Each identifies a unique method for how consumers will pay for your real estate services. Understand how they are and aren’t defined under real estate practice changes.

The Aug. 17 deadline to implement practice changes stemming from the National Association of REALTORS®’ proposed settlement agreement is quickly approaching. Agents who are REALTORS® need to understand the new rules to best serve consumers while guiding them through one of the biggest purchases of their lives. While NAR members are immersed every day in discussions about compensation, commissions and concessions, it’s important to review the different ways agents and brokers can be compensated, and how each is—or is not—changing because of the settlement.

Broker Commissions

Commissions are not set by law; they are negotiable. NAR does not dictate commissions. This was true before the settlement agreement and remains true once the practice changes go into effect. Commissions are negotiated at the onset of a relationship with a buyer or seller and, pursuant to the settlement, must be memorialized in a written agreement between the agent and client. You may have already been using written buyer agreements; NAR has long advocated for the benefits to both agents and consumers.

What the practice changes introduce is a new requirement that agents working with buyers enter into written agreements with those buyers before touring a home, either in person or virtually. That agreement must specifically disclose the amount or rate of compensation an agent or broker will receive or how this amount will be determined. The amount must be objectively ascertainable and must not be open-ended. For instance, $X or X% is permissible, but a range of commission is not.

Under the proposed settlement, the types of compensation available for brokers working with buyers would continue to take multiple forms. This includes but isn’t limited to:

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

Offers of Compensation

Offers of compensation, or the ability of listing agents to compensate agents representing buyers for the value they bring to the transaction, are still an option under the practice changes. The settlement brings the important change that offers of compensation cannot be communicated on MLSs. What does this mean?  If a broker gets a seller’s approval to make an offer of compensation, it can be shared through marketing vehicles such as flyers, emails, signs, brokerage websites and other options—but not on an MLS.

Offers of compensation benefit both buyers and sellers. For buyers, it promotes access to representation throughout the homebuying process, which will help consumers achieve the dream of homeownership on terms that work best for them. For sellers, it helps to broaden the pool of prospective buyers by lowering the barrier to entry for those that may not be able to afford to pay buyer agent compensation out of pocket. This is particularly important for lower- and middle-income buyers who have challenges saving for a down payment, and it enables REALTORS® to be compensated fairly for the value they provide.

If there is an offer of compensation from the listing broker to the buyer broker, the agreement can be memorialized within a broker-to-broker agreement prior to the buyer broker and buyer touring a home. It’s important to remember that buyer brokers cannot accept compensation from any source that is more than the amount agreed to between the buyer broker and buyer. 

Seller Concessions

Seller concessions can be used to help the buyer cover certain transaction costs, including fees for buyer broker services. Other uses may include loan origination costs or property repairs. Seller concessions can still be communicated on an MLS. However, such concessions cannot be conditioned upon or tied to payment to a buyer broker.

NAR continues to provide resources tailored to brokers, home buyers and home sellers to help them understand the nuances of the practice changes and get ready for implementation. Overall, it’s important to remember that all forms of compensation remain fully negotiable as they were prior to the settlement. The driving force behind these practice changes are consumer choice and optionality; those guiding principles should be top of mind heading toward Aug. 17.

For the latest settlement updates, reminders and content, continue to read REALTOR® Magazine and check out facts.realtor.