REALTOR’s “Cooperative Compensation Model” Rule Explained – A Continuation of the Series Covering the Recent NAR Lawsuit Settlements

By Alana Burns – Broker / Owner of Guardian Realty

 

What is a REALTOR? This may seem like an obvious question but it’s more nuanced than you probably think. When a person has completed all of the the necessary educational requirements, passes the national and state exams, passes thorough background testing, completes a formal application and pays necessary fees, and completes all other requirements imposed by a state’s real estate division, they have the option to become a REALTOR. Every REALTOR is a licensed salesperson, but not every salesperson is a REALTOR. Got it? This may seem confusing because most people use the term “REALTOR” to describe a person who is licensed to sell real estate but that’s actually incorrect. 

 When licensed salespeople choose to align themselves with the National Association of REALTORS (NAR) it requires them to make an oath to uphold the REALTOR Code of Ethics. This Code of Ethics details standards of practice for those in the real estate industry and the ethical ways we are to conduct business amongst each other in order to protect the interests of the general public. It makes sense of the complicated relationship REALTORs have with one another: cooperating with the competition could get dirty when money is on the line, so these rules help guide professional standards that keep those competing relationships in balance. According to NAR, “The Code ensures that consumers are served by requiring REALTORS to cooperate with each other in furthering clients’
best interests.” 

 Article 3 of the Code of Ethics details the standard that Listing Agents (the agents who list homes or properties for sale on the area Multiple Listing Service (MLS)) are responsible for negotiating the commission charges that the seller is willing to pay for the services of BOTH the listing agent and the buyer’s agent in an eventual sale. 

 Local REALTOR Associations charge fees from all REALTOR members to provide platforms (MLS’) for listing those properties for sale. These local search engines are used by area REALTORS to search for properties for their clients. They also store sales data that is used to research property values by other agents, assessors, and appraisers. These associations may also choose to share their active sales information with large websites such as Realtor.com, Zillow, Trulia, RedFin, etc. so that members of the general public can access information about available listings at their fingertips as well. Local associations and MLS’ are what bind area REALTORS together. 

 Once a listing agent has signed a contract with a seller to list their property for sale they upload photos and property details into the MLS. One of the fields of information that is required to be input is the “Buyers Agent Commission” information. This communication of what a seller is willing to pay a buyer’s agent in the event they bring their buyer clients to “the table” and close a deal has been required information since 1999. Realtors could be reprimanded or issued hefty fines by their area association of REALTORS if no commission offering was made or posted on their listings. This specific data entry requirement was reason for great dispute in the recent lawsuit settlements in the real estate industry here in the US. 

As a condition of the lawsuit settlements, REALTORS will no longer be allowed to post the compensation being offered by a seller to a buyer’s agent in any MLS, in any way. These offers of compensation will need to be communicated between agents through different means other than the MLS after this change goes into effect in mid-July 2024. 

 To be clear, a seller can still offer to compensate a buyer’s agent for bringing their buyer clients to “the table;” and they would be wise to do so. In a world where many buyers are struggling to come up with enough money to put down on a loan, lender fees for obtaining the loan, inspections, and money to go towards closing costs, most people simply cannot afford to pay for an agent to represent them. So, what if someone can’t afford to pay for their own agency representation but they have signed a contract with a REALTOR to help them search for a home? The buyers may instruct their agents to omit homes from their home search if a seller isn’t willing to pay for their agent’s services, based on their inability to afford the additional charge. 

 In order to be competitive in the marketplace, as REALTORS, we still believe there is great value in offering compensation to buyer’s agents because ultimately, buyers and sellers both want to feel safe and as though their interests are being protected in the biggest transaction of their lives. Sellers who want the most buyers possible looking at purchasing their property will be incentivized to broaden the appeal they have to the available buyer pool (potentially raising the purchase price due to possible competing offers) by offering to pay the buyer’s agent at closing.