NAR Settlement Perspectives by Ray O’Neil, RAA, GAA

As you have recently heard many times, the old way of advertising cooperative compensation through the MLS has changed. Most notably, this change prohibits the display of any form of compensation through the MLS. For instance, renaming commissions or compensation as concessions, professional fees or other key words in the remarks. The bottom line is that the MLS (Realcomp) is now required by the NAR settlement to stop those practices from happening.

Detailed post-sale/closing concession fields are being added to the system this week, so they are available to you when updating a listing from pending to closed. These fields will allow you to record any concessions (i.e., closing costs, repairs or professional fees (attorney, accountant, appraiser, consultants, etc.) that were given to the buyer.

Very soon, new warning flags and system blocks on adding words or phrases that imply compensation will also be implemented. The settlement requires the MLS to stop violations first by warnings, then progressive fines, and finally possible expulsion of the MLS participant.

Brokers & Agents now need to communicate directly with each other outside of the MLS to find out if there is an offer of compensation available. This could be verbally expressed or by written agreement between the parties, which is always recommended. Additionally, the purchase offer between all the parties should express the compensation agreement allowing for the structure of payment in the transaction. Once the deal is closed you can expect to have appraisers call to find out the compensation amount and how it was paid.

This opinion is not meant to supersede your broker’s directives or legal advice. Rather this is offered as an initial guide considering the hard deadline of August 17, 2024 is looming. This also does not eliminate the mandatory buyer’s agency agreements prior to showing any properties. Remember, the latter is now a requirement and must be available to the MLS (Realcomp) for review upon request as part of your participation obligations.

How do we move forward? Both agents & brokers remain concerned with the listing and selling of a home with the maximum benefit to their clients. The appraisers are concerned with their client’s needs by accurately reporting value and analysis of the data available in the MLS.

Both groups need to start by going back to basics. For agents & brokers, the job is to educate their clients/customers and remind themselves of the value of the services they provide. From the appraiser’s perspective, we need to understand and convey that the accounting of compensation for the buying side is essentially unchanged. It’s the path leading there that has changed.

To start with, when an appraised value or CMA is generated, several items are considered to be built into the opinion of value. Specifically, these built in costs have always been negotiable and part of the transaction costs. In this market area, the built in costs typically include both sides of the broker(s) compensation, transfer tax, title work, etc.

Another consideration includes whether the seller and buyer are related parties. If so, it is common practice for these costs to be either waived or reduced. Conversely, if the transaction is an open market sale, the built in costs are part of the negotiated price between all the parties.

The settlement agreement does not prohibit broker to broker cooperation or compensation. It simply means the compensation can’t be published in the MLS. The accounting of payment is normally an integral part of the PA. That is important since the lender and appraiser would then know that the commission costs remain a built-in part of the transaction.

It is important to treat the commission as a normal transaction cost and not as an add on cost. Avoid calling the commission a concession, this only raises a red flag in valuation that often reflects potential addon costs. The term concession typically has a generally specific meaning related to closing costs, tax proration waivers or repairs. Appraisers are required to analyze the PA and any related costs and make appropriate adjustments, as necessary.

Built in costs do not normally get deducted in an appraisal. Conversely, an add on cost is typically deducted from the value. The latter could end up inadvertently cutting the reported value for lending purposes or jeopardizing the ability of the buyer to close the deal.

Ways to move forward will continue to evolve and improve. In the meantime, this is a good starting point to curb the anxiety.

Ray O’Neil

Ray O’Neil, RAA, GAA is a Certified General Appraiser and Broker in Clarkston, MI . He has been involved in commercial and residential appraisal and brokerage for 47 years. He presently serves as the Vice President of Realcomp and is Director at NOCBOR.