Navigating New Rules for Real Estate Practices in Arizona: What You Need to Know

Navigating New Rules for Real Estate Practices in Arizona: What You Need to Know

Hello, Scottsdale! Jeff Hernandez here, your go-to expert for all things real estate and legal in Arizona. Today, I’m here to break down some significant changes on the horizon for the real estate industry, anticipated to roll out by mid-July 2024. These changes stem from a class action lawsuit resulting in a hefty $418 million settlement agreement concerning the National Association of Realtors (NAR), aiming to revamp some longstanding practices. Whether you’re buying, selling, or simply love staying informed, let’s dive into what these changes mean for you.

1. Changes to “Co-Broke” Commissions on MLS Listings

First off, “co-broke” or cooperative compensation is compensation offered by a seller to a buyer’s broker to compensate the buyer’s agent for getting a deal done.  Historically, commissions offered to a buyer’s broker were included in a listing on the multiple listing service (“MLS”), which most real estate agents subscribe to in order to advertise properties or find properties for clients. Starting in mid-July 2024, you won’t see any mentioned compensation for co-broke commissions in listings anymore. It does not mean that compensation cannot be offered any longer; the offer of compensation by a seller to a buyer’s broker simply cannot be advertised in the listing itself.  Buyers will be able to determine offered compensation by contacting the seller’s agent directly or by viewing a listing broker’s website, which may include the offer of compensation.

2. Flexibility in Cooperative Compensation

For those of us immersed in Scottsdale’s vibrant real estate market, the flexibility in cooperative compensation isn’t news. Offers of compensation to a buyer’s broker have always been negotiable, yet the forthcoming changes underscore this flexibility, liberating sellers from mandatory compensation offers to buyer’s agents.  However, this doesn’t close the door to negotiations and agreements, which can still happen off the MLS platform through direct communication.

3. Seller Concessions are Still in Play

Good news for home buyers in Scottsdale: sellers can still offer concessions towards a buyer’s closing costs, and yes, these can be advertised on MLS. This change ensures that buyers can benefit from seller concessions, regardless of whether they work with an agent. We are likely to see offers of concessions in the form of a percentage of the sales price, thereby allowing the buyer an opportunity to compensate a buyer’s agent without having to come out of pocket.

4. No More Compensation-Based Listing Filters

Searching for a home in Scottsdale, Paradise Valley, Fountain Hills, or anywhere else in the Phoenix metro area? Broker compensation won’t limit your options. This change ensures that every listing is accessible to all who subscribe to the MLS, with no filters based on the broker’s compensation.

5. Written Buyer-Broker Agreements: A Must-Have Before Property Tours

If you’re a buyer, know that starting mid-July, agents are required to have you sign a buyer-broker agreement before you step into a potential new home. This clarity upfront about compensation (part of which may come from buyers) sets a transparent foundation for property tours, aligning expectations from the get-go.

6. Clear Compensation in Buyer-Broker Agreements

Although this has been true in Arizona for years, the new national mandate requires REALTORS® to specify a clear compensation rate in buyer-broker agreements. This clarity helps set expectations right from the start.  Buyers will be made aware of their buyer broker’s fee for finding a home upfront, before the first showing, and buyers may be required to compensate their own brokers instead of relying on a seller to pay the buyer broker’s fee.  The funds to cover a buyer’s brokerage fees may come from seller concessions (see paragraph 3 above), an off-MLS offer of compensation to cover a buyer’s broker fees, and/or a buyer’s own funds.  This is a sea change for the real estate industry, which will likely affect buyers who can barely afford a down payment on a home, let alone a buyer broker fee.   

7. Transparency in REALTOR® Services

Gone are the days of buyer agents promoting their real estate services as “free.” REALTORS® must now be upfront about receiving compensation for their services, ensuring buyers and sellers are well-informed about any fees involved and who is responsible for paying those fees.

8. Seller Approval for Buyer’s Broker Compensation

In Scottsdale, as across Arizona, written seller approval to pay a buyer’s broker compensation has been required for years. Now, it will be a standard nationwide. This practice ensures that all parties are on the same page regarding compensation arrangements. In Arizona, this has been a requirement for years, so there is nothing new here.

9. Commission Negotiability

Lastly, it’s crucial for REALTORS® to remind clients that commissions are and always have been negotiable and not set by law or by any trade organizations. This transparency fosters trust and ensures clients understand their flexibility in negotiating terms.

Jeff Hernandez, Your Trusted Real Estate Advisor

As we navigate these changes together, remember that I’m here to help you every step of the way. And as your trusted advisor, I’m committed to providing you with the clarity and support you need to make informed home-buying and selling decisions. Feel free to reach out with any questions or for guidance in your real estate journey.  I’m just a phone call away.

Here’s to making your real estate experience as smooth and successful as possible!

Your friend in real estate,

Jeff Hernandez, Esq.