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How Realtors® Can Talk To Sellers About Compensation

Former Director of Legal Affairs for Maryland REALTORS®’.

Most conversations regarding the proposed NAR Settlement Agreement and its corresponding practice changes focus on the buyer’s side and the requirement that a buyer’s agent enter into a written buyer agency agreement with the buyer before touring a home. Of equal importance, however, is the impact that the practice changes will have on sellers. Regardless of which side of the transaction we are on, it is critical to focus on communicating with our clients and customers.

The inventory shortage that we’ve been experiencing over the past few years has created a seller’s market. Sellers enjoyed the luxury of receiving multiple offers for their home. Buyers were willing to offer more than the home had appraised for or willing to waive certain contingencies, such as a home inspection. While higher interest rates have changed things, the fact is that the conversations we were having with sellers a few years ago are not the conversations we will be having with sellers this year—and that’s not even taking the NAR Settlement Agreement into account.

The post-Settlement Agreement environment offers all of us an opportunity to refocus on our business practices, our skill set, and our communications with our clients and customers, including our listing presentations.

The Settlement Agreement sets forth certain required practice changes. The class action plaintiffs were home sellers who alleged that NAR’s cooperative compensation policy was anticompetitive because they were forced to pay a commission, which was divided between the listing broker and the buyer broker. The seller on your next listing appointment may have heard a news segment, read an article, or skimmed a headline and may believe that you are going to charge them too much. If you are not prepared to have this conversation with seller clients, you should begin preparing immediately. Reach out to your Broker, Branch Office Manager, or Team Leader to discuss modifying your listing presentation to address the lawsuit and the Settlement Agreement.

If you are a coach, work with a coach, or have taken some additional training to enhance your client communication skills, let your Broker or Branch Office Manager know that you are willing to share your expertise with your colleagues in the office to help them develop and enhance their ability to communicate clearly and effectively with sellers.

You should be prepared to discuss the lawsuit and Settlement Agreement and to explain the required Practice Changes and their impact on the transaction.

Be prepared to explain to a seller how compensation works, what options are available to them, and what impact each option may have on the transaction. Bright MLS changed its rules last year, allowing a listing broker to offer compensation to cooperating brokers in any amount or percentage, including zero. There are advantages and disadvantages to a seller who offers zero cooperative compensation and hopefully we have been discussing this with sellers for several months now. Explaining the concept of how cooperative compensation works should be a comfortable conversation by now.

The conversation itself will vary depending upon your communication style and your client’s communication style. You would start by explaining the services you and your brokerage will provide to the seller. Again, if you haven’t focused on this previously, you should start practicing and role playing now. The listing agreement is structured so that the listing broker and the seller agree upon the total amount of compensation the seller will pay to the listing broker, which can be set forth as a percentage, a specified dollar amount, or a combination of the two. Once that has been agreed upon, the listing agreement transitions to a paragraph where the seller instructs the listing broker on the amount of compensation, if any, to be offered to cooperating brokers and subagents. Be prepared to describe the pros and cons of the listing broker offering compensation to the buyer’s broker.

Describing the concept of cooperative compensation should be straightforward, the conversation about the method by which cooperative compensation may be offered will be more involved because of the required Practice Changes. The most meaningful change is that while offers of cooperative compensation are still permissible, they will no longer be displayed on the MLS. It will be permissible for a listing broker to display offers of compensation on the broker’s listings only on the broker’s website. It will also be permissible for the seller to let the buyer know that the seller is willing to consider helping to pay some or all of the buyer’s closing costs so long as such concessions are not limited to or conditioned on the retention of or payment to a cooperating broker, buyer broker, or other buyer representative. In other words, the seller concession field on the MLS cannot be used as “code” for an offer of compensation or conditional upon such an offer of compensation.

The amount being offered as a “seller concession,” if any, may be utilized to pay buyer’s closing costs and/or to pay compensation to the buyer broker. It is also permissible for the buyer to request that the seller pay compensation directly to the buyer’s broker, using an Addendum to the Contract of Sale. As of the date on which this article was written, Bright MLS has not yet modified the data fields, nor has Maryland REALTORS® adopted new and revised Statewide Forms to reflect the required Practice Changes and to facilitate communication, negotiation, and hopefully agreement among the parties with respect to the changes and the transaction.

The most important takeaway is not to fear these changes, but to take this as an opportunity to pause, analyze your current techniques and procedures, and adjust as needed to continue to thrive in this industry. Please consider coaching, sharing resources within your brokerage, taking classes, watching videos on YouTube, and checking in regularly with Maryland REALTORS® to take advantage of our Webinars, videos, and other content designed to help you master the new world.

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