Recent changes to MLS (Multiple Listing Service) rules have introduced new challenges for real estate licensees. Seller’s agents are no longer permitted to advertise commission fees to buyer’s agents on MLS. This change affects how properties are marketed and how licensees fulfill their professional responsibilities. In this blog, we’ll explain the reasons behind this rule, what it means for licensees, and how to adapt to minimize risks.
The Recent Changes — What’s Changed and Why?
The changes are a direct result of the recent settlement involving the National Association of REALTORS®. The new rules change commission payments in what has been described by many as the most significant change of our generation.
Seller’s agents can no longer display commission fees offered to buyer’s agents on MLS. Previously, these fees were visible, which allowed buyer’s agents to sort properties based on the compensation offered. This practice raised concerns about fairness and professional integrity, with some licensees accused of prioritizing listings with higher commissions and ignoring some buyers, to the detriment of their clients. For example, a licensee might skip some homes that actually meet the right criteria and instead only show the high-commission properties.
The other change to be aware of is that buyers’ agents must disclose their fees before a potential buyer inspects a property. The buyer now needs to sign an agreement that details how their agent will be paid and exactly what the commissions are before they enter a property. Importantly, they can negotiate the commissions. Buyer’s agents will not be able to charge more than they have agreed to even if they end up being offered more incentives by the seller.
The new rules aim to remove financial incentives from influencing decisions, and focus instead on what’s best for the client. This shift encourages impartiality and ensures all properties are presented equally.
Understanding “Steering”
“Steering” refers to the practice of directing clients towards or away from certain properties based on discriminatory factors. Steering limits the choice for consumers, and it guides buyers in particular directions that are not necessarily the best options for them.
If a real estate licensee leads clients to specific properties purely because of commission rates, this could be considered steering. This type of behavior negatively impacts both buyers and sellers. Buyers miss out on seeing homes matching their preferences, while sellers face reduced visibility for their properties.
Of course, there are also ethical and legal concerns, because a licensee has a fiduciary duty to act in the best interests of the client. By eliminating commission visibility on MLS platforms, the new rules aim to ensure licensees make decisions solely based on their clients’ best interests.
The Risks of Non-Compliance
For many decades, the standard practice in real estate was for the seller to pay the commission for their own agent and the buyer’s agent. But the recent Federal lawsuit has fundamentally changed the ways commissions are paid.
Failing to follow the updated MLS rules exposes licensees to significant risks. Non-compliance can result in legal disputes and/or financial penalties. Ignoring the changes can also do irreparable reputational damage to licensees and affect their client relationships.
Tips For Real Estate Licensees to Avoid a Lawsuit
Showcase the Property, Not the Commission
The recent rule changes require both seller’s and buyer’s agents to adjust how they approach their roles. For seller’s agents, the focus must shift from advertising commission fees to instead focusing on the property’s unique features and value. For example, aspects like location, design, or recent upgrades are now more critical than ever to attract interest.
Clear Communication is Key
Both buyers and sellers need to know about these changes to avoid confusion, and licensees need to educate them. Clear communication helps sellers understand why commissions are no longer displayed on MLS and reassure them that their property is being marketed the right way. Clearly communicate with buyers, so they understand the agreement they are signing and how the commission process now works.
Eliminate Bias When Searching For Properties for Your Clients
The new rules will help reduce any opportunity for bias, because filtering or disregarding listings based on commission is no longer an option. However, buyer’s agents need to commit to finding homes that suit their client’s needs, without factoring in potential compensation. Licensees should maintain a client-first approach, focusing entirely on the buyer’s needs, budget, and goals when presenting properties.
Double-Check Your MLS Listings
Beyond adjusting marketing and search strategies, licensees have to stay proactive when it comes to compliance. Review your MLS listings for accuracy and ensure they meet the new standards. Keep thorough records of client communications, so you have an extra layer of protection if a dispute arises.
Keep Informed on Industry Changes
As a real estate licensee, you should make it a priority to stay educated on these changes and their implications for your business operations. Licensees also need to keep up-to-date about any further industry changes that arise in the future. CRES Risk Management webinars-on-demand and podcasts-on-demand can help.
Protect Your Real Estate Business with E&O Coverage
Licensees should have Real Estate Errors & Omissions (E&O) insurance to protect your interests. A strong E&O policy provides coverage for legal expenses and settlements in disputes related to your business (even in situations where you did nothing wrong, you may still incur legal expenses to defend yourself).
Talk to the CRES Team
The new MLS rules promote fairness and integrity in real estate. At CRES, we understand the challenges real estate licensees face in a constantly changing industry. Our real estate E&O insurance solutions give you superior protection at an exceptional value, with pre-claim legal services included. CRES Real Estate E&O + ClaimPrevent® plans give you access to qualified real estate attorneys who can help you resolve issues before they become a claim.
Contact CRES today to learn how we can help you protect your business.
