Part One of Three: Compensation is Separate from Representation

Despite what some plaintiffs’ lawyers may claim, REALTORS® are not analogous to travel agents being unjustly paid when a traveler books a flight directly with an airline.[1]  And despite what these same lawyers claim in court, real estate commissions are, and have always been, negotiable. It is the market, not REALTOR® associations, which has set compensation amounts for 100 years.  Unfortunately, there is a perception that buyer’s agents are compensated via a secret, hidden process because they allegedly provide little value and no one would pay them voluntarily.  The lawsuits, and the media attention they attract, are encouraging sellers to test this theory by offering little, if any, compensation to a cooperating buyer’s agent in an MLS. 

This article and frequently asked questions (FAQs) is the first of a three part series that will help guide REALTORS® through the evolving commission landscape.  This article will discuss a buyer agent’s legal obligations and options when little or no compensation is offered to cooperating agents in an MLS. 

Compensation is separate from representation.  In Arizona, a buyer’s agent can typically only enforce their right to compensation in one of two ways: 1) Be the procuring cause of a sale where cooperating compensation is offered in an MLS of which the buyer’s agent is a participant; or 2) Have a valid employment agreement with their client.  Ariz. Revised Statutes 32-2151.02. 

The amount of compensation offered to cooperating buyers’ agents in an MLS has always been negotiable and decided upon by the seller in consultation with their agent.  A seller’s agent can offer cooperating buyers’ agents compensation based as a percentage of the final sales price or a flat amount.[2]  Thus, there is nothing illegal, unethical, or improper for a seller’s agent to offer only minimal compensation to cooperating buyers’ agents in an MLS for any particular property, with the seller’s informed consent. 

An agent representing a buyer owes a fiduciary duty to the buyer to act in their client’s best interest.  Ariz. Admin. Rule R4-28-1101(A) and Article 1, Code of Ethics.  Therefore, if any particular property would be of interest to the buyer, their agent is obligated to provide the listing information to the buyer regardless of the amount of the broker compensation offered in an MLS, even if is just $1.00.  Furthermore, as long as the agent continues their representation of the buyer, the agent is obligated to promote their client’s best interest by: 1) showing the buyer the property; 2) drafting an offer; 3) negotiating a purchase contract; 4) assisting the buyer through the inspection period and BINSR process; 5) assisting the buyer through closing and 6) advocating for their client in any other manner to help the buyer purchase a home.  In such a circumstance, if the buyer’s agent failed to have a valid employment agreement with the buyer, the buyer’s agent would only be paid the amount of compensation offered via the MLS, even if that offer is only $1.00.

The best way for a buyer’s agent to ensure that they are compensated for the professional services rendered is to have the buyer sign the Arizona REALTORS® Buyer Broker Exclusive Employment Agreement (“Buyer Broker Agreement”).  The Buyer Broker Agreement sets forth how the buyer’s agent is to be compensated for their services and assures the agreed upon amount will be paid if the buyer purchases a property during the term of the Buyer Broker Agreement.  It also allows the buyer and their agent to document all other terms specifically agreed upon by them.  Some buyers may be reluctant at first when asked to sign a Buyer Broker Agreement.  View this reluctance as an opportunity to educate the buyer about the value of your services and build trust.

For additional information on Buyer Broker Agreements:

NAR Window to the Law:  Benefits of Using a Buyer Representation Agreement

How Buyer Agreements Boost Your Value, Fend Off Claims (nar.realtor)

Top Ten Reasons to use the Buyer Broker Employment Agreement

Frequently Asked Questions

Q1.      What laws or rules have changed?

A1.      None.  Arizona law has required a valid contract to enforce an employment agreement with a client since 1995.  The National Association of REALTORS® rule requiring an offer of compensation to cooperating buyers’ agents based as a percentage of the final sales price or a flat amount was adopted in 1996.  The “new” landscape is solely based on the recent NAR lawsuit and resulting media coverage, which may result in the emergence of more sellers offering minimal compensation to cooperating buyers’ agents.

Q2.      Is a buyer’s agent obligated to work for free?

A2.      No.  The Thirteenth Amendment to the U.S. Constitution protects people’s right to refuse to work unless the terms of employment are acceptable to them.

Q3.      Why can’t the buyer’s agent refuse to show the buyer a property listing if there is minimal compensation offered in an MLS?

A3.      The fiduciary duty of the agent to the buyer obligates them to act in the buyer’s best interest.  It is in the buyer’s interest to see homes they might be willing to purchase.

Q4.      Can the buyer instruct their agent to only send them listings of properties that offer a set amount of compensation offered in an MLS?

A4.      Yes.  Best practice would be for the buyer and the buyer’s agent to enter into a Buyer Broker Agreement that clearly specifies the buyer’s instructions.  This is especially true for instructions that appear contradictory to the client’s interests.

Q5.      Can the buyer’s agent set filters of listed properties based on the amount of compensation offered in an MLS?

A5.      Only if instructed to do so by the buyer. The buyer’s agent’s fiduciary duty obligates the agent to provide the buyer all attractive listings regardless of the amount of compensation offered in the MLS.  Only the buyer can instruct their agent otherwise.

Q6.      Can a buyer’s agent contact the seller’s agent to request higher compensation than the amount offered in the MLS?

A6.      Yes.  Amounts of compensation offered by the seller’s agent in the MLS can be negotiated between the agents (but an offer cannot be submitted if it is contingent upon an increased commission payable to the buyer’s agent).  Code Comprehension: Article 16.  Best practice would be for both agents to confirm the amount in writing.

Q7.      Can a buyer request a seller concession as part of their offer and then use it to pay their agent?

A7.      Yes.  However, if the buyer is financing the purchase, they must confirm with their lender that the loan program allows the seller concession.  Furthermore, the buyer’s agent must have an employment agreement with the buyer to enforce their right to compensation.  Without an employment agreement, the buyer is not obligated to pay their agent and the buyer could later choose to use the seller concession for other purposes.

Q8.      Can a buyer’s agent request additional compensation from the seller?

A8.      This would be very problematic for a number of reasons: 1)  A buyer’s agent cannot contact the seller directly if they are represented by a listing agent;  2)  The buyer’s agent would need a valid employment contract signed by the seller; and 3) A buyer’s agent must have the consent of their buyer or they would be breaching their fiduciary duty. In light of the above, this practice should be avoided.

Q9.      How can a buyer’s agent best protect themselves?

A9.      By entering into a Buyer Broker Agreement specifying the terms of the engagement is the best way for a buyer’s broker to protect themselves and ensure that each party understands what services the buyer’s agent will provide in that transaction.  Provided that the buyer’s agent fulfilled their obligations and acted in the buyer’s best interests, entering in a Buyer Broker Agreement will help shield the buyer’s agent from inaccurate claims they breached their fiduciary duty.  A Buyer Broker Agreement also sets forth how the buyer’s agent is to be compensated for their services, ensuring that both parties are in agreement on this topic.

Aaron M. Green, Esq., a licensed Arizona attorney, is the General Counsel for the Arizona Association of REALTORS®.  This article is of a general nature and reflects only the opinion of the author at the time it was drafted.  It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

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[1] See opinion article of attorney Michael Ketchmark published in the USA Today on December 4, 2023.  What percentage do realtors charge? Your agent may be getting too much (usatoday.com)

[2] Note some MLSs allow offered compensation of $0.00, $0.01 or $1.00.

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