NAR Settlement – Overcoming Objections

As you can imagine, the PAR Legal Hotline is getting a lot of calls about the NAR settlement and related forms changes these days. To make our lives a bit easier, Hotline attorneys sometimes develop scripts to handle common questions from members, just like you might use scripts in your real estate practice to address “consumer objections.” Here’s a look behind the curtain at some of the scripts we’re using to respond to what you might think of as “member objections” to the NAR settlement changes and/or the new PAR forms. To be clear, this article isn’t talking at all about the details of the settlement or how to use the new standard forms changes (see here for PAR’s Forms Update Comprehensive Guidelines). Today is all about the more conceptual questions we’re getting.

But first, lawyer disclaimers!

1. These are some of the scripts PAR attorneys are using to talk to members with questions/comments/concerns. PAR does not and will not provide business model advice to brokers or agents, nor do we provide resources like scripts you might use to discuss these issues with your clients. That’s something best discussed at the brokerage level.

2. Some of the responses below may seem a little blunt — and they are. We certainly realize and respect that we aren’t the ones whose business model may be getting upended, nor are we talking with buyers and sellers every day, but sometimes an outside perspective can be helpful and given the stakes, there’s little benefit to sugar-coating things.

Objection: This is all so very hard and confusing. Make it easier!

Response: These class action suits were pretty much based on the idea that the historical model of cooperating compensation in the MLS might have made it too easy for brokers to avoid meaningful discussions with buyers and sellers about who was getting paid what, and how. If a group like, say, a state Realtor® association, were to swoop in and create forms that push brokers all in the same direction because it’s “easier,” someone might think we were trying to inappropriately manipulate the market in an antitrust-y sort of way. That’s why the PAR forms updates maintain a lot of flexibility in how both seller and buyer brokerage fees are expressed and negotiated. It’s also why the educational materials get pretty long and involved — more choices require more explaining.

Moving forward, brokers are likely to explore different business models — perhaps spontaneously, or perhaps because consumers push for them. Brokerage fees may be negotiated and paid in various ways across different transactions. Individual agents will have to change how they discuss fees with potential clients. All of which is to say that this transition is going to be a little complicated and confusing, at least for a while. Sorry, but it just will.

Objection: If we can’t share compensation in the MLS, buyer brokers won’t get paid. Sellers will refuse to pay buyer broker fees and/or buyers will refuse to pay their own brokers.

Response: How many times have you worked with a client who declares that they will ABSOLUTELY NOT ? Maybe it’s sellers who say they will never negotiate repairs, or buyers who would sooner die than let the seller stay in a house after settlement. Yet after explaining to your client why that thing they don’t want to do may be in their best interest, they may change their mind, or at least be willing to negotiate.

If sellers and buyers want to be represented in a transaction — which they should, of course — then someone has to pay for that, right? Whether the buyer broker fee is paid by the buyer out of pocket, by the seller though a concession, or by the listing broker through cooperating compensation, there are pros and cons to each approach. It will be up to you as the real estate professional to present your client with their options and help them decide on the best option(s) for them. Whatever your suggested model, and however you have those discussions, focusing on the client interests will always be key.

Objection: How dare my broker start trying to micromanage how I do business and what I charge? I’m an independent contractor, dang it!

Response: By law, all brokerage relationships and all fees are between the broker and the client. Period, and full stop. A broker absolutely has the right to set internal brokerage policies, and given the extra risks brokers are taking on in the current climate it’s quite possible that more brokers will be stricter — or at least clearer — with how agents are and are not allowed to operate within a brokerage.

The settlement terms are very specific in changing, forbidding and/or mandating certain practices. Brokers with agents who are circumventing or ignoring those rules might not just be in the crosshairs of the MLS enforcement staff, but also named in a new lawsuit filed by an enterprising plaintiff’s attorney. After all, the settlement terms only protect those who actually follow the new rules.

Frankly, nothing has really changed from the way it’s always been with broker policies. If an agent wants to practice in a way that their current broker doesn’t allow, then they may need to move to a new brokerage. If a potential client wants a relationship or fee structure that the brokerage policy doesn’t allow, then they’d need to find a different broker to work with.

Objection: It’s just not cool to talk about things like fees and agency relationships the first moment you meet a buyer outside a listing, and no buyer will want to sign a contract under those circumstances.

Response: It’s probably true that many buyers wouldn’t want to leap into an agency agreement if they meet you for the very first time outside a listing they want to see. But perhaps one response to that is to reconsider how those buyer relationships are formed.

You know who else may not want to talk money or sign a contract the first time you meet them? Sellers! But I’ll bet you have very well-developed scripts and listing presentations that help you lead a potential seller client through a detailed discussion of your services, your value, your fees and the benefits to them of signing a listing contract with you. And I’d guess that no potential listing agent would work for a seller who says something like, “I’m uncomfortable with signing a listing contract right now, so how about if you just pop the property in the MLS and do showings for a few weeks before I commit to anything.”

Generally speaking, sellers and agents have an expectation that there’s a process to get from a first meeting to a listing contract (or not), and both understand that listing services won’t be provided until that process is complete. So, consider that it may be helpful and/or necessary to do the kind of pre-contract vetting with buyers that you already do with sellers. Are they serious buyers? Can they afford the properties they want to look at? Do they seem like a good fit for your style and expertise? Is there a chance that they’re a violent sexual predator? If buyers and buyer agents have conversations like the ones between sellers and listing agents have before the agents start providing services, it may give buyers and brokers a much higher comfort level as they decide whether to enter into a relationship.

Objection: I’ll sign what I have to sign, but I’m just gonna keep doing what I’ve been doing with my buyers. If the listing broker or seller offers less than my negotiated fee, I’ll waive the rest so the buyer doesn’t pay. If the listing broker or seller offers more, I’ll just figure out a way to change my contract to the higher number.

Response: Mmmm… you might want to think twice about that. Then twice more.

The settlement terms are clear that buyer broker fees must be “objectively ascertainable and may not be open-ended (e.g., ‘buyer broker compensation shall be whatever amount the seller is offering to the buyer’).” In short, the buyer broker fee should be stated as X (a number or a formula, whatever that happens to be), and not “X… unless I’m offered some other amount in which case it’ll be something else that we figure out as we go along.”

Nobody can stop a broker from occasionally renegotiating a fee when there’s a transaction-based context in which that renegotiation makes sense. Maybe a listing broker gives something back to a seller who had to make a last-minute repair, or a buyer agent contributes to a buyer’s new appliance. Whatever — that can still happen.

But if your business model is “I’ll just take what I can get” then it doesn’t matter if you put that in your contracts outright or if you just say that to your client with a wink and a nod. Either way it’s probably not going to be compliant with these new rules and your brokerage might find itself on the wrong end of a lawsuit.

Or to put that another way, and to summarize the gist of many responses these days, brokers and agents who focus on questions like “how can I succeed under these new rules?” may have an easier time than those who ask questions like “how can I bend the new rules to do exactly what I was doing before?”