The National Association of Realtors (“NAR”) proposed settlement agreement[1] (the “Agreement”) in Burnett, et al. v. NAR, et al. requires NAR and its members to implement certain practice changes no later than August 17, 2024. One of the major terms of the Agreement is that “all REALTOR MLS Participants working with a buyer [must] enter into a written agreement before the buyer tours any home.”[2] Paragraph 58 (vi) goes on to note that each written agreement contemplated under this term must:
- To the extent that such a REALTOR or Participant will receive compensation from any source, the agreement must specify and conspicuously disclose the amount or rate of compensation it will receive or how this amount will be determined;
- The amount of compensation reflected must be objectively ascertainable and may not be open-ended (e.g., “buyer broker compensation shall be whatever amount the seller is offering to the buyer”); and
- Such a REALTOR or Participant may not receive compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer;
Further, Paragraph 58 (vii) of the Agreement notes that NAR must “prohibit REALTORS and REALTOR MLS Participants from representing to a client or customer that their brokerage services are free or available at no cost to their clients, unless they will receive no financial compensation from any source for those services.”
Some brokerages and Zillow[3] have put forth “touring agreements” or “showing agreements” that cover only touring services, expire after a short time, contain no exclusivity clause, and provide buyer broker shall not receive any compensation for the touring services. The purpose of the touring Agreement, according to Zillow, is to let the agent and prospective buyer “enter the first showing with a signed limited services agreement that satisfies requirements outlined in the NAR Settlement.” But does a touring agreement fully abide by the Agreement’s practice changes? Maybe not.
To begin, it should be noted that Zillow reiterates the importance of buyer agreements, but specifically delineates between a buyer agreement and a touring agreement. This multi-agreement approach to the home buying process was likely not contemplated, or accounted for, in the Agreement. As quoted above, the language of the Agreement uses the phrase “the agreement” when specifying the requirements for a written agreement between buyer and agent prior to any showing. In State v. Hohenwald, 815 N.W.2d 823, 830 (Minn. 2012), the Minnesota Supreme Court noted that “[t]he definite article ‘the’ is a word of limitation that indicates a reference to a specific object.” The use of the article “the” and no mention of subsequent agreements tends to indicate the Agreement anticipated the use of only one operative agreement between buyer and buyer broker. Accordingly, the requirements outlined in Paragraph 58 of the Agreement, i.e. rate of compensation, should be in writing before any touring activities take place. If buyer broker intends to be compensated at any point during the home-buying process with a prospective buyer, then that compensation discussion should occur prior to any touring of homes as prescribed in the Agreement.
Further, if buyer agent intends on receiving compensation for broker services at any point in the home buying process, then by entering a touring agreement that represents a buyer broker’s services as free, a buyer broker potentially opens itself up to an argument by prospective buyer that buyer broker represented its services as free. Indeed, a touring agreement limits the services performed by the agent to the touring of homes, and any broker service above that would require compensation. But that analysis relies on the presupposition that all buyers appreciate the multiple different stages in the home buying process. If utilizing a touring agreement with intent to later enter a buyer agreement, then an argument may exist that a buyer agent misrepresented their services as free in violation of the Agreement.
Also, the touring agreements usually contemplate a future buyer agreement, under which the agent would be compensated for broker services. In the Zillow listing agreement, the following is bolded: “The fee or commission the parties agree to for [broker services beyond the touring services] are not set by law, are fully negotiable, and shall be documented in that agreement.” This allusion to a future agreement hardly comports with the Agreement’s requirement that “the amount of compensation reflected must be objectively ascertainable and may not be open-ended.”
Lastly, under Minn. Stat. § 82.66, subd. 2, a licensed real estate agent must “obtain a signed buyer’s broker agreement from a buyer before performing any acts as a buyer representative.” This statute also requires a list of notices and disclosures that must be contained in any buyer’s broker agreement. It’s not clear whether the act of touring would be considered an “act as a buyer representative,” and most touring agreements acknowledge that no fiduciary relationship is formed by signing the touring agreement. But, given shocking similarities between the language of Minn. Stat. § 82.66 and the Agreement, such notices outlined in § 82.66 may be required prior to any touring activities.
Let’s explore a common factual scenario. Say a buyer agent and prospective buyer enter a touring agreement and there has been no intimate discussion of compensation in the future. In fact, buyer agent represented to buyer, “Under the touring agreement my services are free, and you don’t owe me anything.” Then the compensation conversation stops, and the agent-buyer pair begin touring homes. After five or six home tours the buyer turns to buyer agent and says, “This is the one.” Up until now, there has been no meaningful discussion about compensation, and – under the touring agreement – prospective buyer owes the agent nothing. At this point, the buyer agent is in the awkward position of having to say either, “my services end here, and you owe me nothing,” or the more likely statement, “to go forward with the purchase of the home we will need to sign a buyer agreement.” For the first time, buyer is notified that to move forward with the purchase of the home utilizing the services of buyer agent, the buyer will owe the agent thousands of dollars. The buyer feels blindsided and potentially unduly influenced to sign the buyer agreement having found the perfect home, which may not be on the market much longer. The agent, while relying on the touring agreement with no exclusivity clause, has left open the possibility that the prospective buyer endeavors to find a cheaper buyer agent.
This fact pattern highlights the many issues that may arise, to both buyer and agent, if relying on a touring agreement. To comport with both the Agreement and Minn. Stat. § 82.66, a signed, written buyer agreement detailing buyer agent compensation is likely necessary prior to touring any homes.
Contact Jack Edell with questions surrounding recent NAR practice changes.
[1] Available online through NAR Files – nar-settlement-agreement-download-2024-04-19.pdf.
[2] The Agreement, Section H – Practice Changes, paragraph 58 (vi).
[3] https://www.zillow.com/agent-resources/blog/zillow-touring-agreement-nar-settlement/.
