buyer broker.
4. If a buyer broker uses the NCR form 220, can it be sent to the listing broker simultaneously with the offer to purchase? As a last resort, yes. However, the buyer broker must be clear that the offer is not contingent on the signing of the 220. The buyer must also understand that the seller might sign the offer, creating a binding contract, but not sign the 220 agreeing to pay the buyer broker compensation or they may sign the 220 agreeing to only part of the compensation, leaving the buyer responsible for the rest.
5. Can the buyer broker send form 220 and an unsigned offer to purchase, and wait for the seller to sign both before the buyer signs either? Yes. Keep in mind that even if the seller agrees to both as submitted, no contract will be formed until the documents are signed by all parties and acceptance is communicated. The best practice is for a buyer broker to determine what properties suit their buyer client’s needs, what compensation is being offered, if any, and present the properties and offers of compensation to the buyer to determine which properties the buyer may want to view or consider further based on their own financial situation.
6. If I am a listing broker, is it better for my seller to not agree to offer compensation up front and wait to see what the offer is before agreeing to pay a buyer broker’s fee or to go ahead and offer it up front? Either is an option, and in both cases the seller can consider their bottom line in the context of the negotiation process.
7. If I am a listing broker, and my seller signs a 220 before receiving any offers, does that mean they have to accept the first offer that comes along, or they still owe the buyer broker compensation? Certainly not. In the past, cooperating compensation was offered up front through the MLS, and buyers submitted offers that were not accepted, and no payment was due. Now, even though cooperating compensation offers are no longer made through the MLS, and the offer of compensation may not be the same from one property to the next, merely announcing the compensation offered in the event of a successful transaction does not bind the seller until a final agreement is reached. Listing brokers/firms should consult with their own attorneys to determine the best methods of advertising offers of compensation to remain in compliance with the terms of the NAR settlement. Just remember, form 220 states that the entitlement to the compensation will be determined by the buyer broker’s performance as the procuring cause of any sale of the property to the broker’s client. The seller can still negotiate any offer.

Written Agreements with Buyers

Under the terms of the NAR settlement agreement, beginning August 17, 2024, MLS participants working with buyers are required to enter into written agreements with their buyers before touring a home. Touring a home includes situations where the buyers and broker visit the home and walk through it together as well as when the broker visits the home and provides a video tour for the buyers who may not be local. It does not include videos posted by a listing broker to advertise the property, even when those are viewed by a buyer.

The NAR settlement language does not require an agency agreement, just a written agreement.  However, a North Carolina broker cannot be a non-agent; the broker must either represent the seller or the buyer and should use the Working with Real Estate Agents Disclosure form to make the appropriate disclosure. If the broker is representing the buyer, the Commission rules allow an oral agency agreement until the time an offer is written, but the settlement requires an agreement in writing.

Buyer brokers have always had the option of requiring buyers to sign a buyer agency agreement prior to touring any homes. Some are concerned that a buyer may not be ready to sign a full buyer agency agreement at that point in time. Those brokers may choose to use a non-exclusive buyer agency agreement.  Other entities have created “touring agreements” that permit a broker to show a home to a buyer. These touring agreements contain provisions for some small fee or no fee at all, and are limited to one day, one week, one property, etc. As stated earlier, communication with a potential buyer-client is crucial at this stage, including an understanding of who the broker represents – buyer or seller. It must be one or the other. Buyer brokers should discuss each of these possibilities with buyers and let the buyer determine which is best for them.

Any touring agreement or other type of agreement designed to meet the NAR settlement requirement must comply with Commission rule A.0104. This rule includes both agency agreements and any other agreements for real estate brokerage services. Touring a home with or for a buyer is a real estate brokerage service, so any agreement for these services must be for a definite period of time, include the broker’s license number, provide for termination without prior notice at the expiration of that period, and contain the required Fair Housing language.

Brokers-in-charge should create written policies and train their affiliated brokers in how to navigate working with sellers and buyers and emphasize communication with all parties as being key. The world is not exploding, it is a shift in the practice of brokerage that can be navigated by thoughtful planning and communication. In the end, the goal remains the same for all, and that is to find buyers for sellers wanting to sell and helping buyers get into a home that meets their needs. All parties working together can continue to make the dream of home ownership a reality.