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There’s a lot of confusion around the particulars of the National Association of Realtors (NAR) commission lawsuit settlement and the resulting business practice changes.
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Inman contributor Cara Ameer has been asking good questions since the settlement was announced. Compliance expert Summer Goralik has the answers to some of Ameer’s questions from “13 more questions agents should ask about commission settlements” as we head into the post-settlement transition phase as an industry.
1. How exactly will Buyer Agency 2.0 be monitored and enforced, if there will be such a thing?
Before diving into enforcement, it’s important to clarify the changes and how “buyer agency” fits into the new framework. According to the National Association of Realtors’ (NAR) frequently asked questions (FAQs), published on their website, the proposed settlement agreement in response to the nationwide antitrust commission litigation does not dictate the type of agency relationship between a buyer and their agent.
Instead, it requires that agents have a representation agreement in place before touring a property with a buyer. This agreement should outline the real estate services to be performed, the compensation structure and relevant disclosures.
Specifically, NAR has clarified that the written agreement must clearly state the amount or rate of compensation the licensee will receive, or how it will be determined, including any compensation from third parties. The compensation must be objectively ascertainable and not open-ended.
Additionally, the agreement must prohibit the licensee from receiving any compensation beyond what is agreed upon with the buyer as well as include a conspicuous statement that broker fees and commissions are negotiable and not set by law.
It’s important to note that agency relationships between principals and their agents are usually governed by state laws. This means there are state requirements covering when and how agency relationships are established, when client disclosures are required, and the scope of those relationships and duties. As such, enforcement of these laws can come from various sources, including state departments of real estate and private legal actions.
Returning to the question of how buyer representation agreements will be enforced, NAR has stated that local Multiple Listing Services (MLSs) will be responsible for ensuring compliance with these rules, along with other regulations within their authority. Based on my experience in California, licensees typically submit required documents to the MLS only when requested or after an issue has been identified and an investigation into a potential violation has been initiated.
Therefore, in this case, licensed real estate professionals may not need to submit buyer representation agreements to their local MLSs unless a problem arises. However, agents and brokers should consult with their local MLSs to understand specific rules, requirements, and procedures, including how enforcement will be handled in this area.
Beyond MLS oversight, real estate brokers who supervise agents will need to establish policies and procedures to ensure their salesforce is entering into representation agreements as required by the NAR proposed settlement. Brokers will be responsible for making sure their agents comply with these new rules in a timely and accurate manner. In other words, compliance with the new rules will fall directly under their purview and supervision.
Apart from oversight by MLSs and responsible brokers, it’s important to recognize the role of peer enforcement in maintaining industry standards. During my time at the California Department of Real Estate, I frequently encountered complaints filed by agents against their colleagues for unethical, negligent and/or unlawful conduct. I expect that in this new real estate environment, we will continue to see agents holding each other accountable in similar ways.
Finally, multiple parties will be closely monitoring these activities, including whistleblowers and watchdog groups, consumers, private attorneys, and even the United States Department of Justice. Also, depending on where you practice and whether representation agreements are required by law, complaints may be filed with state regulators for failure to comply with the new rules.
To avoid any potential issues from regulatory sources, it’s essential to fully understand the new requirements and implement comprehensive checklists, protocols, policies, procedures and systems to ensure these practices are prioritized and executed correctly.
2. What will the protocol be for buyers who refuse to sign any kind of buyer agency agreement, whether it is exclusive, non-exclusive, or even limited to one property or one day?
This is an important question because, even when a licensee follows all the correct procedures to adapt to industry changes, compliance issues can still arise. It’s not uncommon for some home buyers to feel uncomfortable signing a representation agreement with their agent upfront.
Historically, some real estate professionals have encountered situations where clients were hesitant to commit to agent services and terms of compensation before entering into a purchase contract. The difference now is that agents cannot proceed without an agreement in place without violating the new rules.
In these less favorable situations, where buyers are unwilling to sign any agreement, real estate professionals must be clear on how to proceed. From a compliance standpoint, agents should not tour properties with buyers unless a representation agreement is in place, as required by the new practice changes mandated by the National Association of Realtors’ proposed settlement. Responsible brokers overseeing their sales force must establish clear policies and procedures to guide agents on handling these situations.
Part of this supervision should include training and providing agents with effective talking points to use when they encounter buyers who are hesitant or uncomfortable with signing an agreement. Ideally, if agents properly educate their clients about the industry changes, new rules and agreement requirements, buyers will understand that while refusing to commit is their choice, it could result in the same situation with any other agent they approach.
On the other hand, if agents proceed with touring properties without the proper agreements, they not only put themselves at risk but also potentially expose their responsible brokers to liability. The risks include possible discipline for violating Multiple Listing Service rules and increased scrutiny from the United States Department of Justice and private attorneys who are closely monitoring these situations.
As a compliance consultant and former California Department of Real Estate investigator, I can tell you that there are always individuals who refuse to follow the rules. Unfortunately, not all of them are caught. However, the stakes are higher this time around, and the safer and easier solution is to simply comply with the new regulations.
Another possible situation to consider is that agents must be vigilant when dealing with buyers who might have entered into multiple agreements or committed to more than one brokerage for the same property. Such scenarios could lead to an increase in commission disputes and possible litigation.
Therefore, it’s critical for licensees to thoroughly vet their clients, be aware of any existing representation agreements, and clearly explain the potential repercussions of entering into multiple agreements.
3. Will dual agency, transaction brokerage, or similar practices where one agent represents both buyer and seller in the same transaction no longer be permitted in states where they are currently allowed?
Dual agency is undoubtedly a controversial topic. Some licensees firmly support the practice, while others find it difficult to imagine representing two clients with potentially conflicting interests simultaneously. With upcoming changes in real estate practices, there’s been considerable speculation about the future of dual agency. Will it become more common, less utilized, or potentially prohibited under state law?
While we can’t predict the future with certainty, the landscape of dual agency may evolve. When the National Association of Realtors’ proposed settlement was first announced, many speculated that dual agency might become more prevalent due to the new requirements for securing representation agreements and compensation terms with buyers upfront. This led some to believe that the role of the buyer’s agent might diminish in importance.
Conversely, others argue that buyer agency will become even more critical. In this scenario, buyer’s agents would emphasize their value, secure representation agreements upfront, and foster more transparent and beneficial relationships with their clients.
In my view, and drawing from my experience as a former California Department of Real Estate investigator, the prohibition of dual agency would likely only arise if there’s a significant increase in public harm. If we see a rise in complaints to state regulators about breaches of fiduciary duty in dual agency situations, coupled with more lawsuits alleging negligence and unlawful conduct, legislators might be motivated to consider banning the practice. However, such a change wouldn’t come easily. Lobbying groups, industry stakeholders and others who support dual agency will undoubtedly advocate to keep the option available.
If this issue were ever to reach the federal level, it would indeed be a significant development. For dual agency to be regulated or eliminated by the federal government, the practice would need to demonstrate substantial risks to consumers. Until such a scenario unfolds, the future of dual agency remains uncertain and will largely depend on how these industry changes play out in practice.
4. Will buyer representation eventually become required and administered at the federal level?
Given my background with the California Department of Real Estate and familiarity with state governance, I find it unlikely that buyer representation will be regulated and enforced at the federal level. While this possibility cannot be entirely ruled out, the more immediate and pressing question is whether buyer representation agreements will become mandated by state laws, aligning with recent practice changes affecting members of the National Association of Realtors (NAR), local and state associations, and Multiple Listing Service (MLS) participants. Notably, some states already require such agreements.
State regulation might actually simplify compliance. If buyer representation requirements were established at the state level, state regulators — rather than MLSs — would be responsible for enforcement. State agencies are equipped with investigative and prosecutorial resources to review and enforce regulations, handling a broad range of legal matters, including potential license discipline. In contrast, MLSs lack the authority to impose formal disciplinary actions against an agent’s real estate license.
Furthermore, if buyer representation were regulated by state law, it would transition from a practice requirement to a formal license requirement that all real estate professionals must adhere to.
In California, there is currently legislative momentum toward mandating buyer representation agreements. If these rules become state law, it would streamline compliance by consolidating requirements into a single regulatory framework. This would allow licensees to follow one comprehensive checklist rather than navigating multiple sets of rules from different entities, including MLSs, local and state associations, NAR, and the United States Department of Justice.
In summary, while federal regulation remains a possibility, the trend appears to be toward state-level mandates, which could provide clearer, more unified rules for real estate professionals.
5. Where do we go from here as far as pre-licensing, post-licensing, continuing education and license renewal?
This is an essential question, and the answer should reflect our commitment to maintaining high standards. There is clearly a need to revamp pre-licensing and continuing education to better prepare new agents and to refresh the knowledge of existing licensees. This education is crucial for ensuring both regulatory compliance and financial success in the real estate industry.
From my experience as a real estate compliance consultant, I have frequently encountered complaints about the lack of knowledge and professionalism among some agents. Even before high-profile cases like Sitzer | Burnett, concerns about inadequate training and experience were not uncommon. Given the evolving climate of real estate, it is evident that there is significant room for improvement and many ways to achieve it.
When we talk about “improvement,” it’s not just about avoiding lawsuits or regulatory investigations. It’s also about striving for excellence, prioritizing best practices and mastering risk management. A licensee’s journey toward improvement should begin with comprehensive knowledge and robust education.
Future coursework should focus more intensively on critical areas such as buyer agency, the fundamentals of buyer representation agreements, commission negotiability, disclosure of compensation, dual agency, advertising and general real estate practice. Specialized classes for buyer representatives are particularly valuable. Although such training may have been available in the past, it was not always a standard practice. Role-play scenarios can be especially beneficial, as they allow agents to apply their knowledge in practical situations.
If states mandate buyer representation agreements, we can expect new educational requirements tailored to buyer agency. Even if such mandates do not come to pass, real estate educators are already adapting to the new business norms, offering extensive training to help agents and brokers refine their skills, mitigate risks, and navigate the changing landscape.
It’s important to distinguish between theoretical knowledge and practical experience. Understanding dual agency from a textbook perspective is quite different from effectively managing dual agency situations in practice. Similarly, knowing how to present a buyer representation agreement is not the same as demonstrating its value to clients. Practical experience and mentorship are indispensable, and this is where supervising brokers play a vital role.
Responsible brokers have a vested interest in the competence and success of their agents. They want their salesforce to excel not only for the benefit of the brokerage but also to minimize liability and enhance the brokerage’s reputation.
In summary, the future of real estate education will involve a combination of new coursework, enhanced training, mentorship and possibly stricter licensing requirements. By leveraging these resources and opportunities, the industry can improve overall performance and better serve consumers. It’s a multifaceted approach, and utilizing all available assets will be key to achieving success.
Editor’s note: Licensed real estate agents should always check with their responsible brokers for guidance, direction, and policy regarding the new practice changes, and licensed real estate brokers would be wise to consult with a licensed attorney for legal clarification and support.
The opinions, suggestions or recommendations contained in this discussion are based on Summer Goralik’s experience working for, and knowledge of the laws enforced by, the California Department of Real Estate, and must not be considered legal advice or relied upon as legal advice. You should consult with your brokerage, and/or appropriate legal counsel in your jurisdiction, for further clarification.
Summer Goralik is a real estate compliance consultant and former CA DRE Investigator in Huntington Beach, California. Connect with her on LinkedIn.
