PRDS Revisions To Its Exclusive Authorization And Right To Sell (EXA) In Light Of The Nar Settlement And Additional News About Prds Forms
By David Hamerslough and Victoria B. Naidorf
July 12, 2024
As many of you know, the Department of Justice (DOJ) recently contacted the National Association of Realtors (NAR), the California Association of Realtors (C.A.R.) and other large statewide associations, as well as some of the largest MLSs, regarding the terms and conditions of the class-action settlement that NAR reached regarding, among other things, the payment of broker compensation.
While the DOJ has not publicly explained its motivation for doing so, industry analysts have theorized that the DOJ may intervene in the class-action settlement to “close any loopholes/workarounds, such as off-MLS compensation offers, and ensure more impactful changes to commission policies” (analysts at the Investment Bank Keefe Bruyette & Woods). Another industry publication (HousingWire) stated that the DOJ “is closely watching updated forms that are coming out of the state and local realtor associations, as well as brokerages and MLS, [for] any potential ‘loopholes’ or ‘workarounds’ agents or firms are exploring to circumvent the business practice changes outlined in NAR’s settlement.”
The DOJ’s inquiry delayed both C.A.R.’s and PRDS’s release of their revisions to, among other forms, their respective listing agreements and buyer representation agreements. On July 10, 2024, C.A.R. posted the revisions to these and other forms. They are scheduled now to be released on July 24, 2024. Future articles will discuss these revised forms in more detail. One significant change has already been announced by C.A.R. – its Residential Listing Agreement (RLA) now eliminates any provision providing for an offer of compensation by the seller or seller’s broker to the buyer’s broker. We understand that C.A.R. is now recommending that any such offers of compensation be addressed in a separate addendum to be prepared by the seller’s broker and/or their counsel.
While we, as well as the industry, are unclear whether the DOJ’s current interest in the NAR settlement will ultimately result in a decoupling of any offers of compensation by a seller or seller’s broker, PRDS is taking a different approach at this time. PRDS is releasing its revised Exclusive Authorization And Right To Sell listing agreement (EXA). The revisions to the EXA do not eliminate offers of compensation by a seller or seller’s broker to the buyer’s broker. PRDS believes that if a further revision to the EXA is needed because of the DOJ’s position on this issue (e.g., a total decoupling of any offers of compensation by a seller or seller’s broker), then PRDS will revise the EXA at that time.
Other revisions to the EXA include the following:
(1) The revised EXA includes a note at the end of the first paragraph consistent with the new law that went into effect January 1, 2024, that the maximum listing period for residential property improved with 1-4 units is two years from the date that the listing agreement is signed. This restriction does not apply if the seller is an LLC, corporation, or partnership. The law also prohibits the recording or filing of the listing agreement or a memorandum or notice thereof with any County recorder.
(2) Paragraph 2 now explicitly authorizes (rather than permits) the seller’s broker to act as a dual agent, to introduce a buyer to the property, to enter into a BRBC with that buyer, and to represent both the buyer and seller in any such transaction. This revision also states that any other broker who represents the buyer will not be a sub-agent of either the seller or the broker. This revision is consistent with the practice changes that require that brokers and buyers sign a BRBC before touring a property, either in person or virtually. Paragraph 2 also contains the option for a seller to not authorize dual agency. This language has been added so that sellers are aware of these requirements in any dual agency situation and authorize the seller’s agent to act accordingly.
(3) Paragraph 4 regarding broker compensation has been rewritten to address the options the seller has regarding payment of compensation. New language has been added highlighting key practice changes, including (a) commission compensation for brokers/agents cannot be stated or offered in the MLS and (b) the total compensation that a buyer’s broker may receive from any and all sources (including seller, seller’s broker, or buyer) cannot exceed the amount or rate agreed to in the BRBC.
In keeping with the NAR settlement, the EXA gives the seller the option of not offering compensation to a buyer’s broker. It also identifies and gives the seller the option of offering compensation to a buyer’s broker. It creates separate categories of compensation for the most common scenarios in addition to the seller paying the seller’s broker: (a) the seller paying a broker other than the seller’s broker that is representing the buyer; (b) the seller paying a broker associate/agent licensed with the seller’s broker that will also representing the buyer (office dual agency); and (c) the seller paying the individual agent or team working directly with the seller that will also represent the buyer.
The compensation paragraph contains a note under Paragraph 4(a) that informs the seller that the amount of compensation that the seller will actually pay may be based upon a number of factors because, among other things, the amount of compensation and who will pay it may change from what is stated in the listing because the parties may renegotiate those two issues. There no longer is an unconditional, unilateral offer of compensation to the broker representing the successful buyer. As with the other revisions to the EXA, PRDS believes that the revised EXA conforms to the mandatory NAR practice changes that go into effect on August 17, 2024.
(4) New Paragraph 5 requires the seller to represent and warrant that there are no prior listings or to specify in Paragraph 5(a) which broker(s) previously listed the Property. Since most brokers notify their sellers at the end of a listing which buyers they are claiming to have procured, the EXA enables sellers to disclose those buyers. New Paragraph 5(b) enables a broker to be reimbursed for expenses incurred in performing their duties under the EXA if the property is purchased by a buyer who was excluded from the EXA in Paragraph 5(a). This new provision will make it easier for brokers who are the second or third selling agent to recoup their out-of-pocket losses.
(5) Paragraph 10 now advises the seller to carefully review the PRDS advisory regarding completing the TDS and SSC and the San Mateo/Santa Clara County advisory before completing the seller’s disclosures specified in Paragraph 9 of the EXA.
(6) As with the revised BRBC, the EXA has eliminated the express indemnity clause and replaced it with an express assumption of the risk clause. Among other things, this paragraph provides that a seller is assuming certain risks if they fail to perform any of their contractual requirements, make any misrepresentations, and/or fail to follow the recommendations made in the EXA or any of the advisories provided by the broker. PRDS believes that replacing the express indemnity clause with this express assumption of the risk clause eliminates potential factual, legal, equitable, and practical concerns regarding the enforceability of an express indemnity clause.
(7) There is no requirement for mediation. There is also no ability to recover attorneys’ fees in the event of disputes arising out of the EXA. Attorneys for brokers should decide, on a case-by-case basis, whether to participate in any proposed mediation, and the EXA gives those attorneys that flexibility.
(8) Paragraph 15 deals with Equal Housing Opportunity, and it now addresses buyer’s interest/support letters. The default provision is that the seller will not accept or review such letters. If the seller wants to do so, then a box needs to be checked adjacent to Paragraph 15(b). If the seller elects to do so, they are advised that they are doing so against the advice and recommendation of the broker and is assuming all risk associated with that choice. This paragraph also reminds sellers about the PRDS Fair Housing and Discrimination Advisory.
Real estate professionals are urged to compare and contrast the PRDS EXA with the three C.A.R. listing agreement forms. PRDS has chosen to revise its forms based upon what we know now about the existing requirements rather than guessing what may happen in the next several months.
As with many aspects of the NAR settlement, the final outcome of that settlement and its impact on real estate practices and procedures is still uncertain. At this time, what is certain is that the practice changes required by the NAR settlement will go into effect on August 17, 2024. Real estate professionals should not delay in learning what those practice changes are and what steps they should take in order to comply with them.
ADDITIONAL NEWS ABOUT PRDS FORMS:
PRDS has created and will soon be releasing two new forms in response to the NAR settlement. The first is a Listing Agreement Amendment (LAA), which will allow the seller and seller’s broker to amend the listing agreement regarding not only price and terms but also compensation issues. This form uses the same compensation checkbox format as in the EXA to make it easier for seller’s brokers to properly change those terms rather than forcing agents to create their own language on blank lines.
The second soon to be released new form is the PRDS Seller, Buyer, And Brokers’ Compensation Agreement And Escrow Instructions (BSBCA). This form will allow all four of the parties to a transaction to confirm the agreements reached between them regarding the payment of compensation. The issue of who pays what to whom needs to be in a separate writing so the seller, buyer, and both brokers can sign the document. Potential legal confusion can arise when this subject is addressed in the purchase contract or in an addendum to the purchase contract. That confusion stems in part from the fact that the brokers are not parties to the purchase contract; thus, any agreements reached in the purchase contract regarding compensation may then not be enforceable by the brokers, or a buyer or seller may attempt to argue that the brokers are now parties to the purchase contract and are thus responsible for any contractual nonperformance.
Future articles will focus in more detail on the new and revised forms from C.A.R. and PRDS.