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In response to inquiries and concerns from members, the Standards and Forms Committee is pleased to offer draft revisions to Paragraph 5.7 of REBA Form No. 66, which relates to payment of real estate broker commissions. This Form, originally
approved in 2021, includes various rider provisions for use with residential purchase and sale agreements for single-family, 1-4 family and condominium units.
The
Committee recommends use of this draft provisional paragraph pending release of
a final iteration of Paragraph 5.7, a copy of which is available by clicking here.
The
issue of broker compensation has been the subject of national and local class
action lawsuits, including Sitzer v. Nat’l Ass’n of Realtors et al, Case No.
4:19-cv-00332-SRB (W.D. Mo. 2019) (commonly known as Sitzer/Burnett), Moehrl v.
National Association of Realtors, No. 1:2019cv01610 - Document 184 (N.D. Ill.
2020) and locally, Nosalek v. MLS Property Information Network Inc. et al,
filed in the United District Court in Massachusetts in 2021 as Case No.
20-cv-12244-PBS.
These
broker compensation cases alleged the defendants conspired to inflate real
estate commissions by enforcing a cooperative compensation rule that required
listing brokers to offer compensation to buyer brokers on Multiple Listing
Service databases (MLS) resulting in fixed commission rates, and that some
Sellers may have not been aware this resulted in Sellers paying the Buyer’s
broker’s commission compensation. The
jury in the Sitzer/Burnett case agreed, finding the defendants liable for
violating Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1 and awarded
approximately $1.785 billion dollars to the Plaintiffs. Following the Sitzer/Burnett verdict, over
thirty copy-cat cases have been filed against over 250 defendants, and it is
anticipated additional cases concerning broker compensation and policies of the
various MLS companies will surface.[1]
As
a result, efforts have been made to settle several of the lawsuits, and the
National Association of REALTORSâ
(NAR) and many of the larger corporate defendants have entered into nationwide
settlement agreements pending final Court approval. A stay has been issued in
the Nosalek case until the NAR settlement is finalized.
The below alternatives for paying the Buyer’s broker are based upon the information and settlement terms of the cases available at the time this Advisory Report was drafted. This Form shall be reviewed and revised, if so required, once the cases conclude.
5.7 BROKERS / BROKER’S COMMISSION
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SELLER's
BROKER |
BUYER's
BROKER |
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Name:
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Name:
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MA Lic. No. |
MA Lic. No. |
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Mobile # |
Mobile # |
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Email: |
Email: |
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Brokerage:
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Brokerage:
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MA
Lic. No. |
MA
Lic. No. |
The
Listing Broker (Company)/Agent and the Buyer’s Broker (Company)/Agent shall
each provide to the closing attorney within a reasonable amount of time prior
to the Closing a commission statement together with the name, address, phone
number, email, Agent State License ID number and Brokerage State License ID
number.
Listing
Broker (Company)/Agent’s Commission:
A
commission in the amount of $_______________________ is due from SELLER to
____________________, being the Listing Broker (Company)/Agent, payable only
upon the recording of the deed to the BUYER with the Registry of Deeds and
payment of all monies due the SELLER, but not otherwise.
Buyer’s
Broker (Company)/Agent’s Commission:
A
commission in the amount of $_____________________ is due to
___________________, being the BUYER’s Broker (Company/Agent), payable upon the
recording of the deed to the BUYER with the Registry of Deeds and payment of
all monies due the SELLER, but not otherwise, and is due from the following:
A. The amount of $________________________ is
due from BUYER to ____________________, being the BUYER’s Broker (Company)/Agent.
B. The amount of $________________________ is
due from SELLER to ______________________, being the BUYER’s Broker (Company)/Agent,
which SELLER agrees and directs shall
be paid by the Listing Broker (Company)/Agent from funds held in escrow.
Direction to Escrow Agent: The Escrow Agent holding the Deposit as set forth in this Agreement is
responsible for disbursing funds in compliance with the terms of this
Agreement. Upon the recording
of the deed to the BUYER with the Registry of Deeds and payment of all monies
due the SELLER, the Escrow Agent shall
disburse funds as set forth above and the Escrow Agent shall disburse the
balance of the deposit, if any, to the SELLER as excess deposit. SELLER, BUYER
and Escrow Agent acknowledge that all disbursements from funds held in escrow
are undertaken in the Escrow’s Agent’s capacity as Escrow Agent and not
otherwise. These written instructions to
the Escrow Agent constitute mutual, written instructions from the SELLER and
BUYER to the Escrow Agent and supersedes any office policy of the Escrow Agent
to the contrary.
_______________________________________________________________________
Notes: Delete and customize the above for the
agreed contract terms and delete the introductory text and the below notes from
the final Purchase and Sale Agreement or Rider.
1. The amount of the brokers’ commissions may be filled in as the commission percentage or the calculated dollar amount. However, if written as a dollar amount then the amount may need to be correspondingly edited in the event of a sale price change.
2. Both Sellers and Buyers
could be using the services of a broker (corporate or individual) or a
designated agent. This form uses the
word “broker” to mean the Seller’s and Buyer’s representative, and the form
should be edited as applicable. However,
all commission payments are made to the broker (corporate or individual) and
not to the agent who works for that broker.
3. The Buyer’s broker is paid the amount contracted between the
Buyer and its broker. Many brokers
require a written fee agreement (sometimes referred to as a Buyer’s Commission
Agreement or an Exclusive Buyer’s Agreement).
In Massachusetts, Buyer’s broker written fee agreements are not a
requirement for MLS PIN as of the time this Advisory Report was drafted,
however practice changes provided in some of the case settlement terms require
their use. None of the settlement terms
prevent a Buyer or Seller from representing themselves and make it clear that a
Buyer contacting a Seller’s broker can do so without an agreement provided that
the Seller’s broker is working on behalf of and showing the property for the
benefit of their Seller client.
4. The Buyer’s broker commission may be paid
in whole or in part by the Buyer and/or the Seller. Both the Nosalek and NAR preliminary
settlements allow the Buyer’s Offer to include a Seller concession marked for
Buyer’s broker compensation that can be accepted or denied like all other Offer
terms. The breakdown of who is paying
the Buyer’s broker’s commission should be clearly set forth in the P&S and
the above should be edited, as applicable.
5. At the time of this Advisory Report, cooperative commissions
are a permissible option for Listing
Brokers (Company)/Agent to employ, and therefore a third option to pay
the Buyer’s broker’s commission may be as follows:
C. The amount of
$________________________ is due from the Listing Broker (Company)/Agent to ______________________, being
the BUYER’s Broker (Company)/Agent.
This option, given
the current landscape, will likely become less common. Listing brokers should take caution that it
is only permissible if done correctly with supporting underlying written fee
agreements, proper disclosures, not reflected in an MLS, among other
requirements.
6. Notwithstanding co-operative commission
splits remains permissible at this time, it is noted MLS PIN has changed its
practices stemming from the Nosalek case and any compensation listed on MLS PIN
may not include a payment between brokers, although Sellers may choose to
accept an offer term to pay all or a portion of the Buyer’s broker’s commission
as an agreed term of the purchase and sale agreement.
7. The NAR preliminary settlement practice changes provide that a
Buyer’s agent cannot accept a larger commission than as set forth in their
written fee agreement nor can they accept additional payment from any other
party than the Buyer, Seller or Seller’s Listing
Broker (Company)/Agent, as and if applicable
8. Other parties could be acting as the
Escrow Agent for the deposit, including either Seller’s or Buyer’s counsel, a
title insurance company, or others.
Revise the above as applicable to identify the Escrow Agent holding the
deposit.
9. The Seller may direct in the purchase and
sale agreement that its broker (or other Escrow Agent) shall disburse the
Seller’s agreed payment (if any) to the Buyer’s broker from Seller’s funds held
as escrow agent (i.e., the purchase deposit) after the closing concludes and
the deed is recorded. The case Zang v.
Nrt New England Inc., 77 Mass.App.Ct 665 (2010) provides that if a party holds
the deposit in escrow pursuant to a purchase and sales agreement (which is
typically the Seller’s broker) they are automatically authorized and bound to comply
with the purchase and sale agreement disbursement instructions for the funds it
holds in escrow without the need for the escrow agent to otherwise be a party
or a counter-signatory to the purchase and sales agreement.
10. REBA’s Ethical Standard No. 4 provides “An
attorney shall not act as both attorney for a party in a real estate
transaction and as a real estate broker to a party in the same transaction.”
[1] Multi Service Listing, or MLS, is a common
term for a centralized listing of properties for sale. MLS Property Information Network, Inc, (MLS
PIN), is one company that operates in Massachusetts and there are several other
companies in Massachusetts and nationally that include MLS in their trade
names. To minimize confusion among the
companies, specific names are used in this Advisory Report if applicable, and
otherwise MLS is used to mean a centralized property listing database.
