The Unfolding Mystery of Compensation Display – Fines or No Fines

Compensation Display Masterclass

The landscape of agent compensation display has never been more complex or scrutinized. As regulations tighten and the industry grapples with transparency demands, the question remains: are fines the inevitable solution, or can the industry navigate this terrain without them?

Corey R. McCloskey (President, John R. Wood Properties), Sara Fogg (Director of Product & Implementation, PrimeMLS), and Prem Luthra (SVP Mergers and Acquisitions, T360) participated in a masterclass moderated by Audrey Whittington (SVP of Strategic Partnerships & Industry Relations, Local Logic) to discuss the unfolding mystery of agent compensation display and its implications for all stakeholders.

In this masterclass, you’ll learn more about:

  • Understanding the Regulatory Landscape: A deep dive into the latest regulations surrounding agent compensation display and the potential impact of fines on the industry.
  • Transparency vs. Compliance: Balancing the demand for greater transparency with the need for regulatory compliance without stifling innovation.
  • Real-World Implications: How leading firms are adapting to the evolving landscape and what smaller firms can learn from their strategies.
  • Looking Ahead: Future predictions and how the industry might evolve in response to ongoing scrutiny and regulatory changes.

💡 Key takeaways:

  1. Regulatory Shifts in Compensation Display: Recent regulations now prohibit listing agents from offering compensation to buyer agents on the MLS. However, listing agents can still display this information on their own website or communicate it directly with the buyer’s agent through calls or texts.
  2. Challenges Faced by Tech Vendors and Brokers: Many brokers are eager to show compensation on their websites, but tech vendors are cautious due to potential legal risks. As a result, some vendors are asking brokers to sign waivers to avoid liability.
  3. Balancing Transparency and Compliance: Brokers are facing a rising demand for transparency without violating strict MLS rules. Fines for non-compliance can be significant, with some MLSs imposing hefty penalties for displaying compensation inappropriately. This creates a delicate balance between the desire to inform clients and the risk of financial penalties.
  4. Opportunities for Innovation in Compliance Tools: The rapidly changing landscape has spurred the need for innovative solutions. New tools like AI-powered software that detects listing violations are being developed to help brokers and MLSs manage compliance more effectively and stay ahead of potential fines.

Watch our latest Masterclass on “The Unfolding Mystery of Compensation Display – Fines or No Fines”.

➡️ Understanding the Regulatory Landscape

On August 17, 2024, three big practice changes went into effect:

  • Listing agents can no longer offer compensation to buyer agents on the MLS.
  • Sellers are not required to pay buyer agent fees.
  • Buyers and their agents must sign a buyer-broker agreement prior to showing a property.

The changes are significant because the MLS has lost one of its pillars with compensation no longer allowed to be displayed within it.

Are The New Regulations Here to Stay?

Today marks the first 30 days since the new rules in residential real estate went into effect, and many are wondering whether they will stick.

Though the real estate industry is constantly in flux and very nuanced, the latest changes are some of the most significant yet. Industry shifts over the years have been self-regulated, but this time around, these changes are legislative.

Just two years ago, MLSs with public-facing websites were required to post compensation on their websites for transparency. Now, two years later, compensation is completely gone from the MLS. It remains to be seen what will happen in another two years — who knows what will be added back in, what will be removed, or what will morph into something completely different?

There is only one constant in the real estate industry: change. Although these new rules are bound to go through iterations, they will definitely stick.

➡️ Transparency vs. Compliance

The Dispelling of Misinformation: How Can Listing Agents Display Compensation?

The short answer: They cannot.

However, listing agents can still advertise buyer’s agent commission on their brokerage website and through direct communication with the buyer’s agent via call or text. Sara Fogg (Director of Product & Implementation at PrimeMLS) points out that brokers can display compensation on their own listings if they have an IDX website with a way to add the information directly (but not on anybody else’s website).

Some brokerages display a banner on their website or have a pop-up message that states that they must have a buyer agreement before showing the property. They did that partly because the MLS would have to cut their feed if they sent that information over. In addition, any third party to which MLS information is sent cannot feed that information to an IDX website.

Displaying Compensation on Brokerage Websites
How Tech Vendors Are Tackling Compensation Display

Some brokerages have started to display compensation on their broker website. And this is making tech vendors nervous. 

In the months leading up to the mid-August deadline, brokers have requested that their tech vendors and website platforms post compensation on their sites. Prem Luthra (SVP Mergers and Acquisitions at T360) shares that, according to a very well-known website platform vendor, 60% of its customers want to show what sellers are willing to pay on their listings, right on their website. The other 40% of customers don’t want to go near it.

In addition to data transfer being tricky, the website vendor cannot simply turn on the new feature by flipping a switch. It requires time and engineering effort to build it out. So then, the question becomes: who will pay for it?

The overarching issue is that many vendors, and the industry in general, are concerned about getting sideways with rules and regulations. Their minds are focused on whether and when the other shoe will drop. A new wave of lawsuits is expected to flood the market soon. And tech vendors don’t want to get stuck in the middle of it. In response, some are requiring customers to sign waivers indemnifying them, further complicating the situation.

Driving More Traffic to Brokerage Sites

A silver lining is that not having compensation in the MLS will ultimately benefit the broker. By advertising that compensation can be found on their listings, the latter can drive even more traffic to their local websites.

The important thing to keep in mind is that it’s more of an advertisement, and not technically official. There is still room for negotiation when it comes to pricing and terms, even if the seller says that they want to offer X amount. Offers of compensation have been and will continue to be negotiable between agents and their clients.

How Can Buyer Brokers Find Out If They Are Being Paid by the Seller?

Just Ask the Seller

Communication remains key. The buyer’s broker must contact the seller to ask about compensation, especially since everything in real estate is negotiable. And the ability to negotiate is one of the most valuable assets a buyer agent or listing agent brings to the table. Calling, texting, and sending emails will not get you fined. However, it’s important to keep in mind that these conditions may vary depending on different markets.

As these changes open up a whole new world for consumers and agents alike, the real challenge is that some of these ‘C-words’ are getting mixed up, adding yet another layer of complexity. It’s crucial to understand that compensation and concession are not the same thing

In real estate, compensation and concession refer to different financial terms:

  • Compensation: This typically refers to payment made to a real estate professional, such as a broker or agent, for their services in a transaction. It is most often a percentage of the property sale price (a commission) or a flat fee. For example, the listing agent or buyer’s agent receives compensation when a sale is completed.
  • Concession: A concession is a benefit or discount offered by the seller to help close a deal. It might include offering to pay part of the buyer’s closing costs, making repairs, or reducing the price of the home. Concessions are often used to incentivize buyers or make the transaction more attractive in a competitive market.

In summary, compensation is a payment to a professional, while concessions are perks or financial incentives granted by the seller to the buyer.

Does the MLS Allow Creative Wording?

When it comes to creative wording in the MLS, where do you draw the line? Is it allowed so long as compensation or commissions aren’t mentioned verbatim? Are there certain ways of speaking about concessions that you don’t allow in the remarks?

Creative wording is not allowed in the MLS.

The public remarks are only for describing the property.

PrimeMLS has rules targeting certain words as well as a team that monitors and maintains its listings. For example, putting compensation into a listing will result in an error, and the listing won’t be saved until the word is removed. Since concession is not compensation, the former shouldn’t appear there either. The MLS will penalize anyone who tries to skirt around it (including those who have tried to offer cruises as workarounds…).

Many MLSs including PrimeMLS, CRMLS, BeachesMLS, and Miami Realtors have developed training programs to educate and get their members ready for the new legislation. The information exists out there, so no one should be surprised if they get fined for circumventing the rules.

Can a brokerage state on a Zillow listing that compensation can be found on their local website?

No. The word compensation is not allowed. There are field rules in place that prevent brokers from saving listings with compensation in the verbiage.

Can you communicate concession buyer credits in the public remarks or should it only be in the confidential remarks?

It depends. Markets accommodate differently. For instance, PrimeMLS no longer allows compensation in the MLS. For John R. Wood Properties, their local MLS allows them to state that seller concessions are available in confidential agent remarks. Nothing else beyond that is permitted. 

Would it be possible to add a link stating ‘Check here for more information’ to the listing sheet?

Each MLS chooses different rules and applies them differently. Links are not allowed within the public remarks with PrimeMLS. John R. Wood Properties, on the other hand, is allowerd links to the brokerage website in the confidential comments. However, the link can’t take you directly to that listing details page — it can only take you to a page with all the listings. 

Dealing with Fines On the Brokerage Side

On the broker side, what happens when your agent gets fined? How do you help them? Do you partner with the MLS?

Corey R. McCloskey (President at John R. Wood Properties), who also serves as the Vice Chair of her local MLS, hopes that the MLS platform will eventually ban certain words from being entered into it. Currently, to ensure that no agent is violating any rules, she manually scans the confidential comments and searches for non-compliant words. If that occurs, she will send an email advising them to remove that word or risk being fined. And if they still make the mistake, they pay the fine. These fines can vary depending on the MLS. For the first offense, one could fine $1,000, while another could fine $2,500.

By performing due diligence and verifying active listings, the brokerage can ensure that agents know that they have their back — and that they are keeping an eye on them.

➡️ Real-World Implications

Opportunities for Innovation Within the Industry

This new environment provides the perfect opportunity to create innovative software and AI applications that can crawl listings and check for non-compliance. Instead of spending arduous time going through these listings, brokers can focus their efforts on recruiting and retaining more agents. For instance, TheMLS / VestaPlus has developed Checkmate Compliance, a new tool that helps manage the listing violation detection process for MLSs by automatically detecting violations and notifying agents.

Many vendors are also trying to equip their customers with the tools and technology they need to navigate these changes. One of the platforms that has been at the forefront of innovation in real estate is FinalOffer with its ‘Buy Now’ button. The latter helps real estate agents provide a more transparent offer and negotiation experience for consumers, and has done a remarkable job at creating transparency in the system.

The majority of vendors want their customers to be happy with their products or services. Although there was some heartburn over implementation, the real estate community should rely on their technology partners for support — they’re here to help.

Exploring the Ramifications of Zillow’s Touring Agreement

Industry disruptor Zillow has introduced its touring agreement, a new tool that allows agents to easily meet the terms of the NAR settlement without committing upfront to an exclusive agreement. Therefore, when a consumer signs the touring agreement, they don’t have to sign the buyer-broker agreement. 

What are the ramifications of that? First, brokerage owners should thoroughly inform themselves about touring agreements, even if they are not a fan of them since these agreements are becoming more widely known. Second, they need to determine if it meets the requirements of a buyer-broker agreement.

The four key requirements of a buyer-broker agreement are typically:

  1. Exclusivity: Specifies whether the agreement is exclusive (where the buyer works only with the broker) or non-exclusive (where the buyer can work with multiple brokers).
  2. Duration: States the length of time the agreement will be in effect, ranging from a few weeks to several months, depending on the negotiation between the buyer and the broker.
  3. Broker Compensation: Outlines how the broker will be compensated, either as a percentage of the purchase price or a flat fee, and whether this payment comes from the seller’s commission or is directly paid by the buyer.
  4. Duties of Both Parties: Defines the responsibilities of the broker (e.g., helping to find properties, negotiating on behalf of the buyer) and the buyer (e.g., providing necessary financial documentation, being honest about their purchasing intentions).

It’s up to each brokerage to decide whether or not they wish to use the touring agreement. As long as the four tenants are included, a broker can create their own version of a touring agreement and would not be breaking the rules. For example, John R. Wood Properties typically does not use the touring agreement. Instead, they created their own buyer-brokerage agreement in July to be ahead of the curve. 

Will There Be More Competition with Zillow?

Brokers, particularly those who want to post compensation on their listings, are developing online marketing plans and strategies to drive local traffic back to their websites. The key differentiator among these portals? It’s all about the eyeballs. Brokers are becoming more proficient at driving localized views in their respective markets. The rest of their value proposition in the marketplace speaks for itself.

As for MLSs, they will always be valuable due to the importance of data accuracy. Maintaining accurate, meaningful, and current data is difficult. It’s especially important nowadays if you make any kind of change (for instance, raising the price, increasing the square footage, or converting the bathroom into a half-bath as a result of a renovation) and the change is not reflected on the major portal within five minutes, the seller will immediately contact the agent, who will then get in touch with the MLS. The MLS is not going anywhere — it has and will continue to serve its purpose. If anything, as we become more aware and attuned to data, the MLS will only become more important. 

Buyer Brokers Need to Know How to Show Their Value

In many cases, agents become buyer’s agents because they don’t need to discuss money upfront like seller agents — so they haven’t had to explain their value. Most agents start on the buy side because it’s easier to learn and train. There’s now more of an equal playing field, so agents have to learn how to work both the list side and the buy side and talk about their value. An agent who knows their worth will be able to present their agreement to a buyer much more confidently.

➡️ Looking Ahead

While it has been a shock to the real estate industry, it remains resilient. A new set of rules has been enacted, and the industry must learn to navigate them and abide by them. The great news is that consumers will still buy and sell properties despite all the intricacies that we are dealing with behind the scenes. Life events and changes still occur — people graduate, get married, and have children.

While no one can accurately predict what will happen next, the best thing to do is to adapt and discover where new opportunities lie. Companies across the US, like John R. Wood Properties, must focus on driving mid- and long-tail traffic, otherwise known as regional localized traffic, to their sites. Now is the chance to do it.

Stay tuned for next month’s masterclass on Pocket Listings featuring Audrey Whittington (Local Logic), James Dwiggins (NextHome), Mike Hickman (Seven Gables), and Liz Sturrock (MiamiMLS) as our upcoming panelists.