WERC, in collaboration with a volunteer group of experts, has compiled FAQs to help talent mobility professionals learn about U.S. buyer broker compensation process and practice changes, resulting from a proposed settlement to various ongoing litigation announced by the National Association of Realtors (NAR) on 15 March 2024. These FAQs are provided for general information purposes only and will continue to be expanded as additional information is available.
The Frequently Asked Questions (FAQs) below have been created as an educational resource to help talent mobility professionals learn about U.S. buyer broker compensation process and practice changes, resulting from a proposed settlement to various ongoing litigation announced by the National Association of Realtors (NAR) on 15 March 2024.
FAQs were compiled based on input from experts across the talent mobility industry that are members of WERCs new ad hoc volunteer group examining the impacts of the buyer broker compensation litigation and its ramifications for talent mobility. Nearly 60 individuals representing the broker, corporate, mortgage and lending, relocation management company, and real estate related services sectors are currently volunteering their time and expertise as part of this ad hoc group.
These FAQs are provided for general information purposes only and WERC makes no representations regarding its accuracy or completeness. WERC strongly suggests consulting with your tax and legal advisors to determine the appropriate policies and practices for your organization.
This FAQ resource will continue to be expanded and updated in the coming weeks as additional information is available. If you have a topic or question you are interested in seeing included in future iterations, please contact Mike Jackson, WERC vice president of member engagement and public policy.
NAR Settlement Overview
How much did NAR settle for?
NAR agreed to settle for the sum of $418 million. This sum will be paid as follows: $5 million upon preliminary approval of the settlement agreement; $197 million within 90 days of final approval of the settlement agreement; $72 million within one year of the approval of the settlement agreement; and $72 million within two years of approval of the settlement agreement.
What happens next with respect to the settlement agreement?
The settlement agreement is still subject to preliminary approval by the court, followed by a period in which class members (home sellers included in the underlying class action cases) and other parties may object to the settlement between the plaintiffs and NAR. In addition, the U.S. Department of Justice (DOJ) may choose to assert a position regarding the settlement terms. It will be several months before it is known whether the settlement will become final.
Were all brokerages and agents released from liability as part of the NAR settlement?
No. Various parties were excluded from the settlement. Brokerages with annual closed sales volume (based on calendar year 2022) of more than $2 billion were not included as released parties in the settlement. HomeServices of America (HSOA), its related companies, and its licensed agents are excluded from the proposed NAR settlement as HSOA is continuing to contest the cases through the legal process. Additionally, employees of defendant companies in the Umpa and Gibson cases are not covered as part of the settlement.
Are those parties (agents and brokerages) that were included in the settlement released from all liability?
The proposed settlement by NAR is limited to claims brought by sellers about the commission structure. There is also a pending class action case brought by buyers whose alleged claims relate to the commission structure. The proposed settlement by NAR does not afford any protection to any agents or brokerages from those claims.
Does it matter where an agent is licensed (affiliated) to be included in the settlement agreement?
No. The settlement agreement is specific to a certain time period (29 April 2014, or later in Missouri, and 29 April 2015, or later in Illinois or Kansas). Those transactions, and any resulting liability is connected to where an agent was affiliated at the time of the transactions and not where they are affiliated later.
Real Estate-Related Process Changes
What business practices would change because of the settlement agreement?
There are several business practices that were specifically included in the settlement agreement. Some were included in past settlement agreements with other defendants, while some were newly included in the NAR settlement. Below are the amended business practices newly added in the NAR settlement agreement:
- Prohibit any requirement by NAR that sellers or listing brokers must make offers of compensation to a buyers representative;
- Prohibit offers of compensation to buyer representatives on MLS systems subject to the terms of the settlement, including the elimination of the current broker compensation field on the MLS;
- Prohibit the disclosure of listing broker or the total combined compensation (i.e., the listing broker compensation and cooperating brokers compensation) on the MLS;
- Prohibit the creation, support or facilitation of any non-MLS mechanism (including internet aggregator websites) for listing brokers to make offers of compensation to buyer representatives. Brokerages, however, would be permitted to include compensation-related information on listings posted on their company websites; and
- Require buyer representatives to enter into a written agreement with buyers prior to the buyer touring any home. These agreements must set forth the amount or calculation of how a buyer representative will be paid and in no event can a buyer representative collect more than what is stated in the written agreement with the buyer.
When will these new amended business practices go into effect?
According to a timeline published by NAR on 3 April 2024, these new practices are anticipated to go into effect in late July 2024. This new time frame reflects an adjustment from the mid-July target indicated by NAR in its announcement of the proposed settlement.
This timeline could be adjusted further depending on when the motion for preliminary approval is filed, but any changes that might occur would be limited because the implementation window for NAR is spelled out in the proposed agreement. We anticipate NAR will utilize the next several months to provide training, guidance, and education around these new practices.
Which MLS networks would be covered under the process changes outlined in the NAR settlement?
To be subject to the terms of the settlement, an MLS must either be owned or controlled by NAR-affiliated regional associations or specifically choose to opt into inclusion under the terms of the settlement. According to a March 2024 Real Estate News article, 30 MLS systems across the United States are not association-owned and would have to decide whether to opt into the settlement and the associated terms.
Can listing brokers still make offers of compensation to buyer representatives?
Yes. The settlement agreement only prohibits the current practice of entering the offer of compensation into a designated field within the MLS.
How will listing brokers extend offers of compensation to buyer representatives?
Details are still to be determined and it is too early to definitively answer this question. The settlement agreement permits brokerages to display offers of compensation on their own listings on their own websites. Brokerages may be able to enter into separate letter agreements with one another setting forth cooperative compensation offerings as they did prior to the MLS facilitating this process. Finally, the proposed settlement permits the display, via MLS, of seller-offered €œconcessions€ for e.g., €œclosing costs.€ While such an offer cannot be earmarked specifically for buyer agent compensation, it can, at the discretion of the buyer, be used to fulfill the payment obligation to the buyer agent set forth in the required buyer representation agreement. We anticipate that NAR will provide training, guidance, and education around the terms they agreed to in the settlement with the plaintiffs.
What does it mean that a non-MLS mechanism (including internet aggregator websites) cannot be used to facilitate offers of compensation?
Details will follow, and we anticipate that NAR will provide training, guidance, and education around the terms they agreed to in the settlement with the plaintiffs. However, presumably this is a prohibition against any non-brokerage website that receives a data feed from a settlement-covered MLS from establishing a separate, centralized repository for listing brokers to make offers of compensation to buyer representatives (and thereby essentially replacing what the MLS currently handles). While brokers may publish offers of compensation pertaining to their own listings on their own websites, portals and other heavily trafficked online real estate websites and apps that receive an MLS data feed may not do so.
Buyer Representation/Agency Agreements
Will agents have to use a buyer representation/agency agreement?
The terms of the proposed settlement require all MLS participants (i.e., all agents belonging to a covered MLS) to enter into buyer agreements with buyers prior to touring a home. This requirement to have a buyer representation/agency agreement would be tied to MLS networks subject to the agreement, which would likely encompass nearly every MLS across the United States.
Requirements under this settlement would be in addition to, and would need to comply with, any current and/or future state and local requirements related to buyer representation/agency agreements. Currently, 18 states already require buyer representation/agency agreements, with specific requirements varying by state. In Georgia, for example, buyers must sign an agreement upfront that establishes the terms of engagement with the REALTOR® in the real estate transaction. Prior to engaging with the home search process, buyers should be presented with the Georgia Association of REALTORS (GAR) exclusive buyer brokerage engagement agreement which clearly documents how the buyers agent will be compensated.
What states currently require buyer representation/agency agreements?
The following 18 states currently have requirements surrounding buyer representation/agency agreements:
- Alaska
- Arkansas
- Georgia
- Idaho
- Maryland
- Minnesota
- Missouri
- Nebraska
- New Hampshire
- North Carolina
- North Dakota
- Pennsylvania
- South Carolina
- Utah
- Vermont
- Virginia
- Washington
- Wisconsin
Additionally, Indiana has enacted requirements that will go into effect on 1 July 2024 and Oregon has enacted requirements effective 1 January 2025.
Other states are considering buyer representation/agency requirements. The number of states with requirements will likely increase in the coming months.
What does it mean that the buyer agency/representation agreement must be signed before a buyer tours a property?
We anticipate that NAR will provide training, guidance, and education around the terms they agreed to in the proposed settlement. However, there is a presumption that this provision refers to actual physical in-person property showings where a buyer is accompanied and guided by a buyer representative. Although not addressed in the settlement agreement, it would not appear this requirement would apply to a buyer touring an open house or model home and unaccompanied by a buyers representative. Overall, the increased use of buyer representation agreements is a positive for the industry.
Mortgage and Lending-Related Considerations
Can buyer agent compensation be rolled into mortgage loans?
Under existing guidelines established by lending agencies such as Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), agent compensation cannot be incorporated into a mortgage loan. Updates to the lending system and its associated guidelines would likely require both regulatory and Congressional action to implement. According to its Financing FAQs, NAR has indicated that it is engaging with the agencies and Congress on this issue, but a change in guidelines is not anticipated in the near term.
Can commissions to a buyer agent be considered an interested party credit (IPC)?
According to FAQs released by NAR and by the FHA, under current guidelines, buyer commissions that are €œtraditionally and customarily€ paid by the seller could not be considered to be interested party contributions (IPCs). FHA did indicate in its FAQs that it would €œmonitor the real estate marketplace for changes resulting from the settlement for potential impacts to its policies and will address additional questions as they develop.€
How do changes to how agent commissions are handled impact buyers securing loans through the Veterans Administration (VA)?
Under current guidelines for VA loans, a buyer cannot be charged or pay for broker-related fees and/or commissions. Engagement with the VA to get clarification on this matter in light of the compensation litigation and the proposed NAR settlement is ongoing, but there is no indication if or when the VA may change existing requirements.