The Compensation Conversation: How to Avoid ‘Steering’ in a Post-Settlement World

“I don’t have to offer commission to a buyer agent—why should I?” 

This simple seller question—one that is likely to become more common every day—is a potential minefield. In the aftermath of the National Association of REALTORS®’ (NAR) settlement agreement, which will mandate the removal of compensation from MLSs starting next month, agents quickly pointed to these thorny conversations regarding compensation. What can or can’t you say when speaking about offers of compensation? And how do you communicate frankly with clients, who are relying on you to guide them, if you aren’t allowed to address these issues?

Keith Robinson, chief strategy officer at NextHome, says that while the compensation conversation might have changed, the fundamental dynamic of the client-agent relationship has not—and that is the foundation of having productive, compliant and frank discussions about commission offers. “The key to the conversation going forward is to tell them that it is neither required nor set in stone,” he says. “We will focus on netting you—the seller—the most money possible. This has always been, and will continue to be, the primary goal of the listing agent.”

Worries about this issue are well-founded. So-called “steering,” the process of agents guiding, discouraging or even seeking to hide certain properties from buyers based on offers of compensation was a foundational element of class-action commission lawsuits that (mostly) concluded with the $418 million NAR settlement. 

On the organization’s website, NAR claims that this sort of “theoretical steering” is no longer possible based on the terms of the settlement, as buyer agents must agree to their compensation with clients before showing homes, and cannot accept a higher amount even if it is offered.

But with commission removed from the MLS, there is a whole new vector for this “steering” to take place: from the listing side. Can you tell your seller client that not offering compensation to the buyer agent has consequences for their home sale?

Answer: for the most part, yes.

“We have told our members, reminded them to talk about what that means—what does it mean to create an offer of compensation to a buyer’s broker?” says Lori Levy, chief legal officer for Texas REALTORS®. “What does it mean for the offers that come into the property?”

NAR agrees, saying that “(a) listing broker should inform the seller about costs the buyer will incur, how the buyer might react to those costs, and how the seller can market a house considering the buyer’s costs”—including offers of compensation to their agents.

Straight talk

But the issue is not just what you say in these conversations, but how you say it—both for the sake of compliance, and for building relationships with your clients based on trust, communication and authenticity.

Keeping the conversation at a higher, holistic level rather than scrambling for stats or debating the nitty-gritty is an important technique that serves the dual purpose of elevating a client’s goals and avoiding the specific—and hopefully irrelevant—topic of what an unethical agent could do on the other side.

Robinson is a proponent of this, urging listing agents to remind their clients that every offer that comes in needs to be evaluated both in the context of the whole transaction, as well as collaboratively with conversations at every stage.

“(Tell your clients) something along the lines of, ‘Be prepared to see some offers that ask for the seller to pay the compensation, and some that do not. We will evaluate the strength of all offers as they come in. Many factors contribute to the strength of an offer, and whether or not to pay a commission is a significant one that we will review together,’” Robinson says.

Emphasizing the cooperative process of looking at offers can help assure clients who may have absorbed mainstream media headlines about alleged conspiracies and price-fixing feel confident their agent is working for them, and for their interests.

This kind of conversation can also reiterate the essential compliance aspect of the whole issue, as Robinson also urges agents to tell their clients explicitly that the rules did just change, and reiterate that any compensation offer is negotiable.

Anthony Lamacchia, broker/owner/CEO of Lamacchia Realty, takes a different approach. He has played somewhat of a central role in the conversation around “steering,” sparking a broad debate across the industry after urging agents at an NAR panel in May to frankly inform sellers that not offering compensation could have negative effects on a sale.

Lamacchia tells RISMedia that agents’ fiduciary duty not only recommends, but often requires agents to directly discuss the consequences of not offering compensation with their clients.

“You should be forthcoming about the costs involved,” he says. “It’s no different than if a home has a failed septic. You have to talk to that buyer about the failed septic, talk to them about the costs involved in fixing that septic. If there’s no commission being offered, you can’t talk to them about that? That’s crazy. You have to have these conversations.”

Lamacchia also explicitly pushes back against the idea that compensation conversations should remain high-level and holistic, arguing that people who actually practice real estate understand that clients want direct answers to these important questions. Even lawyers, who might urge agents to talk around the commission issue rather than address it directly fail to understand the dynamics of a real estate relationship, according to Lamacchia.

“The lawyers who are saying that are wrong—they’re being lawyers, and they don’t know what it’s like to be sitting across from a seller,” he says. “When you’re trying to obtain the listing and a seller looks at you and says, ‘I don’t think I want to offer a compensation, will that hurt me in any way?’ Well, what are you going to do? Not answer them honestly? Some of these lawyers…are basically telling REALTORS® to break the law.”

Looking at the other side of the transaction, Michael McDonagh, general counsel for Lamacchia Companies, wrote a lengthy outline detailing how fiduciary duties, state and federal law and the NAR settlement can intersect when it comes to “steering.” In it, he pushed back against the idea that agents are facing “competing” duties when speaking to seller clients and commission offers.

“The seller should be informed that by not offering compensation or having a willingness to negotiate (depending on market conditions), the seller’s decision may impact their ability to obtain the best price for the property,” he wrote.

But all of this is focused on what you can—or should—do when discussing compensation. But what is explicitly against the new rules? Many agents are currently just as worried about slipping up and saying something innocuous—something even factually accurate—that could still get them in trouble.

According to NAR, listing agents are disallowed from explicitly telling a client that buyer agents will avoid a property based on offers of compensation.

Whether or not this is accurate is hotly disputed—plaintiffs in multiple commission lawsuits presented data claiming it is, while MLS executives claim their analyses show no evidence of buyer agents pushing clients away from lower-commission properties.

NAR also claims that the changes wrought by the settlement will eliminate this “theoretical steering,” as buyer agents must agree to a fixed commission amount before showing a client any houses, and cannot accept more from a seller even if it is offered. That means there is no real benefit for an agent to push their client toward a property based on a compensation offer—theoretically.

For anyone hoping to succeed and stay compliant with the settlement come August, the answer to that might be irrelevant, assuming NAR’s agreement receives final approval—and the Department of Justice doesn’t push for bigger changes. The more important question for the average agent right now is, how will you serve your clients within this new dynamic?

Birds and the bees

One of the first things to remember is when you are thinking about compliance, you should be thinking locally. Just like almost every other aspect of real estate, the issue of “steering” has the potential to intersect with state law and regulation, and the best advice you can seek is from people close to you geographically. 

Travis Kessler, president and CEO of Texas REALTORS®, says that as his leadership team has held dozens of regional meetings around the Lone Star State, they have sought to provide the kind of information both members and consumers need to have these conversations.

“We have several handouts that we distribute to our REALTORS®, what we’re calling ‘shareable communication devices,’” Kessler says. “And we talk about answers to compensation questions. We talk about a guide to broker commissions and real estate transactions.”

Some of these “devices” or handouts are meant to go straight to consumers, and hopefully provide a foundation for any future conversations between agents and clients—letting future buyers and sellers know exactly how agents are compensated and what their options are.

That kind of public outreach can hopefully make conversations about compensation easier before they even happen. Kessler adds that while Texas REALTORS® does plenty of direct outreach, they also work closely at that hyperlocal level—town and county associations—to better reach both members and members of the public.

Lamacchia says that in his home state of Massachusetts, fiduciary duties are enshrined in state law, specifically making it illegal to withhold information “the disclosure of which may have influenced” a buyer or prospective buyer in their decisions. How this applies to sellers in that state is not clear, but across the country, agents will need to ensure they are familiar with how consumer protection or trade protection laws apply to them before delving into these topics with a client.

But what happens once you are armed with the kind of education you need, and feel you understand all the ins and outs of a commission conversation from the compliance side? When and how do you bring up compensation in your listing presentation, and what does that conversation look like?

Brokers agreed that all of these conversations are part of a relationship each agent is building with the client—and relationships are all about emotions and personalities, meaning you can’t approach every compensation conversation the same way.

Jef Conn, chairman of Texas REALTORS®, says his organization is urging agents to “get ahead” of questions, and talk clients through the whole settlement and the whole process of compensation from both sides.

“Explain what this settlement means to (the client) and how the seller has options for choosing if they want to pay those buy-side commissions,” he says. “Or how buyer’s agents have to talk to their clients to find out if they’ll be compensated by their client, or by a listing agent.”

In the current environment, Lamacchia says that bringing up compensation early on, and proactively, makes the most sense. “Nowadays, when it’s in the damn news, and sellers are asking—or sellers are nervous—I mean, that should be talked about. Being transparent and open and bluntly honest with a seller is the way it ought to be,” he says.

But agents must absolutely understand an increased level of sensitivity around the issue of compensation. Regardless of what a client has read about the settlement or how they approach the process of buying and selling a home, the topic of money is going to make most people a lot more sensitive, skittish or even defensive.

Robinson suggests that agents focus on informing clients that they get to make the decisions, and no one is forcing them to pay compensation to a buyer.

“The key to the conversation going forward is to tell them that it is neither required nor set in stone. A well-prepared agent will inform the seller that some offers may request the seller to pay the commission, while others may not,” he says. Lamacchia, for his part, says that clients all have different approaches, and some might have more questions—or more specific questions—regarding compensation. Agents need to know that at any time, even after the current news cycle shifts and the topic becomes less charged, they could still be confronted with specific questions about what offering commissions means.

Notably, when the market eventually shifts to a more balanced state, or even favoring buyers, sellers might see the whole issue of compensation offers differently.

Robinson says that the issue will arise “occasionally,” adding that he thinks many agents are not yet prepared for these conversations.

But how about the big picture? With the NAR settlement still making its way through the courts, could there be more guidance issued, more regulations handed down, more pitfalls to avoid during the already fraught process of helping someone buy or sell a home?

Answer: in all likelihood, yes.

But Robinson says it is vital to remember that the end goal for agents has not yet changed—and won’t change, regardless of any further shifts or legal upheaval.

“The simple truth is that listing agents have always been hyper-focused on serving the seller at the highest level, focusing on maximizing net proceeds,” he says. “This was true before the settlement, and will remain true afterward.”