There have been numerous real estate industry changes that occurred in 2024. Real estate agents will ask you to sign a buyer representation agreement to tour a home beginning August 13, 2024. I would like to encourage you to read and fully understand any written agreement you sign with a real estate licensee.
Over the last several months, the national news media has covered several antitrust lawsuits filed against the National Association of REALTORS (NAR), the largest real estate trade organization in the United States, and a proposed settlement agreement offered by that organization.
Among other concessions, NAR’s proposed settlement agreement places requirements on its members and real estate agent who choose to use certain services.
Beginning in mid-August, NAR’s proposed settlement agreement requires members to sign written agreements with potential buyers prior to touring a home. This requirement extends to real estate agent who use the Multiple Listing Service, which is the majority of licensees operating in residential real estate in across the nation.
If a real estate agent is asking you, as the buyer, to sign a written agreement prior to looking at a house, I encourages you to:
- Remember you have options. If you are not ready to sign a buyers representation agreement with a licensee right off the bat, Texas allows you to sign a showing services agreeement to allow you to get to know the real estate agent better before signing a buyers representation agreement that will lock you into working with that real estate agent.
- Engage in a discussion about what type of representation the real estate agent is offering to provide to you:
- Will the real estate agent be acting solely and what does representation mean for you?
- Is the written agreement exclusive? Exclusivity, in everything but a showing services agreement, the buyer representation agreements presented to you as the buyer will be exclusive to one real estate agent.
- What is the length of the written agreement? Is that term a negotiable item between you and the real estate agent?
- Who can cancel the written agreement and under what circumstances?
- Can you be released from the agreement?
- Can you cancel the agreement for abandonment, estrangement or breach of fiduciary duty?
- What is the process to cancel the agreement?
- What services must the real estate agent provide in order to earn compensation?
- How much does the real estate agent charge for those services?
Ensure you read, understand and are accepting of the contractual terms you have discussed and agreed to with the real estate agent.
Also, if you’ve already signed a written agreement for representation as a Buyer, know that it is likely related to compensation. If you were to sign another agreement with another real estate agent, that original agreement may still be in place and you may be contractually on the hook for paying multiple real estate agent.
Nothing in these written agreements reduces the fiduciary duties owed to you by a real estate agent should you feel you have been harmed by a real estate agent.
Wiith the MLS beginning to require use of written agreements between buyers and real estate agents in mid-August, 2024. Most of the agreements I have reviewed are designed to define and ensure the compensation owed to the licensee.
I believe the discussion with a real estate agent about compensation is common sense and should be upfront; right after the discussion of “agency,” which is a term indicating the duties and legal obligations owed to, in this case, the buyer.
Of concern, is the potential of some real estate agents to pressure buyers into signing a buyers representation agreement and committing to that real estate agent before you are comfortable, just to see a property. Be careful of agreements that are:
- Difficult to read and be understood by members of the public;
- Use contract terms highly favorable to one side of the agreement, usually the individual on the drafting side of the contract;
- May need to be signed when there is pressure being placed on the non-drafting party, usually a consumer, at the time of signing, and;
- May not provide the non-drafting party with the opportunity to actually read the document – either by limiting time or by electronically skipping around a document requiring electronic signatures but not providing an easily readable version of the agreement to the non-drafting party.
Signing an agreement to see or tour a home is not a state requirement in Texas.
I remain extremely concerned by the changes impacting the industry and consumers and would like to remind consumers to again read, understand, and accept only the terms they are willing to be bound to, negotiating and modifying as necessary prior to signing.
The use of these written agreements will represent an activity requiring broker supervision. All written agreements must be reviewed by a Designated Broker and also will need to be a document stored in the broker’s files for four years.
What is a Written Buyer Agreement? A written buyer agreement is a formal contract between you and your real estate professional. It outlines the services they will provide and specifies how they will be compensated for those services.
Why Am I Being Asked to Sign This Agreement? As of August 17, 2024, written buyer agreements have become mandatory for many real estate professionals nationwide. This requirement is part of the National Association of REALTORS®’ settlement related to broker commissions.
Are These Agreements New? Not in Texas. While many states like Texas have required them for years, others are just adopting this practice. If you haven’t encountered these agreements before, that’s likely because they weren’t previously required in your location. Now, they are standard practice across the country.
Are These Agreements Negotiable? Absolutely. You have the right to negotiate the terms of the agreement, including the services you expect, the duration of the agreement, and the compensation. The payment structure—whether a flat fee, percentage, or hourly rate—should be clearly stated in the agreement. Only sign a contract that accurately reflects your understanding with your agent.
How Do I Benefit from These Agreements? These agreements clearly define the services you expect from your agent and outline the terms of their compensation. This clarity helps prevent misunderstandings and ensures that both you and your agent are on the same page from the start.
When Do I Need to Sign the Agreement? You’ll be asked to sign the written buyer agreement before touring homes with your agent, whether in-person or virtually. If you’re just visiting an open house on your own or inquiring about an agent’s services, you won’t need to sign the agreement at that time.
Will I Need to Pay My Real Estate Professional Out of Pocket? Not necessarily. While you are responsible for paying your agent as per the agreement, you can negotiate for the seller or their agent to cover your agent’s compensation.
Does the Agreement Define the Type of Relationship I Must Have with My Agent? No, the agreement doesn’t dictate the nature of your relationship with your agent. You can establish any type of business relationship allowed by state law where you’re purchasing a home.
Can I Change or Cancel the Agreement? Yes. You can mutually agree with your agent to amend or terminate the agreement. Make sure to read the agreement thoroughly and discuss any exit conditions with your agent if you wish to make changes.
Simply, What Do the NAR Settlement Changes Mean For Our Real Estate Experience
- Going forward (August 2024) buyer broker compensation can’t be listed on the Multiple Listing Service or MLS-related systems and buyers will have to sign representation agreements before seeing properties.
- Sellers and their agents can STILL make offers of buyer broker compensation via off-MLS negotiations, consults and brokerage systems (meaning seller-paid buyer agent compensation still can and will happen).
- NAR also agreed to a new rule that require MLS participants working with buyers—to enter into written representation agreements with their buyers before visiting/touring/showing properties.
Buyers: What Does This Mean For Me
Buyers will be required to sign a buyer broker agreements before looking at properties (excluding open houses). Buyers are also going to have to be more aware of buyer agent compensation and whether it is offered on the property of interest (unless the buyer does not mind covering buyer agent compensation out of their own funds).
Buyers may have additional hurdles now having to negotiate their agent’s compensation in the transaction negotiations should they not desire or cannot afford to pay it, personally. There will continue to be seller-paid buyer brokerage options for buyers.
Now more than ever, buyers will need to interview potential buyer broker representatives and make sure they are highly educated, experienced, and can handle the transaction without issue.
Sellers: What Does This Mean For Me
Sellers will continue to have the opportunity to offer or not to offer cooperative compensation for a buyer agent as they always have. Going forward, Seller are limited to where they may market cooperative compensation (cannot be attached to the property MLS listing) and will face a hardships when wanting to offer Buyer Agent bonuses or other creative offers when marketing their property listings.
Sellers will continue to have to find ways to competitively market their properties in the marketplace.
How Will These Changes Affect Real Estate Agents
Agents will have more work to do across the board. Listing agents will be harder time marketing the competitiveness of unilateral offers of compensation for their Sellers. Buyer agents will have to do another level of research on compensation to properly advise their buyer clients.
The agents, buyers, and sellers will all have more of documents to complete and track. There will be LESS transparency across the board with offers of compensation moved into the shadows. And, there will be more opportunities for commission steering and discrimination.
If you would like to read more about the changes, click here or reach out to me and I will be happy to have a one-on-one conversation with you.
