Buyer agreement questions? NAR lawyer has answers 

Editor's note: Buyer agreement rules continue to be a source of confusion for many agents, and Lesley Muchow, NAR's general counsel, wants to clear things up. In a recent conversation with the hosts of Real Estate Insiders Unfiltered, Muchow did a deep dive into buyer agreements — such a deep dive, in fact, that we're covering it in two parts.

In part one, Muchow explains core requirements and essential terms, exceptions, virtual tours and touring agreements. 

The National Association of Realtors' new rules have been in effect for nearly six months, but that doesn't mean agents fully understand them. Buyer agreement requirements have been a particular source of angst for some, and questions remain about exactly how — and when — to use them in accordance with the settlement rule changes.

Enter Lesley Muchow, NAR's general counsel. In a recent interview with Real Estate Insiders Unfiltered, she broke down buyer agreement requirements, highlighted several do's and don'ts, and answered common questions like, when exactly does an agreement have to be signed? What has to be included? And how do touring agreements work?

Here's what Muchow had to say.

Is a buyer agreement always required before an agent can show a home?

"Yes. All licensees who belong to an MLS that opted into the settlement are required to enter into a written buyer agreement with the buyer that they're working with prior to touring a home," Muchow said. 

But they also need to follow state law: "It's possible that state law would require that a written buyer agreement be entered into earlier in time, prior to the tour. If your state law requires earlier, follow your state law. If your state law requires or dictates a later point in time, you're going to want to adhere to the practice change and have that written buyer agreement in place prior to touring a home."

In other words, state law only trumps the settlement terms if it says agents must have a signed contract even earlier than what NAR requires. At least one state, Colorado, has pushed back on NAR's requirement. 

Do virtual tours count?

Yup — assuming someone entered the home. "[If] you as the agent are physically in the property touring for [the buyer] or by FaceTime, then you've toured the home, triggering that settlement practice change," Muchow said. 

If there's no tour of any kind — maybe the buyer is familiar with the home because they're purchasing it from a relative or neighbor — the "sign before touring" requirement wouldn't be triggered. But agents are still bound by other rules: "You've got the code of ethics, you've got the practice changes and you've got state laws. … But if we're talking strictly about the settlement practice change, it would not be triggered if no one actually toured a home," Muchow said.

What terms must be included in the buyer agreement?

"You have to specifically and conspicuously disclose the amount or rate of compensation — so what the buyer is agreeing to pay the real estate professional for those services." And it has to be "objectively ascertainable," meaning, "a reasonable person has to be able to take that buyer agreement and be able to say, 'I know how much I have agreed specifically to pay this real estate professional for their services.' It can't be open ended."

The agreement can't include a range of fees or a "bonus" allowance, since that would conflict with the "objectively ascertainable" requirement, Muchow said. "It has to include a statement that that real estate professional cannot accept more than what they've agreed to. And it must disclose conspicuously that compensation is negotiable and it's not set by law."

What else do Realtors need to tell buyers before they sign?

The new rules, said Muchow, don't replace old ones — specifically, NAR's Code of Ethics, which "requires that members advise on cooperation, compensation, dual agency and confidentiality. So use that initial conversation when

you're entering into that agreement, and you're mapping out what the scope of your engagement is with that consumer, to have all of these conversations around the services and compensation and value that you bring."

What about new construction — if an agent brings a buyer and it's treated as a referral, is a buyer agreement needed?

"The written buyer agreement requirement only applies to MLS participants who are working with a buyer. … [It] does not apply when it's a simple referral," Muchow said.

Can an agent ask their buyer to sign two agreements, one for existing home sales and one for new home sales?

While the guidance on NAR's website says agents "should not enter into multiple agreements with a buyer at one time for the same services," Muchow said it would be allowed in this scenario since the services offered may differ when working with a traditional seller versus a builder.

"Or you can have one buyer agreement … that articulates a specific compensation for new homes, new builds or existing properties," Muchow added. "So you can delineate on that and make clear, as long as it's objectively ascertainable, that the buyer understands what they're paying." 

What's the deal with touring agreements?

Some associations and real estate companies, including Zillow and Redfin, have created lighter-weight touring agreements — are those allowed? "The settlement does not limit what types of arrangements you can offer. So this is another way of competing, right? You can offer limited services, full services, touring services" — but only if the touring agreement includes the required compensation provisions. 

Can agents put $0 for compensation in the touring agreement, and then later present a buyer agreement that includes a different fee?

Yes. "They can put zero, and they're going to get paid zero for the touring. But if the scope of those services changes, and now the buyer wants more than just a tour of the home with the agent, then that might be a new agreement whereby they're agreeing to pay the agent more in exchange for the additional services they are going to be offering." 

But, Muchow warned, the agent is taking a risk by offering touring services for free. They could spend considerable time showing homes only to have the buyer choose a different agent once they're ready to make an offer.

Check back tomorrow for part two of buyer agreement rules, and see what Muchow had to say about compensation and concessions.