Written by Betsy Urbance
Reading Time: 10 min
Real estate is always evolving, and the changes brought about by the NAR settlement are just the latest chapter. But REALTORS® are nothing if not adaptable and over the next few months, your Illinois REALTORS® will be helping you prepare for what lies ahead by providing resources, best practices, FAQs and more.
The biggest changes: REALTORS® will now be required to have written buyer brokerage agreements with all potential and current buyers; offers and negotiations of compensation will no longer be allowed on the MLS; and these changes go into effect on Aug. 17.
Change is the Only Constant: A short history of buyer agency
Sometimes it is good to review history to see where the industry has changed and how the practice of real estate brokerage has evolved over time, and even survived substantial changes. As a case in point, prior to the early 1990s, buyers had no ability to use agents who represented the buyers’ interests. Indeed, all licensed agents represented only the sellers in transactions. Those agents working with buyers were “subagents” to the sellers’ agents. This meant they represented the sellers and not the buyers. Buyers had no representation. In other words, “buyers beware!”
During this time, the Federal Trade Commission (FTC) conducted a study which showed that around 70 percent of buyers polled mistakenly believed their agents represented their interests as buyers. The results of this study provided the impetus to changes in the real estate industry where regulators began to implement the theory of designated agency. This legal presumption was written into many state licensing laws. Agents were presumed to be representing the person with whom they were working.
“Change is constant, but the real estate industry has consistently met each challenge presented and has always figured out how to continue serving their clients best interests while helping them find their first or next homes.”
In turn, and to allow for the concept of designated agency to work, many states, including Illinois, provided the ability for payment to the brokerage companies to come from the sellers’ side even though the buyers’ agents represented buyers’ interests. State legislatures consistently found this practice to serve consumers’ best interests and provided a way for buyers to gain access to professional representation when the “pot of money” does not arrive until the transaction gets to the closing table.
While this practice is legal in most states, this will change going forward based on changes agreed upon in a deal to settle a multitude of class action lawsuits that have sprung up over the years.
The point of this small history review is to remind industry professionals, that change is constant, the real estate industry has consistently met each challenge presented and has always figured out how to continue serving their clients best interests while helping them find their first or next homes.
What’s Changing
1. Written Buyer Brokerage Agreements to be Mandatory
Many of our members have already been using written buyer brokerage agreements and it is a practice that Illinois REALTORS® has long recommended. Buyer brokerage agreements lay out exactly what you, as a broker, will provide to your buyer clients including services provided and how compensation will be determined and paid.
Beginning Aug. 17, the NAR settlement will require MLS participants who are working with a buyer to enter into a written buyer brokerage agreement.
Illinois REALTORS® was even more proactive during the spring legislative session and, working with the Illinois Department of Financial and Professional Regulation, successfully pushed for the Illinois Real Estate License Act to be amended to require written brokerage agreements with all buyers and sellers. Governor J.B. Pritzker is expected to sign the legislation that would go into effect Jan. 1, 2025.
STAY TUNED! Illinois REALTORS® will be updating all of our brokerage agreements, including listing agreements, buyer representation agreements and related resources. We will be sharing those new forms with you as soon as they are available.
2. Offers of Compensation Will Be Outside the MLS
A key element of the NAR settlement changes how buyer brokers are paid and eliminates and prohibits any offers of compensation in the MLS between listing brokers or sellers to buyer brokers or other buyer representatives. MLSs will eliminate broker compensation fields and broker compensation information within the MLS, according to NAR.
Compensation conversations and negotiations will still be able to occur off the MLS. Buyers could pay buyer brokers directly. Other options include the seller still choosing to pay the buyer’s agent or agreeing to pay concessions to cover some of the buyer’s costs in the transaction. Note: If the buyer broker has negotiated a compensation rate with their client in the buyer brokerage agreement, the NAR settlement prohibits the buyer broker from receiving more than was initially agreed to.
What Can You Do?
1. Educate, Negotiate and Compete
Keep three rules in mind over the coming months: educate yourself and your clients about the value you bring to the transaction, negotiate with your company’s seller and buyer clients about what you will charge them for valuable services and finally, make competitive and independent business decisions about your own company’s brokerage.
About the writer: Betsy Urbance is Illinois REALTORS® General Counsel and Vice President of Legal Services.
