BBA and Compensation Agreement Overview (June 2024)

A. What will change after the NAR’s Proposed Settlement in the Burnett-Sitzer litigation?

1. Mandatory Written Agreements: All MLS participants working with buyers must enter into written representation agreements with their buyers before touring any properties. This ensures that the terms of the broker-client relationship, including services and compensation, are clearly outlined and agreed upon upfront.
   

2. Prohibition of Compensation Offers on MLS: Offers of broker compensation will no longer be communicated through the MLS. Instead, these offers must be negotiated directly between the buyer and the broker. This aims to prevent potential conflicts of interest and ensure transparency in the transaction process.
   

3. Compensation Disclosure: The new rules require that any compensation a broker receives from any source must be clearly specified and conspicuously disclosed in the buyer brokerage agreement. This includes detailing the amount or rate of compensation or how this amount will be determined.
   

4. Elimination of Broker Compensation Fields: The MLS will be required to eliminate all broker compensation fields and compensation information. This means the MLS cannot facilitate or support any mechanisms for offering compensation to buyer brokers through its platform.
   

5. Steering Prohibition: The settlement reinforces the prohibition on steering buyers based on the amount of broker compensation. Brokers must prioritize their clients' interests over their own compensation considerations, in line with NAR's Code of Ethics.

B. When will these changes go into effect? 

If the Proposed Settlement is accepted and all changes are implemented, they will go into effect on AUGUST 17, 2024. The new forms are being rolled out by NAR as quickly as possible. You should expect to see a new version of the BBA in late July 2024. The Contract for Purchase and Sale is going to be modified as well at some point.

C. How can a Seller’s Broker still offer compensation after August 17?

According to NAR, here are still five (5) viable ways you can continue to market your listings:

1. Marketing: If the listing broker or seller is offering compensation for the buyer’s broker, the listing agent can share that offer through their marketing, such as in flyers, signs or emails.
   

2. Website displays: A broker can show offers of compensation for their listings on their website display. Brokers must not display offers of compensation for other broker’s listings on their website display. You can show other brokers’ compensation on your listings if you don’t get it from MLS data or an MLS feed.
   

3. Seller concessions: Sellers may elect to offer concessions to the buyer, which may be used for items like paying for the buyer’s closing costs or the commission for the buyer’s agent. If the local MLS allows, such concessions can be communicated on the MLS within designated fields. However, any concessions listed cannot be conditioned on the use of or payment to a buyer broker.
   

4. Negotiations: Buyers may request that their agent include broker compensation as part of the terms of a purchase offer.
   

5. Buyer agreements: NAR’s proposed settlement agreement will require buyers and their agents to enter into written agreements before touring homes. These agreements will detail the compensation for using the buyer broker’s services.

D. What is the ‘Buyer Brokerage Agreement’?

With the Buyer Broker Agreement (BBA), the Buyer’s Broker and the Buyer are committing to work with one another. This is akin to getting engaged instead of just dating. It is noteworthy that a form of buyer brokerage agreements has already been required for many years in at least 18 other US states. In Florida, the BBA concept and NAR form for this has been around for quite a while—the difference is that it was not required up until now. 

The BBA form allows a Buyer’s Broker to secure commission from their Buyer, even if they cannot secure an offer of compensation from a Seller or Seller’s Broker.

E. What is the ‘Compensation Agreement’?

As of June 21, 2024, NAR has released two versions of a ‘Compensation Agreement’ – one for a Seller to compensate a Buyer’s Broker directly, and one for a Seller’s Broker to compensate a Buyer’s Broker directly.

These forms are necessary (and helpful) in light of the Post-Burnett landscape wherein MLS offers of compensation are prohibited. Since Buyer Brokers must negotiate for their commission off-MLS, it makes sense to then memorialize their understanding via the Compensation Agreement. 

In practice, it may be that Seller Brokers will want to have a pre-filled Compensation Agreement ready to go, so that when a Buyer’s Broker inquires about an offer of compensation, the Seller’s Broker simply presents the pre-filled Compensation Agreement. The brokers can have a further negotiation, or the Buyer’s Broker can sign it as-is. 

The Buyer’s Broker must consider whether an updated disclosure to their Buyer must be made. For instance, if the Buyer’s Broker is able to secure a higher commission from the listing agent than previously expected, the Buyer’s Broker will need to update the Buyer in writing.

In short: As of August 17, the BBA and the Compensation Agreement will be a necessary 2-step process for sales agents.

F. How does the Compensation Agreement affect the Procuring Cause analysis?

According to the National Association of Realtors (NAR), the agent whose actions are the direct and primary cause of the buyer's decision to purchase is considered the procuring cause (PC). This concept is crucial in determining entitlement to commission disputes between agents. It emphasizes the importance of the agent’s role in bringing about the sale.

The use of the Buyer Brokerage Agreement and Compensation Agreement will actually help reduce PC disputes because it reduces the entitlement to commission to writing. Theoretically It would then be much more difficult for the Seller’s Broker, or a third-party Buyer’s Broker (Broker B) to argue that the Buyer’s Broker who presented an offer that was accepted (Broker A) is not entitled to their commission, if Broker A has secured a signed Compensation Agreement. 

G. What Should Sales Associates Do Next?

To prepare for the upcoming changes to the Buyer Brokerage Agreement and Compensation Agreement that will take effect on August 17, 2024, here are several actionable steps:

1. Educate Yourself and Your Team. Attend training sessions, webinars, and workshops offered by NAR and your local real estate association to fully understand the new requirements and their implications.
   

2. Update Your Documentation. Review and update your buyer brokerage agreements and compensation agreements to ensure they comply with the new rules. Utilize the new forms provided by NAR as they become available.
   

3. Communicate with Clients. Inform your current and prospective clients about the upcoming changes. Explain how these changes will affect their transactions and the steps you are taking to comply with the new regulations.
   

4. Review and Adjust Marketing Strategies. Ensure all marketing materials, including flyers, signs, and website content, are updated to reflect the new rules regarding compensation offers. Avoid using MLS data to display offers of compensation.
   

5. Prepare for New Procedures. Develop and implement new procedures for negotiating and documenting broker compensation outside of the MLS. Ensure that all team members are aware of and follow these new procedures.
   
   ‍
   ‍

DISCLAIMER: THIS OVERVIEW MAY INCLUDE DIRECT CITATIONS FROM NATIONAL ASSOCIATION OF REALTORS AND NO COPYRIGHT IS EXPRESSED OR CLAIMED BY VIRTUE OF ITS REPUBLICATION HEREIN. ATTRIBUTION IS HEREBY MADE TO THE NATIONAL ASSOCIATION OF REALTORS FOR ANY COPYRIGHT PROTECTED CONTENT CONTAINED HEREIN. THE READER SHOULD NOT SUBSTITUTE THIS OVERVIEW AS LEGAL ADVICE, AND MUST CONSULT THEIR BROKER AS TO THE CURRENT STATUS OF LAW, ETHICAL RULES, AND THEIR SPECIFIC BROKERAGE REQUIREMENTS.