Rule changes resulting from NAR class action settlement discussed

South Carolina real estate lawyers were invited to an excellent Zoom meeting on August 20 sponsored by South Carolina Realtors. The meeting was advertised on the South Carolina Bar’s Real Estate section listserv. Nick Kremydas of that organization and Gary Pickren, founding member of Blair Cato Law Firm, addressed the changes residential real estate lawyers should expect as a result of the National Association of Realtors class action settlement. South Carolina dirt lawyers owe a huge thank you to these two well-informed lawyers who, in addition to speaking and answering questions on the topic, offered their email addresses for the purposes of fielding further questions. *

According to the settlement, as of August 17, NAR affiliated residential multiple listing services can no longer accept listings that indicate the amount or percentage of the seller’s commission that will be paid to the buyer’s broker.  There is no requirement that a buyer be represented by a separate broker, and for many years, buyers typically had no representation. But in recent years, buyers’ agents have routinely been employed, and it is clear that some other method must be worked out for their payment.

The speakers initially stated that the MLS entities in South Carolina have complied with the August 17 deadline, but there was a brief mention that Hilton Head may be an exception. Some brokers are drafting “showing agreements” or “touring agreements” to comply with the rule that a buyer must agree to commissions prior to seeing houses.

The implementation of the changes in practice has fallen to the state level, which makes sense because state laws are not consistent on the related issues. Gary Pickren said implementation may be somewhat of a moving target as the market begins to dictate what will occur. It is important to remember, he said, that only sixty percent of real estate agents are NAR-affiliated Realtors, so all agents are not currently required to comply. As a practical matter, however, agents will have to comply because they use the MLS services. In addition, according to Gary, future lawsuits are always a possibility, so that threat will encourage compliance by everyone in the marketplace.

Gary pointed to three ways buyers’ agents may be compensated:

1. Direct Payment: The seller will pay the seller’s agent and the buyer will pay the buyer’s agent. Gary sees this method being applicable with higher-priced homes. Settlement Statements will simply reflect a charge for the seller and a charge for the buyer.
2. SC Realtor Form 120: This form is a compensation agreement. The seller will enter into an agreement with the listing agent to pay $X to the listing agent and to authorize the listing agent to pay $Y to the buyer’s agent. The Settlement Statement will reflect both charges to the seller, exactly as we have shown these charges in recent years.
3. Contract Concessions: In addition to the normal concessions for closing costs, sellers may make concessions for commissions. Settlement Agreements will reflect the seller’s charge for the listing agent’s commission, the buyer’s charge for the buyer’s agent commission, and a credit from the seller to the buyer for the concession.  There may be some concern here with regard to appraisals and lender limitations on concessions. Closing attorneys will have pay particular attention to these issues.

In addition to these three methods, some brokers are drafting their own documents to handle commissions in different ways.

Gary questioned how the new rules will be policed and indicated closing attorneys may have additional liability in this regard with no additional payment. We have all seen that our Supreme Court seems to place the liability for the accuracy of closing statements directly on the shoulders of closing attorneys. He said he does not feel closing attorneys will have to review MLS listings, but they may ask to see the Forms 120 and they require have the parties sign separate documents addressing the accuracy of the commissions reflected on the Settlement Statement.

Gary indicated the Real Estate Commission has no jurisdiction to police these issues, but the MLS services and the local Realtor Associations may implement rules with fines, commission forfeitures and even suspensions and bans from using the MLS services.

I want to personally thank Nick and Gary for providing this service for all of us. It appears to me that their thinking and their willingness to educate the Bar may place South Carolina lawyers ahead of lawyers in other states. Based on the reading I’ve done from a national standpoint, it appears the answers to these issues are still very mysterious in some locations.

*I won’t offer up the email addresses, but lawyers know how to find each other!