Home Buyers Must Sign Written Compensation Agreement with Realtor Broker

In 2023, a handful of plaintiffs sued the National Association of Realtors (“NAR”) in a class action. The plaintiffs claimed NAR artificially set commission rates and increased prices by forcing sellers to pay both sides of a sale. They also claimed buyers were indirectly paying commissions to Realtors working with buyers through co-broke commissions paid by sellers to the seller’s broker. Buyers were indirectly paying the Realtor working with the buyer, but neither the buyer nor seller had control over amount or manner of payment.

NAR settled that lawsuit by agreeing to pay $418 million and change the way Realtors do business for no less than seven (7) years. Payment by NAR has not been a concern to home buyers. The change in how Realtors do business has often been a point of both confusion and friction.

The Plaintiffs wanted to make sure that sellers are not paying Realtors working with buyers. The settlement mandates that a Realtor working with a buyer has a signed compensation agreement with a buyer before touring a home with the buyer. Commercial properties are excluded. The agreement must be in writing and set the amount the buyer will pay for the Realtor’s assistance. The amount set by the agreement is the maximum the buyer’s broker can get paid from the transaction. Remember, it is the broker who is entitled to payment not the Realtor agent (although the agent will have an agreement of payment from that agent’s broker).

A Realtor working with a buyer cannot tour a home with the buyer unless the buyer has signed a written broker compensation agreement. That resolves the plaintiffs concern that sellers were paying commissions with no control over the amount. Touring means going through a residence and includes virtual tours.

The required agreement can be property specific, exclusive or non-exclusive and of duration agreed to by the parties. It must be written and the compensation to be paid must be objectively determinable. It cannot be agreed that the buyer’s broker will get paid whatever the seller’s broker or seller agrees to pay.

Many buyers complain vehemently about paying a Realtor to help find a home. They want the Realtor’s expertise and assistance but are so used to getting that assistance without directly paying for it. They balk at the new requirement. The seller always paid and most buyers do not want to change that, unlike the plaintiffs in the NAR lawsuit.

Good news for these buyers is that the settlement agreement does not prohibit a seller’s broker from paying a buyer’s broker. That means a lot of the buyer broker agreements include clauses providing for buyer broker seeking compensation from the seller’s broker or even from the seller to reduce or eliminate the buyer’s payment obligation. Even with that clause, the buyer’s broker is capped at the amount of compensation in the agreement with the buyer.

The settlement agreement also prohibits using the Realtor Multiple Listing System (“MLS”) to advertise compensation payable by the seller’s broker to the buyer’s broker upon successful sale. Before the settlement, MLS was used for that exact purpose. Since the settlement is intended to have buyers pay their brokers, advertising a split of compensation from the seller in MLS is barred.

Buyer brokers now have to contact the seller’s broker to find out what compensation is offered from the seller or seller’s broker. The smart ones get that in writing. The buyer can then decide if the buyer wants to tour that property. In some cases, buyers direct their Realtor to only show property from which the buyer’s broker will get paid from the seller side one hundred percent (100%) of the amount the buyer agreed to pay. When appropriate, buyers even include contingencies on seller side payment in offers to purchase.

Buyer brokers cannot steer customers to the properties offering compensation from the seller side of their own volition. They can steer if directed to do so by the buyer.

The settlement agreement also requires buyer agreements and seller listing agreements both include conspicuous language disclosing that commissions are not set by law and are fully negotiable.

Buyers are not the only ones affected by the NAR settlement. Sellers must now be given options on compensation to buyer brokers through the seller’s broker, direct compensation or concession by the seller directly to the buyer. Unlike commission splits, seller concessions to a buyer can be published in MLS. The settlement agreement contemplates seller concessions to a buyer are not Realtor compensation, although the buyer could use the concession to pay the buyer’s broker.

The settlement agreement is binding on NAR, but local Realtor associations and local MLS services had to opt-in to be included. To opt-in meant the local association would be included with the protection that settled claims could not be litigated against an association. Almost all opted-in to avoid copycat suits.

Some sellers are now arguing they won’t pay buyer brokers but find their property of little interest to buyers who require their broker get paid by the seller side. Buyers balk at agreeing to pay, but most agree when they limit liability by requiring the broker to get paid from the seller’s side. In short, the way things are done is different, but the result is almost the same as before the NAR lawsuit settled.