BUYER BROKER COMMISSIONS AND OTHER ISSUES
STEMMING FROM THE RECENT LAWSUITS AND SETTLEMENTS
By Ashley Strauss-Martin, Esq.
By now, everyone has heard of the antitrust lawsuits that have been filed against the National Association of Realtors® (“NAR”) and various Multiple Listing Services (“MLS”), as well as real estate brokerages alleging antitrust violations related to the NAR MLS co-op broker commission requirement. Under NAR MLS policy, REALTOR® owned MLSs are required to adhere to NAR MLS Rules. Until just recently, those rules included the requirement that in the MLS, listing brokers offer some amount of compensation to buyer brokers. NAR has always been clear that neither it, nor any MLS, dictates the amount of that compensation; it could be as little as $1.00. Nonetheless, some compensation was required. The lawsuits allege that this NAR MLS requirement resulted in sellers and buyers paying inflated real estate broker commissions. Of the cases filed, two lawsuits obtained class action certification, the Moehrl and Sitzer cases. The Sitzer case went to trial in October and the jury found in favor of the plaintiffs and awarded damages against the defendants in the amount of $1.8 billion. NAR plans to request that the judge reduce the damages and plans to appeal the decision.
PRIOR TO THE SITZER VERDICT:
- Anywhere Real Estate (formerly Realogy Holdings, Inc.) and REMAX reached settlements in the Moehrl and Sitzer cases. As part of the settlement, RE/MAX agreed that its brokers had the option of joining NAR; it was no longer a requirement.
- MLS PIN announced its settlement of a similar case against brought against it. As part of the settlement, MLS PIN agreed to allow listing brokers to offer 0% commission in the MLS.
- Bright MLS, the second largest MLS in the nation, changed its policy to allow 0% commissions.
- Immediately following these MLSs’ decisions, NAR announced that 0% commissions were permitted under NAR MLS Rules.
- Most recently, the Real Estate Board of New York passed a rule, effective January 1, 2024, preventing listing brokers from paying buyer brokers. Instead, if a seller is willing to pay a commission, the seller is required to pay the commission directly to the buyer broker.
- Earlier this month, Redfin announced that where possible, it will require its brokers (who are employees, not independent contractors) to resign from NAR. In many cases, MLS access is tied to REALTOR® association membership and brokers only have access to promulgated forms with their REALTOR® membership; in these areas, Redfin brokers may remain NAR members.
WHAT THIS ALL MEANS
These lawsuits have left many NMAR members wondering what this all means and what is next for NMAR and its members. While we cannot predict the future, we can answer some questions.
NAR MEMBERSHIP AND MLS ACCESS
From 1966 through 2006, there were a series of lawsuits brought against REALTOR® Boards and MLSs claiming that REALTOR® associations could not tie Association membership to MLS access. Although the U.S. Supreme Court has not considered the issue, four Federal Circuit Courts of Appeal (the 1st, 5th, 6th, and 7th) have now ruled in favor of REALTOR® association MLSs on the issue. Only one (the 11th) has ruled against that principle, and even that case can fairly be characterized as an anomaly unique to its particular facts. It is hoped that potential plaintiffs will view the matter as settled law that REALTOR® associations may limit MLS participation to association members without violating federal law in all federal circuits and state courts, but for the 11th Circuit and state of California. New Mexico is in the 10th Circuit.
In 1994, NAR changed its mandatory MLS policy to eliminate the requirement that participants in REALTOR® association MLSs must be REALTOR® association members. As a result, each MLS may determine for itself whether non-members will or will not be permitted to participate in the MLS. In either circumstance, the MLS will be in compliance with NAR policy and thus covered by the NAR Professional Liability insurance policy coverage (assuming the association and MLS complies in all other respects with NAR mandatory policies.)
Currently, all MLSs in New Mexico require Association membership for MLS access.
ZERO PERCENT COMMISSION IN THE MLS
All MLSs that include the requirement for some co-op broker commission to be entered in the MLS will likely be modifying that rule to eliminate such a requirement. Will this result in an influx of 0% commissions in the MLS? It is hard to say at this point. Listing brokers should already be having conversations with their sellers about how much, if any, of a listing broker’s commission will be offered in the MLS and shared with the buyer’s broker, as set forth in the Listing Agreement (Form 1106). The conversation should include a discussion about the potential benefits of the listing broker offering a certain co-op broker commission in the MLS. When speaking with sellers, it is important to be clear that commissions are not set by the MLS, the local, state, or national association of REALTORS®, or the New Mexico Real Estate Commission. A brokerage can certainly have a minimum percentage that the brokerage (and all brokers within the brokerage) charge and a policy on what portion, if any, of that commission will be shared with a buyer’s broker. These brokerage policies should be clearly communicated to the seller when discussing the listing agreement. Further, the discussion should include disclosure that the MLS does not require that any compensation be offered (if this is the case with your MLS).
Buyer-Broker Agreements: These are going to be key. NAR’s emphasis throughout these lawsuits has been transparency in commissions, especially with buyers – who pays commissions, how buyer brokers get paid, the fact that commissions are negotiable and not set by rules or laws, etc. The Buyer Broker Agreement (Form 1206) provides this information and a mechanism for having these conversations with the buyer. Under the NMAR Buyer Broker Agreement, there are currently two options for compensation.
- Option A: Broker will not expect payment from the buyer. The broker will only collect a compensation from the listing broker, or in the case of a FSBO, the seller (or otherwise will not get paid). However, the buyer agrees to work exclusively with the buyer’s broker.
- Option B: Broker expects to get paid X% and will make every effort to collect compensation from the listing broker, or in the case of a FSBO, from the seller, but if the buyer’s broker cannot collect the compensation from the listing broker, or seller, as applicable, or can only collect a portion of the commission, then the buyer will pay the buyer’s broker the difference between the amount collected from the listing broker, or seller, as applicable, if any, and that X% that the buyer broker expects to be paid.
If the buyer elects Option A, the buyer acknowledges and AGREES that if the buyer is not willing to pay the difference between what the buyer’s brokerage expects to be paid and the amount the buyer’s brokerage can collect from the listing broker or seller, as applicable, then the buyer’s broker is NOT required to inform the buyer of these-type properties or assist the buyer through the process of purchasing one of these-type properties.
It is important to note that MLS are prohibited by NAR policy from allowing brokers the ability to search MLS listings based on the amount of compensation offered to a buyer’s broker. This, however, in no way means that buyer brokers must work for free. However, it is imperative that a buyer agree in writing that the buyer broker will not be obligated to inform the buyer of properties for which there is no compensation offered or the compensation offered is below the amount the buyer broker expects to be paid. Without the buyer’s informed consent, the broker may be found in violation of the REALTOR® Code of Ethics and Broker Duties.
Remember, the Code of Ethics prohibits a buyer’s broker from using an offer to purchase to renegotiate an offer of compensation that a listing broker has made in the MLS (SOP 16-16). That is NOT to say that a buyer broker cannot approach the listing broker before submitting an offer and ask the listing broker to increase an offer of compensation made through the MLS. If the listing broker agrees, the two brokers should enter into a Broker-to-Broker Compensation Agreement (Form 1108).
Also, it’s important to understand that SOP 16-16 prohibits a buyer’s broker from renegotiating in the purchase offer the offer of compensation made by the listing broker, but it does not prohibit the buyer from asking the seller to pay the buyer broker commission. For example, let’s say the buyer wishes to make an offer on a residential MLS listing where no co-op broker compensation has been offered. The Buyer-Broker Agreement provides that under that scenario, the buyer will pay the buyer’s broker X%. The buyer could add to an addendum to the purchase offer that the SELLER (not the listing broker) would pay the buyer’s broker that X%. Just like any other term of the offer, the seller does not have to agree. This could certainly impact the seller’s decision to accept the buyer’s offer, so buyers’ brokers should disclose this to the buyer and discuss the options available to the buyer.
Benefits of Buyer Broker Agreements:
- Inform buyers about buyer broker commissions;
- Address the broker’s compensation expectations;
- Protect buyer brokers from claims of Code of Ethics and/or Broker Duty violations by establishing buyer broker obligations;
- Solidify the buyer-broker relationship; and
- Mitigate the likelihood of procuring cause disputes. Lessens the likelihood of this scenario occurring: a buyer, who you have worked with for six months, drives by an open house, walks-in and decides to make an offer, without any appreciation for how that may impact your commission and throw you into an arbitration hearing in which you must argue you were the procuring cause.
Questions? Please reach out to Ashley at 505-821-1583 or firstname.lastname@example.org.