On August 17th, the way you buy and sell a home with the service of a Real Estate Broker changed. By now you’ve heard about Sitzer-Burnett—the class-action lawsuit brought against the National Association of REALTORS® (NAR) and others by a group of home sellers in Missouri alleging NAR practices artificially inflated broker commissions. In March, the parties agreed to settlement terms, and the settlement agreement was given preliminary approval. While the settlement won’t receive final approval until the hearing in November, NAR introduced new practice changes, agreed to as part of the settlement, as of August 17th, 2024. Those practice changes have impacted the process for buying or selling a home. Let’s take a closer look at these practice changes, their impact, and what they mean for you.

What Changes Can You Expect when Buying a Home?

When it comes to buying a home, you’ll be required to sign a written buyer agreement with your agent before touring a home, either virtually or in person. This doesn't mean an agent can demand you sign an agreement to work with them. On the contrary: It is my hope that this new rule will inspire buyer agents to meet with prospective buyers, review their services and interview for the very important job of being your agent. And then YOU determine if you will hire this agent or interview another. 

IMPORTANT CAVEAT: A written agreement is not required for touring open houses. However, keep in mind, the listing agent hosting the open house is present as the representative of the seller. 

The goal of the California Buyer Representation and Broker Compensation Agreement (BRBC) is to ensure you understand the specific services and value your agent will provide and exactly how much those services will cost. Per the settlement agreement, all buyer agreements must include the following four items¹:

1. A specific and conspicuous disclosure of the amount or rate of compensation the real estate agent will receive or how this amount will be determined.
2. Compensation that is objective (e.g., $0, X flat fee, X percent, X hourly rate)—and not open-ended (e.g., cannot be “buyer broker compensation shall be whatever the amount the seller is offering to the buyer”).
3. A term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer; and, 
4. A conspicuous statement that broker fees and commissions are fully negotiable and not set by law. 

That’s a lot of “legalese.” Let’s take a look at what all of that means in layperson's terms:

1. The agreement must include your agent’s fees and how those are determined, i.e. % commission, flat fee, etc.
2. Compensation cannot be open-ended. For example, the agreement cannot be “Buyer fee will be what the Seller offers” or “2-3%.”
3. Your buyer’s agent cannot accept more for buyer agent services than the amount  expressly stated in the written agreement. Your agent must also outline the services they will provide, which can include finding properties, negotiating on your behalf, writing offers, coordinating home tours, etc. 
4. Your agent must inform you that their fees and services are open to negotiation. To homebuyers, an agent cannot advertise their services as ”free” unless they are in fact receiving $0 compensation. 

And, finally, a few other key points: 

• The agreement must be in writing (not verbal).
• This agreement applies to both in-person and virtual home tours.
• Again: It does not apply if you just want to pop by an open house! You DO NOT need an agreement just to speak to an agent at an open house or speaking to an agent about their services before those services are rendered. 
• Agreements can be amended should there be a situation where you and your agent might wish to alter part of it.

Let’s take a closer look at how you can prepare for this change and make an informed decision when signing an agreement with your agent. 

Questions to Ask Before Signing a Buyer - Broker Compensation Agreement with Your Agent

Before signing an agreement with your agent, you should fully understand its terms. If you’re unfamiliar with such agreements, here are some questions to ask your agent before signing. 

• What services will you provide as part of this agreement? 
• A strong agent will be able to easily detail the services they’ll provide on your behalf. These services should be thorough and numerous: understanding your needs, finding properties that satisfy those needs, scheduling showings, assessing the value of homes, helping you evaluate properties, submitting offers, negotiating on your behalf, etc. For a full list of services you should expect, check out these 105 ways provided by NAR.² 
• How much will you charge for those services? 
• The settlement changes are intended to provide the consumer transparency around broker compensation. Your agent should clearly communicate how much their broker charges for the services you covered during your first question. 
• How long is the term of this agreement? Presently, in California, the buyer broker compensation agreement term is limited to 3 months, and can be extended as needed. 
• Is this agreement exclusive? 
• When you’re ready to commit to working with a specific agent, you’ll likely want to enter an exclusive agreement with that agent. That gives your agent full license to go to work on your behalf. If you aren’t ready to commit, you may choose to ask for a non-exclusive agreement for a period of time. Non-exclusives can limit the services and advice your agent can provide, and may leave you in a situation where you don't have the representation you desire.  
• What if I want to cancel the agreement? What is the termination clause?
• It’s important to understand under what circumstances you can terminate the agreement and how you can go about doing so. 

What Changes Can You Expect When Selling a Home?

For sellers, the biggest change is that offers of compensation can longer appear on the MLS or on any page that appears within one click of the MLS. Effectively, this means you can’t link directly from the MLS to a page that outlines any offers of compensation. The settlement does not prohibit sellers from making offers of compensation, but the question on many sellers’ minds will likely be: Should I? As a seller, this is your decision. Your listing agent is responsible for guiding you through that decision and helping you determine the best course of action to achieve your goals. But remember: it is your decision. Regardless of whether you offer compensation overtly, you should be prepared to consider offers that include requests for compensation and/or concessions as part of the total offer package. 

Has How I Compensate My Buyer Agent Changed? 

We just discussed changes to seller offers of compensation. Has that also changed how you, as a buyer, compensate your agent? The answer is… possibly. How you compensate your buyer's agent could look different than it has in the past. Historically, listing agents and their sellers could have agreed to a total fee and offered part of that fee to cover buyer agent’s compensation as a means to attract more buyers. That fee would then be included with the other information about the home in the Multiple Listing Service. As covered above, offers of compensation no longer appear in the MLS. Such offers by the seller are not prohibited per the terms of settlement, and some sellers may choose to still offer concessions. However, if the seller does not, you need to be prepared for alternative options. Those options can include negotiating seller concessions when you make an offer or paying your buyer agent directly as part of your closing costs.

It’s important you talk through all of these scenarios with your agent before signing an agreement, so you understand your options when submitting offers.

Have More Questions? Let’s Discuss! 

These changes are in effect as of August 17th, 2024. The truth is no one is 100% certain of how it will all play out. My job as a real estate professional is to keep you informed, provide clarity, and help you navigate these changes during your home buying or selling journey. If you have any questions about these practice changes, the settlement, or anything else real estate related, please reach out. I want to hear from you and be your go-to resource for all things real estate. 

Barbara Balossi | 949-531-8531 | [email protected]

Sources:

1. NAR - https://www.nar.realtor/the-facts/homebuyers-what-the-nar-settlement-means
2. NAR - https://www.nar.realtor/sites/default/files/documents/105-more-ways-2023-11-13.pdf