Article 3 of the REALTOR® Code of Ethics states, “REALTORS® shall cooperate with other brokers except when cooperation is not in the client’s best interests. The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker.”
The requirement for REALTORS® to cooperate with other real estate professionals is a foundational principle of the Code of Ethics and Standards of Practice of the National Association of REALTORS®. Echoes of this requirement can be found throughout the Code of Ethics with Articles requiring REALTORS® to treat all parties honestly, make listed properties available for showings (at the direction of the seller), and to disclose pertinent facts relating to the property or the transaction. The idea of cooperation as an ethical obligation exists to ensure that REALTORS® protect and promote the interests of their clients. However, the requirement to cooperate does not include any requirement to compensate.
On August 9, 2023, Bright MLS will update its Listing Entry system to allow for users to enter any amount into the cooperative compensation field. Please see NVAR’s detailed explanation linked here. For REALTORS® concerned that this change will cause a ripple effect in the market, remember that until this update, Bright MLS allowed for offers of compensation as low as 1 cent. With the new update, all offers of compensation remain negotiable. However, it is important for REALTORS® to remain mindful of their ethical obligations in light of this change.
Article 1 of the REALTOR® Code of Ethics states, “… REALTORS® pledge themselves to protect and promote the interests of their clients. This obligation to the client is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly.”
What if a Buyer instructs their Buyer’s Agent not to show them any properties for which the client will need to pay any portion of the compensation out of their own pocket? So long as this practice is at the direction of the Buyer, REALTORS® are protected by Article 1’s requirement that REALTORS® act in the best interests of their client. Remember, the client gets to determine which property to pursue.
Article 9 of the REALTOR® Code of Ethics states, “REALTORS®… shall assure whenever possible that all agreements related to real estate transactions… are in writing in clear and understandable language expressing the specific terms, conditions, obligations and commitments of the parties.”
Article 9, SOP 2, of the REALTOR® Code of Ethics states, “When assisting or enabling a client or customer in establishing a contractual relationship… electronically, REALTORS® shall make reasonable efforts to explain the nature and disclose the specific terms of the contractual relationship being established prior to it being agreed to by a contracting party.”
If a Seller does not offer any cooperative compensation (or if the compensation being offered covers only part of the fee charged by the Buyer’s Broker), the Buyer’s Agent and Broker will need to seek any remaining portion of the agreed-upon compensation from their Buyer. Moreover, NVAR’s Exclusive Right to Represent Buyer Agreement (K1338) states that “… in the event seller does not pay any or all of the amount due, Buyer hereby agrees to pay any and all remaining Broker’s Fee due to the Buyer’s Broker.” Article 9 states that it is the duty of the REALTOR® to ensure that the terms of the agreement between the REALTOR® and their client are written in “clear and understandable language” and that REALTORS® also have an obligation to make “reasonable efforts” to explain those terms to their client.
Article 16 of the REALTOR® Code of Ethics states, “REALTORS® shall not engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that other REALTORS® have with clients.”
Additionally, while Article 16 does not prohibit a REALTOR® from representing both parties in a transaction, REALTORS® should keep in mind other ethical considerations (notably Article 1 and its requirement to protect and promote the interests of the client) before doing so.
Furthermore, Article 16, SOP 13 states that if a Buyer’s Agent is to provide substantive services (e.g., preparing a purchase offer) to the Buyer, it must be done solely at the direction of the Buyer. NAR Case Interpretations 16-13 and 16-14 further illustrate the line that REALTORS® need to walk in order to remain compliant with the Code’s obligations. In short, it is important that the Buyer’s Agent avoid any behavior (including providing any type of inducement or offering to prepare a purchase contract on the Buyer’s behalf) that may constitute an initiation of dealings on the subject property.
Finally, REALTORS® acting as Buyer’s Agents and Brokers must also be mindful of Article 16, SOP 16. It states, “REALTORS®… shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer of compensation… nor make the submission of an executed offer… contingent on the listing broker’s agreement to modify the offer of compensation.” Case Interpretation 16-16 provides that Buyer’s Agents and Brokers shall not recommend that their Buyer use the terms of an offer in an attempt to modify the cooperative compensation offered by the Listing Broker. However, as shown in Case Interpretation 16-17, a Buyer’s Agent or Buyer’s Broker can recommend that their client ask the Seller directly to pay some or all of the Buyer Broker’s commission.
REALTORS® should also remain cognizant of other ethical obligations not covered at length here. This includes, but is not limited to, Article 12’s requirement that REALTORS® “be honest and truthful in their real estate communications (and that they) shall present a true picture in their advertising, marketing, and other representations” and Article 15’s prohibition of REALTORS® “knowingly or recklessly making false or misleading statements about other real estate professionals, their businesses, or their business practices.”
Experienced REALTORS® understand that the real estate industry is ever-changing. It is important for REALTORS® to remain responsive to these changes and to update their business practices as needed, in order to succeed. NVAR is committed to continuing to provide timely and relevant information to support the businesses of all NVAR members and will continue to monitor this developing situation once the Bright MLS update goes into effect.
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