Who pays the commission due a broker in light of the recent National Association of Realtors Settlement?
FAQs
Q: What are some of the most significant practice changes required by the National Association of Realtors (NAR) Settlement?
A:
- MLS participants working with buyers must enter into written agreements with those buyers;
- the settlement eliminates and prohibits any offers of compensation on MLS, including any fields that allow agent remarks.
Q: When will the practice changes take effect?
A: August 17, 2024.
Q: Can seller concessions be included on the MLS?
A: The NAR settlement prohibits both direct and indirect offers of compensation from being included on MLS. Furthermore, neither compensation agreements nor the content of compensation agreements should be added to MLS as a vehicle to offer compensation. With that being said, seller concessions may be included on a listing, but the concession language should be carefully chosen so as not to violate the terms of the settlement. Concessions are a great way to incentivize potential buyers, however, the concessions may not be conditioned on a buyer using the concession to compensate their own broker.
Q: Does the NAR settlement dictate the commission a seller must pay to their broker?
A: No. Despite the significant amount of misinformation circulating since the time the settlement was reached, there has never been a set or guided commission of 6%. One of the main purposes of the settlement is to encourage consumers to continue negotiating the compensation paid on any given transaction. All Listing and Buyer Broker Agreements must contain a conspicuous statement that broker fees and commission are not set by law and are fully negotiable.
Q: Will compensation paid by a seller or listing broker to a buyer’s broker be considered an interested party contribution?
A: In short, no.
Fannie Mae, Freddie Mac and the FHA specify limits on the amount a seller or broker may contribute to the buyer to cover the cost of services typically paid by the buyer. These payments are referred to as interested party contributions. Cooperative compensation is considered a fee customarily paid by a seller and is excluded from the interested party contributions calculation.
Q: When is a Buyer Broker Agreement necessary?
A: The NAR Settlement requires MLS participants working with buyers to enter into a written agreement with the buyer prior to touring the property.
Q: This naturally begs the question – what does it mean to “work with” a buyer?
A: An MLS participant is considered to be working with a buyer when broker services, such as identifying potential properties, arranging property tours, or presenting offers, are rendered. An MLS participant who casually interacts with or simply markets their services to a prospective buyer would not require a Buyer Broker Agreement.
Q: What does it mean to “tour” a home?
A: When the buyer and/or agent, at the direction of the agent working with the buyer, enter the house. This includes not only live tours, but also virtual tours for a buyer who is not physically present.
Q: If an agent hosts an open house on behalf of the seller, will they be required to enter into a written agreement with unrepresented buyers touring the home?
A: Open houses are hosted for the seller’s benefit. Although an agent hosting an open house may communicate information regarding the property to potential buyers, so long as the agent is not providing broker services to potential buyers touring the property, a written agreement would not be required.
Q: Does a Buyer Broker Agreement require an agent to work in Buyer’s best interest?
A: It depends. Absent an agreement to the contrary, in Florida, a broker is presumed to be working as a Transaction Broker with limited duties to both parties. If an agent is acting as a transaction broker, he or she does not represent either party to a transaction in a fiduciary capacity and only owes the following duties: dealing honestly and fairly; accounting for all funds; skill, care and diligence in the transaction; disclosing all known facts that materially affect the value of the residential property which are not readily observable; presenting all offers and counteroffers in a timely manner (unless directed otherwise in writing) and limited confidentiality with buyer.
Notwithstanding the foregoing, a buyer may insist that their broker and their associates work as a single agent, which means, in addition to the duties outlined above, they are also owed the following duties: loyalty, confidentiality, obedience and full disclosure.
Q: How many variations of the Buyer Brokerage Agreement exist?
A: The Florida Association of Realtors provides four variations of the Agreement:
- Single Agent;
- Transaction Broker;
- Single Agent with Consent to Transition to Transaction Broker; and
- Non-Representative
These forms, which were recently updated to comply with the terms of the NAR Settlement, have existed for quite some time, but many agents have never used them. Many real estate offices have created their own forms and it is therefore, important for Buyers to carefully review the form being used as each form contains different duties, obligations, and terms.
Q: Can a Purchase and Sale Agreement be used to negotiate commission?
A: Florida Realtors legal department has been discussing ways in which the contract may be useful, however, at this point in time, it is not recommended to rely on the contract when it comes to broker compensation for numerous reasons, but most importantly, a written agreement with a Buyer is required before touring a property, which occurs well before an offer is made.
Q: Does the NAR settlement apply to commercial real estate transactions?
A: The settlement focuses on residential transactions. In many markets, commercial properties are not listed on MLSs, but if they are, they may not include an offer of compensation.
Q: May a buyer sign a Broker Agreement with more than one broker at a time?
A: Yes, so long as the geographic areas and/or type of properties covered within each agreement do not overlap.
Q: Is there a standard length of time for a Buyer Broker Agreement?
A: No. While many brokers prefer agreements spanning between 3 – 6 months, the Agreement may simply cover a single day or a limited number of properties to be shown. However, most Agreements contain a protection period which essentially states that a buyer will still be obligated to pay the agreed compensation if, within a limited window after the termination of the Agreement, the buyer contracts to purchase a property that was brought to their attention during the term of the Agreement.