C.A.R. Form Updates: NAR Settlement Changes

Navigating NAR Settlement

Finally, after months of trying to predict the practical impact of the settlement agreement reached in the Sitzer/Burnett case (the “Settlement Agreement” or the “Settlement”) on day-to-day real estate practice, we now have some of the first practical changes to discuss: C.A.R. is releasing new forms (and revising existing forms) to account for the terms of the Settlement. This article will discuss some of the most substantial form changes being made in light of the Settlement Agreement. To get started, let's first review some of the concrete terms of the settlement. We will then examine how these terms are being expressed in changes to C.A.R’s catalogue of forms.

Readers beware, while there are many changes to the forms stemming from the Settlement Agreement, there are also numerous changes being made to forms that are unrelated to the Settlement. Be on the lookout for an update concerning unrelated and important changes to C.A.R. forms later this month!

Key Changes for REALTORS®

Offers of Compensation from Sellers to Buyers Cannot be made via MLS Platforms

Under the Settlement, NAR Associations and any REALTOR® MLSs are prohibited from requiring listing brokers or sellers to make offers of compensation to buyer brokers. Further, N.A.R. and REALTOR® MLSs are prohibited from requiring any such offers, if they are made, to be blanket, unconditional, or unilateral.

MLSs Cannot be Used to Make Offers of Compensation

Additionally, any MLS participants, agents, brokers, and sellers are prohibited from making offers of compensation via the MLS to buyer brokers or the buyer’s representatives on the MLS. Simply, sellers and/or their agents and brokers can no longer make offers of compensation to buyers and their agents via MLS platforms.

There can be no Sharing of Buyer Broker Compensation Offers

Moreover, all broker compensation fields on MLSs must be eliminated and there can be no sharing of offers of compensation made to buyer brokers and/or buyer representatives.

MLS Participation Cannot be Conditioned upon Accepting Buyer Broker Compensation Offers

When it comes to requirements for participating in an MLS, such participation cannot be conditioned upon offering or accepting buyers broker compensation offers.

Written Agreements Specifying Buyer Broker Compensation are now Required

When it comes to the relationship between buyers and the buyers' agent, buyer’s agents will now have to enter into a written representation agreement prior to showing them any properties. These agreements must explicitly specify the amount/rate of compensation the buyer’s agent will receive, and/or explain how the rate or amount of compensation will be determined. Whatever the rate/amount of compensation is, the Settlement will require it to be an objective and concrete number and cannot be drafted in such a way that circumvent the terms of the Settlement Agreement. This written agreement must be entered into before the buyer tours properties.

Brokers must Disclose the Negotiability of Compensation Amounts and Rates in Writing

Additionally, the Settlement Agreement also requires that all prospective sellers and buyers must be informed—in conspicuous language—that broker commissions are not set by law, and that they are, therefore, fully negotiable. This disclosure must be made in the broker’s listing agreement, in the agreement brokers reach with buyers, and in any pre-closing documents (if any are applicable).  

New C.A.R. Forms Accounting for the Changes Wrought by the Settlement Agreement

Broker Compensation Advisory (“BCA”)

This is an entirely new form being published by C.A.R.. Essentially, it details all the new realities represented by the aforementioned Settlement Agreement terms. Specifically, the BCA advises the buyer/seller that compensation for both buyer brokers and listing brokers is negotiable. Further, it also advises buyers to utilize the C.A.R. Buyer Representation Agreement form and notes the various ways by which buyer’s brokers can be compensated. Namely, the BCA notes that buyer brokers can be compensated by a variety of means. Namely, through a buyer representation agreement executed directly with the buyer; through the buyer negotiating with the seller that the seller will pay the buyer’s broker the amount the buyer is already obligated to pay under an existing buyer representation agreement; or, the seller’s agent can be authorized by the seller to offer compensation to directly to the buyer’s broker.

Buyer Representation and Broker Compensation Agreement (“BRBC”)

Perhaps undergoing the most significant changes to an existing C.A.R. form is the BRBC form. Here, C.A.R. added an entirely new second section on the first page titled: “TERMS OF REPRESENTATION[.]” This new section includes a table detailing the representation agreement reached between the buyer and the broker. Within the table, the multiple details of the representation are identified, such as the time period of representation and whether the representation is exclusive or non-exclusive. Additionally, there are entries for details about the property being acquired, i.e., whether the property subject to the agreement is single family, multi family, industrial, etc.. The form also identifies the location of the property and provides for other specifics pertaining to the property if applicable to the agreement.

Speaking most directly of the changes stemming from the Settlement Agreement, are those changes noted in paragraphs D-G of the table in the BRBC. Specifically, paragraph D conspicuously notes that buyer broker compensation is negotiable and is not fixed by the law. Paragraphs D(1)-G then go on to detail the specific rate/amount of compensation that is to be paid to the broker under the agreement. Working in concert with these changes, section three of the BRBC adds an option for the including the new BCA form (discussed above) to the list of “ADVISORIES, ADDENDA AND DISCLOSURES” that can be provided to the buyer who is party to the BRBC form.

Also stemming directly from the Settlement Agreement is the new section 4 in the BRBC form titled: “COMPENSATION TO BROKER” that is added on page two. As the name suggests, it explains the and clarifies the section 2 table in more detail and doubles down on advising the buyer that buyer broker compensation is negotiable. Critically, the BRBC reiterates the compensation obligations between the buyer and the buyer’s broker on the second page, because the second page also includes the signature block for the parties. By doing this, the buyer can provide the second page of the BRBC as proof to the listing broker or seller that there is an existing buyer broker compensation agreement between the buyer and buyer’s broker (thus satisfying the new requirement of a pre-existing representation agreement between the buyer and the buyer’s agent).

Residential Listing Agreement (“RLA”)

When it comes to the RLA, similar changes to those that were made to the BRBC are being implemented. Specific to the Settlement Agreement, the new RLA unbundles compensation for seller’s and buyer’s broker. It also adds an explanation of what seller concessions are and adds a paragraph concerning advertising the seller’s openness to concessions in potential purchase agreement terms.

Seller’s Payment to Buyer’s Broker (“SPBB”)

Here, C.A.R. simplified the existing form. Specifically, Paragraph 1 now describes the amount the buyer is asking the seller to pay, and it provides a limit if the seller’s broker makes a payment to the buyer’s broker. Further, seeing as buyer representation agreements specifying compensation are now required, Paragraph 1 also discloses to the seller that they have no payment obligation absent proof of a buyer representation agreement between the buyer and buyer’s broker.

Cooperating Broker Compensation Agreement (“CBC”)

In revising this form, C.A.R. removed all references to MLS compensation offers and membership with the MLS. C.A.R.® advises the form be used to properly track the compensation as between multiple brokers.

Disclosure and Modification to Listing Agreement (“DM-LA”)

This form is a practical attempt to address the issues presented by the Settlement Agreement for listing agreements that predate the Settlement. It gives notice to sellers that offering compensation through the MLS will be prohibited once the Settlement Agreement is finally implemented. Note: this form does not need to be used once the terms of the Settlement Agreement are incorporated into the existing forms, i.e., once the new forms are published for use.

Disclosure and Modification to Buyer Representation Agreement (“DM-BR”)

Similar to the DM-LA, the new DM-BR is to apply to all buyer representation agreements that predate the implementation of the settlement agreement. The form explicitly notes that the buyer broker can no longer accept compensation that exceeds the amount specified in the BRBC and addresses what happened if the existing BRBC allowed for compensation to be turned over to the buyer.

Open House Visitor Non-Agency Disclosure (“OHNA”)

Here, C.A.R. is attempting to proactively address potential issues created by the Settlement Agreement. Namely, now that the Settlement Agreement requires buyer’s agents to have an existing buyer representation agreement prior to showing a property, a question exists as to whether this will apply to agents showing an open house or not. In the event it is intended to apply, this form notifies visitors that they are not entering into an agreement with the listing agent and are not otherwise “working with” the listing agent holding the open house.

Open House (Property Tour) Visitor Representation and Broker Compensation Agreement (“OHRBC”)

Here, C.A.R. is again attempting to be proactive related to the Settlement Agreement’s requirement that buyer agents have a buyer representation agreement in place before showing a home. The OHRBC form is a “limited purpose” buyer representation agreement, as described by C.A.R.. It is a buyer representation agreement that only applies to the specific property being viewed at the open house, it is only available as a non-exclusive representation agreement, and the maximum life of the agreement is 30 days. A conspicuous warning will provide notice that signing the form is not a condition for entering the property.

Practical Implications for REALTORS®

While the changes are many, these forms will help guide agents and brokers alike in the new realities brought on by the Settlement. It would be prudent to use them. It would also be prudent for agents and brokers to review their existing agreements and revise them as necessary with the appropriate DM-La and DM-BR forms as needed.