Buyer Broker Agreement: A Post-NAR Lawsuit Settlement Guide

Significant changes are coming to how real estate professionals do business starting this August 2024. New rules will ensure transparency in our industry after the National Association of REALTORS® (NAR) lawsuit settlement.

In the spotlight is the mandatory written buyer-broker agreement in Multiple Listing Services (MLS) ruled by NAR.

The Sitzer-Burnett case and lawsuit showed how buyer brokers work with their clients. While NAR encouraged the signing of written buyer representation agreements, it was not an obligation.

Making them mandatory guarantees professionalism in our field. A legally binding contract protects both parties and clarifies the extent of their fiduciary relationship. That way, there will be less room for other anti-trust litigations.

Read this guide to learn about the NAR’s buyer representation contract requirement. Understand how to navigate these changes in the real estate industry.

What is a Written Buyer Broker Agreement?

First, let’s learn the definition and then discuss how it will affect REALTORS® and real estate professionals.

Simply put, a written buyer broker agreement is a legally binding real estate contract that formalizes the terms of your work relationship with your buyer.

It outlines your services, their cost, and the responsibilities of both parties. This helps avoid misunderstandings by making making your real estate transactions clear.

How Will the NAR Changes Work Regarding Buyer Broker Agreements?

NAR’s settlement says MLSs participants who work with buyers must have a signed agreement with buyers before showing homes.

An MLS is a database created by cooperating real estate brokers to provide information about properties for sale. The agreement ensures that both the buyer broker and the potential buyer know what to expect and can trust each other.

Let’s understand each of these terms according to NAR’s own definitions:

• MLS participants: brokers, brokerage firms, and agents working for them who are part of Multiple Listing Services owned and/or regulated by NAR.

• Working with buyers: Providing buyer broker services, such as identifying potential properties for clients, arranging tours to properties, facilitating negotiations between buyers and sellers, and other services.

• Touring a home: When the MLSs participants or agents working for them enter a home to provide a live, virtual tour to a buyer not physically present.

• Home: It’s a residential property of at least one or more than four residential dwelling units.

Notice that marketing their services, talking to buyers in an open house, or providing an unrepresented buyer access to a listed house does not mean working with buyers in this NAR policy.

However, dual agency cases do enter into this policy as the real estate agent and broker are also working with the buyer. If they’re only seller brokers, they’re not part of it.

Who Are Impacted by NAR’s New Regulations?

All brokers, agents, and firms that follow NAR rules must comply. If you’re helping a buyer, you must get a signed agreement before showing any properties. This is true no matter your relationship with the buyer (agency, non-agency, subagency, customer, transactional, etc.)

Since When Is a Buyer Representation Agreement Required?

The written agreement must be signed before you start touring homes. While you can sign it earlier if state laws mandate it, the latest it can be signed is right before your first home tour with the potential buyer.

When Does the NAR Settlement Take Effect for Mandatory MLS Policy Changes?

The mandatory buyer representation agreements will be effective beginning August 17, 2024.

NAR Requirements for a Written Buyer-Broker Agreement

According to the National Association of REALTOR®, starting August 17, if you’re a MLSs participant, you must adhere to the following mandatory provisions for the written buyer agreements:

• Specify and disclose the amount or rate of any compensation: Clearly state how much you will be compensated for your services, including any fees, and who is responsible for paying them.

• Ensure compensation is objectively ascertainable and not open-ended: The amount of compensation should be fixed and not left open-ended. Avoid vague terms like “whatever the seller offers.”

• Confirm you cannot receive more than the agreed amount: Make sure the agreement states that you cannot accept compensation exceeding what’s agreed upon with the buyer, even if a seller offers more.

• Disclose that broker commissions are negotiable: Clearly inform buyers that commissions are not legally set and can be negotiated.

• Include any provisions required by law: Ensure the agreement meets all local and state legal requirements.

What NAR Won’t Dictate in a Buyer Brokerage Services Agreement

The post-NAR settlement agreement doesn’t dictate the nature of the professional relationship between MLSs participants and buyers, meaning it could be agency, non-agency, subagency, transactional, or customer.

For example, it means there could be a non exclusive buyer representation agreement or a exclusive buyer agency agreement, as long as there’s a written contract that follows the NAR requirements.

Other aspects it won’t tell you are:

• The professional relationship you need to have with your buyer: The relationship can be agency, non-agency, subagency, transactional, or customer.

• The specific services you provide or how much they should cost: You can offer a range of services, and your fees can be structured as a flat fee, hourly rate, or percentage.

• How long the agreement should last: The term of the contract can be as short or long as you and the buyer agree upon.

How State Laws Impact Broker’s Agreements with Buyers?

In some states, buyer contracts, such as real estate buyer agency agreements, are mandatory. They can have specific regulations regarding the contracts or the relationship between real estate professionals and their clients.

Some states may update their legislation after NAR’s settlement. So, always check your local and state laws in addition to NAR requirements. Remember, MLS policies are still subject to state and local laws and regulations. Make sure your contract meets all legal standards to avoid future issues.

What to Include in a Written Buyer Representation Agreement?

After the announcement, it is expected to be concerned about how to make a buyer-broker agreement that meets all NAR requirements. The bad news is that there is no national standard contract, so the first thing to do is to search locally.

Check if you can use a standardized buyer representation agreement in your brokerage firm or local REALTOR® Association. If not, “consult legal counsel to draft an agreement or ensure it complies with your state laws and MLS policies,” recommended in NAR Realtor Magazine, Lynn Madison, a REALTOR® in Schaumburg, Il. and CEO of Madison Seminars.

According to NAR, your agreement should be clear and easy to read. Besides their mandatory provisions, the association advises to include:

• Broker services: Clearly state what services you will provide, such as finding properties, arranging tours, and negotiating offers.

• Consumer protection details: Disclose the buyer’s obligations and fiduciary duties, and include an Equal Housing Opportunity statement.

• Term and termination: Define how long the agreement lasts and how it can be terminated, either with or without cause.

• Compensation and fees: Detail your real estate commission, including any retainer fees and how they apply to the total compensation.

• Conflicts of interest: Explain how potential conflicts of interest will be handled, such as representing multiple buyers interested in the same property.

• Dispute resolution: Include options for resolving disputes, such as mediation or arbitration.

Buyer Representation Agreement Example

The Consumer Federation of America (CFA) also has an opinion on the matter. After the NAR settlement news in March, they’ve been evaluating industry buyer contracts for the past several months.

In their research, they claim to have found that many are anti-consumer. They explained that the contracts don’t have a clear enough format and text. Besides, they also have problems in presenting provisions like compensation, dispute resolution, and dual agency, among others.

On the other hand, they found a buyer broker agreement that satisfied their expectations and was good for home buyers. That was the one of eXp, a leading national real estate company, and they recommend it as a suitable buyer representation agreement example.

“This agreement can serve as a model for how Realtor organizations and brokerages can craft an agreement that is much more understandable and fairer to everyday buyers,” said the Consumer Federation of America.

Anyway, before using any examples, get legal advice and understand NAR rules, state laws, and your brokerage’s procedures. If you’d like to review it, here is the eXp buyer representation agreement pdf.

Benefits of a Buyer Brokerage Services Agreement for Real Estate Professionals

Don’t view a buyer broker agreement as a complication. Think of it as a way to demonstrate professionalism and protect yourself.

You can benefit from them even if you’re not a REALTOR® or an MLS participant. It spells out all the details so there are no surprises. Is there a problem with your compensation? Show what the agreement states.

Having everything in writing can help prevent disputes and give you a legal leg to stand on if something goes wrong. It is a legally binding document, after all.

Also remember buying a home or any other property is a significant financial decision. Clients will feel more confident and would likely hire you if there’s a written agreement too.

Potential Penalties for the Lack of Buyer Representation Contracts

What happens if REALTOR® doesn’t comply with them? The settlement itself doesn’t state what penalties could be in case of failure to follow the new rules. The NAR only informs that the MLSs will enforce the rules.

However, if MLS participants don’t follow the new rules, the association might fine, suspend, or expel them. Legal issues and damage to their reputation are also possible.

That’s why it’s so important to understand all NAR policy changes and to apply them correctly. In any case, when in doubt, always seek the help of your local REALTOR® Associations and real estate attorneys.

Pieces of Advice for REALTOR® Following Mandatory Buyer Broker Agreement Policy

We know telling your clients to sign a contract can be difficult. It could worry them and set them back, especially if they feel pressured.

But don’t worry. The key is to explain your services and the contract’s benefits clearly. Be open about compensation and ensure clients understand how it works in their favor.

Brokers should train their agents to explain buyer agreements confidently. And agents could benefit from some extra training.

NAR’s free course Accredited Buyer’s Representative (ABR®) could also be a good place to start preparing.

Summing-up

Written buyer representation agreements are a win for both you and your clients. They build trust and protect everyone involved.

Here is a sum-up of what you need to know:

• Starting August 17, 2024, MLSs participants working with buyers need a signed agreement before showing homes.
• Ensure the agreement meets all NAR requirements and local and state legal laws and regulations.
• Contracts must have buyer broker compensation transparency, including the compensation amount or rate and other fees.
• Make the agreement easy to read and understand.

The NAR settlement makes these agreements mandatory for MLS participants. Still, they are a smart practice for all buyer agents and brokers. Get ready for these changes and succeed in your real estate journey!

FAQs About the NAR Lawsuit Settlement Agreement*

What is the NAR lawsuit settlement agreement?

In March 2024, the National Association of REALTORS® (NAR) reached a proposed settlement agreement to resolve claims made by home sellers about broker commissions. This agreement releases NAR, over one million NAR members, state and local REALTOR® associations, REALTOR® MLSs, and certain brokerages from liability related to these claims. However, this release does not include agents affiliated with HomeServices of America and its related companies and employees of the remaining corporate defendants. The settlement aims to resolve these legal issues while allowing NAR and its members to continue their work in the real estate industry.

Who is covered under the NAR settlement agreement?

The settlement covers NAR, over one million of its members, all state, territorial, and local REALTOR® associations, and all REALTOR® MLSs. It also covers brokerages with an NAR member as principal if their residential transaction volume in 2022 was $2 billion or below. Those covered by the settlement don’t need to opt in—they are automatically included.

What does the settlement mean for offers of compensation on an MLS?

As part of the settlement, NAR will implement a new rule prohibiting compensation offers on an MLS. Starting August 17, 2024, sellers can no longer offer buyer broker compensation directly on an MLS. However, compensation offers can still be made off-MLS through negotiation with real estate professionals. Sellers can also offer buyer concessions on an MLS, such as covering closing costs.

Will buyers need to sign agreements with their brokers before touring homes?

Yes. The settlement requires MLS Participants who work with buyers to enter written agreements with their clients before touring homes. While NAR has encouraged the use of written contracts for years, this requirement will officially go into effect on August 17, 2024. This change ensures clarity and transparency in the relationship between buyers and their brokers.

How much will NAR pay as part of the settlement?

NAR will pay $418 million over approximately four years as part of the settlement. Despite this substantial payment, NAR has assured its members that membership dues will remain the same for 2024 or 2025 due to this settlement.

Does NAR admit any wrongdoing in this settlement?

No, NAR continues to deny any wrongdoing. NAR maintains that cooperative compensation and its current policies benefit both buyers and sellers, particularly by promoting access to property ownership for lower- and middle-income buyers. NAR is confident that, despite the settlement, it can continue to achieve these goals and support its members effectively.

How will buyer brokers get paid under the new rules?

Buyer brokers will still be able to receive compensation, but the process will change slightly. Compensation offers will no longer be listed on an MLS but can still be negotiated off-MLS. Buyers and their agents can agree on various compensation methods, such as:

• A fixed-fee commission paid directly by the buyer
• A concession from the seller
• A portion of the listing broker’s compensation

Compensation is still negotiable and should always be discussed and agreed upon between the buyer and their broker

* Source of information: NAR Settlement FAQs