Reminder of Broker Compensation in Light of NAR Lawsuit

Editor’s note: On Dec. 11, 2023, PAR President Al Perry joined Hank Lerner, PAR’s chief legal officer, on a PAR webinar to discuss a number of issues related to buyer agency.
On February 26, 2024, the second FAQ below was edited to fix a typographical error in the original.

After the recent decision in what’s commonly known as the Sitzer/Burnett antitrust lawsuit against the National Association of Realtors® and several large brokers, PAR has been fielding questions from members about how they can/should be discussing fees with clients and what they can/should be doing to secure their ability be paid for their work. There is obviously a lot of nuance to how any particular agent, working for any particular broker and engaged by any particular client, would go about addressing fees in any particular transaction, and PAR cannot tell you exactly what you should say, but here’s a good starting point:

Step 1: Establish your value.

The services you provide as a real estate agent have a value. Maybe that value is a percentage of the purchase price; maybe it’s a flat dollar amount; maybe it’s an hourly or task-based rate. But whatever it is, you need to be able to express it as a number and not as “whatever the listing agent decides they want to offer as cooperating compensation, regardless of the circumstances of the transaction.” (And, of course, definitely don’t claim to buyer clients that your services are “free,” because they are not.)

Now… how exactly how do you get to that number? Beats me. Questions of value (i.e., fees) are handled independently by brokers and their affiliated agents; no Realtor® association, whether at the local, state or national level, has any say on what those numbers are or should be, and PAR will not weigh in on how you calculate them. If you haven’t done this sort of exercise before, now is the time for agents and brokers to have long and meaningful conversations with each other (within their own offices, of course — not between competitors), and for everyone involved to talk to your relevant practice mentors/consultants/etc., so you can then have a confident conversation with your clients to explain that value.

That brings us to the part PAR can help with.

Step 2: Write it down — preferably in a legally-compliant contract.

In 1998 — just about 25 years ago as I write this post — the Real Estate License and Registration Act (RELRA) was modified to include language requiring that real estate licensees providing services for a fee must secure a written agreement with the consumer stating “the nature of the service and the fee to be charged.” RELRA was then tweaked in 2000 to add language stating that “the licensee is not entitled to recover a fee, commission or other valuable consideration in the absence of such a signed agreement” even if the licensee has already provided services to the consumer.

Though the Buyer Agency Contract (Form BAC) is probably the most-used PAR buyer agency form, we have many forms in which a broker not only negotiates and establishes their value to the client, but also explains the different ways that they might collect those fees from various parties to the transaction — which might include the listing broker, the seller and/or the buyer. In fact, PAR’s exclusive buyer agency form actually predates those RELRA changes, so real estate practitioners who have been using PAR buyer agency forms going back at least 30 years have had a pretty simple and straightforward way to say, “Here’s my fee, and here’s how it will be paid.”

Once you know what type of representation you’ll be offering and what your value is, the next steps are to read up on all the relevant forms (including all the relevant guidelines — a bit more on that below), discuss the fee options with your client and fill in the blanks appropriately.

Now… let’s take a few questions.

Q: Can listing brokers still offer cooperating compensation?

A: Yes. Although these lawsuits challenge the mandatory nature of the offer of compensation in the MLS (i.e., the NAR rule that says a listing broker must offer at least some amount of cooperating compensation in all listings), there has not yet been any court ruling or NAR policy change that would prohibit an offer of compensation being made by the listing broker. If listing brokers and their seller clients believe that making an offer of cooperating compensation is in their best interest, they are still free to do so.

Q: How can listing brokers explain why an offer of cooperating compensation could be helpful for sellers?

A: NAR has some really good resources that discuss the overall concept of cooperating compensation, so you might start there. But remember that the decision to make that offer — and the amount being offered — is something to be negotiated between the seller and listing broker. Do not ever approach that discussion with statements like “it’s expected” or “that’s how we do things here” — and definitely not “buyer agents won’t show the home if you don’t offer enough.” It’s a negotiable choice, so sellers should get the objective positives and negatives then make up their own mind.

Q: What if a seller or listing broker refuses to offer cooperating compensation at all?

A: This is a matter of local MLS rules. At the time of publication, NAR’s model MLS rules require that a listing broker must make some offer of cooperating compensation to put a listing in the MLS, and mandates that certain categories of listings are entered. Some MLSs have adjusted their local rules to allow for that offer of compensation to be zero — others have not. You’d need to check with your local MLS for how they are interpreting and implementing their rules to know whether a listing can be entered without any cooperating compensation at all. But remember that even if an amount is required, it can be as little as a dollar — or a penny — so the listing broker can still offer essentially nothing and still be in compliance with the rules.

Q: How can I ensure that listing brokers are offering me my fair share of their listing commission?

A: That’s not a thing, so don’t ask. Cooperating compensation is negotiable; there is no “fair share,” nor any “market rate” or “customary offer” or whatever words you might think to use. Your value as a buyer agent is your value as a buyer agent, and your task is to ensure that your buyer understands that value. You have no automatic claim on any portion of the listing broker’s fee, so the gross amount they’re charging and the proportion of that amount they are offering as cooperating compensation is, to be blunt, none of your business as the buyer agent.

And just to be crystal clear, the local, state and national associations cannot and will not in any way try to sway whether or how cooperating compensation is offered by listing brokers, or how buyer brokers establish fees to their buyer clients. Don’t ask, don’t discuss, don’t try to sneak it into a meeting agenda — just don’t.

Q: Is it possible to negotiate the offer of cooperating compensation made by the listing broker?

A: Yes, and we have a form for that! The Cooperating Broker Compensation Agreement (Form CBC) allows buyer brokers and listing brokers to renegotiate an offer of compensation that was made through the MLS. If you are not familiar with the form, DEFINITELY read up on the form guidelines for more details, but remember that this form cannot be used while negotiating an Agreement of Sale; for these purposes it needs to be used before the offer is submitted.

Q: Form BAC says that if the buyer broker’s fee isn’t paid through cooperating compensation, the buyer will pay “unless seller agrees to pay the difference as a term in the agreement of sale.” How does that work?

A: We have a form for that too: the Compensation Addendum to the Agreement of Sale (Form CAS). This form essentially creates a type of seller assist, in which the seller agrees to pay a certain amount to the buyer broker at settlement. Once again, read up on the form guidelines to understand this form and how it differs from Form CBC.

Q: I sometimes work with buyers in non-exclusive relationships. Are there PAR forms for that too?

A: You bet. PAR publishes a Non-Exclusive Buyer Agency (Form NBA) and a Transaction License Contract (Form TLC), each with their own unique fee provisions. And for that matter, if you’re dealing with an unrepresented seller, there’s also a Broker’s Fee Agreement (Form BFA) to ask that seller to pay the buyer broker’s fee. Suffice it to say that while we may not be providing forms for every single buyer representation wrinkle, most of the ways you might work with buyers — and most of the ways you might charge and collect fees — are covered.

Q: Will PAR be coming out with new or revised forms to address these issues?

A: At the moment, we believe that the PAR standard forms library provides appropriate levels of consumer choice with appropriate consumer explanations, so we don’t anticipate any major changes in the immediate future. Further, we don’t want to start looking at forms changes that might end up putting members at odds with NAR rules and policies until we understand whether and how they might (or might not) change. But of course, the PAR legal team and Standard Forms Committee will be keeping an eye on our current forms as this area continues to evolve and will consider updates as they may be necessary.