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When the National Association of Realtors’ (NAR) proposed settlement emerged in March, Realtors across the board faced the challenge of adapting to new real estate practices driven by ongoing commission litigation, though the application of these changes has varied.
What often goes unnoticed or is taken for granted is the unique set of hurdles that designated brokers — those responsible for supervising agents to ensure compliance and operational efficiency — must confront. These brokers have been dealt a different hand, one that is not only distinct from agents’ responsibilities but also more complex, with heightened accountability at stake.
The purpose of this piece is to highlight the additional layer of compliance and broker supervision introduced by the NAR settlement, along with key tasks, policy ideas, and compliance suggestions that designated brokers should consider moving forward.
The designated broker role and supervision
Before we dig in, let’s set the table and clarify the role of the designated broker. In a previous article that I wrote on broker supervision, published by Inman, I defined a designated broker as: “A designated broker, sometimes referred to as the ‘broker of record,’ ‘managing broker,’ or similar terms, is a real estate broker licensed and recognized by a state regulator as the responsible party for supervising and managing real estate agents and the activities conducted under, or affiliated with, a licensed real estate company.”
As a real estate compliance consultant who speaks to designated brokers almost daily, how often do you think the phrase “broker supervision” comes up? The answer: almost every time I pick up the phone or meet with a broker to discuss regulatory compliance.
It might seem like I’m stuck on repeat, but that’s because broker supervision is the cornerstone of real estate compliance — and it’s essential for keeping operations running smoothly and in full compliance with regulations.
Notably, depending on state law, the designated broker may enlist the assistance of other licensed brokers and agents to help carry out their duties; however, there may be rules covering this type of delegation that prohibit brokers from relinquishing all responsibility.
Nevertheless, without adequate supervision, a host of problems can arise for a real estate company, from civil lawsuits to regulatory investigations — or worse, formal license discipline. Designated brokers are the essential gatekeepers of real estate compliance, playing a pivotal role in ensuring adherence to regulations and professionalism while also safeguarding consumers involved in the transaction.
In fact, competent designated brokers who exercise thoughtful and thorough supervision can do more than just keep agents compliant in their real estate practices — they can also prevent inexperienced or negligent licensees from causing any harm to the public. That’s the real power and value of proper broker supervision.
Fun detour: A lesson from Inception
The 2010 movie Inception, starring Leonardo DiCaprio, explores complex themes of dreams and reality. The story follows Dom Cobb (DiCaprio) and his team as they attempt to perform “inception” — planting an idea in someone’s mind by navigating through multiple layers of dreams.
Although seemingly unrelated, I found the film’s concept of layered dreams to be a fitting analogy for understanding the increasing responsibilities of brokers in light of recent changes in real estate practices.
In Inception, each dream level adds complexity and risk for the characters, requiring careful navigation and heightened awareness. Similarly, brokers today must traverse multiple layers of compliance while executing high-quality supervision, which can be especially difficult in a shifting real estate landscape.
As part of their mission, designated brokers must make sure that every agent under their supervision successfully maneuvers through each level of compliance, adhering to ethical decrees, professional standards of care, state laws governing licensed activities, and the new rules borne by the NAR settlement.
What are the consequences of failing to manage these layers? Negligent supervision often leads to legal repercussions or penalties from regulatory bodies — much like the danger faced by the characters in Inception when they lose control of the dream levels. Ultimately, designated brokers are not just gatekeepers; they also act as “architects” of compliance in today’s real estate industry.
Adapting to compliance in the new normal
Let’s now factor in the “new normal” in real estate as we move to the next level of compliance and supervision. In straightforward terms, designated brokers are expected to understand the practice changes fully, skillfully impart that knowledge to their agents, and create a compliant and successful path forward.
This path is reliant on a suitable system of policies and procedures, complete with updated buyer representation and listing agreements, as well as corresponding guidance and training to help licensees fully grasp and apply the new rules to their practices.
But there’s more — designated brokers can be held accountable for their agents’ conduct. Not only must they implement policies and provide direction, but they must also monitor compliance with these mechanisms; otherwise, their protocols may become ineffective.
The risk of non-compliance is not small, either. If agents do not comply with the designated broker’s policies, the practice changes may be ignored or incorrectly applied, putting both the brokerage and the agents at risk. Those brokers following updates concerning the NAR settlement understand that this risk includes scrutiny from various parties, even the United States Department of Justice (DOJ).
Moreover, the success or failure of agents to use approved buyer representation agreements before property tours, comply with multiple listing service (MLS) rules, and properly communicate with clients about commissions and practice changes reflects on the compliance of the brokerage and ultimately exposes the designated broker and firm to potential liability.
Next, let’s unpack the details that designated brokers should think about when regulating agents in the post-NAR settlement climate.
Tasks, policy ideas and tools to consider
Since I could discuss this subject endlessly, I will focus this article on a list of key supervisory tasks, policy ideas and compliance suggestions that a designated broker should take into account when updating or designing their supervision framework as a result of the new practice guidelines.
1. Understanding the NAR settlement
Designated brokers need to understand how we got here to move their agents and brokerage forward efficiently. A good starting point for brokers is to fully understand the core issues surrounding the commission litigation suits, antitrust concerns, and the NAR settlement.
This effort involves thoroughly reading the actual settlement agreement, relying on reputable sources for updates, and seeking guidance from experienced leaders and legal counsel. Without this comprehensive understanding, a broker could easily spin their wheels in the wrong direction.
2. Application of change and practice approach
When it comes to applying the new rules, there has not been one unified approach adopted by all Realtors. Unfortunately, conflicting dialogues and directions within the Realtor community have led to varying interpretations and applications of change. This means that designated brokers will need to make some important policy decisions as they adapt to change.
Some choices may include whether the brokerage will continue to support cooperative compensation or opt out of traditional commission-sharing practices. Another decision involves the updated forms that agents will use and how those agreements are structured.
Additionally, designated brokers may need to decide whether the brokerage will support advertising offers of compensation outside the MLS or encourage listing agents to avoid predetermining buyer-brokerage compensation altogether, reserving discussions or negotiations of any commission terms for the contract process.
These decisions collectively shape and reflect the brokerage’s ethos and policies and will drive the enhanced system of supervision implemented by designated brokers.
3. Policy and procedures
A designated broker’s system of supervision comprises several compliance areas. Even though the policy ideas outlined below are not exhaustive, they cover pertinent actions that designated brokers might take as they develop new policies and procedures to embrace the recent practice changes.
Advertising
As most Realtors are aware, the MLS will no longer serve as a platform for offering, displaying or facilitating any offers of compensation in connection with property listings. Consequently, agents’ compliance with relevant MLS rules falls under the supervisory oversight of designated brokers.
Keep in mind that a broker’s policy in this area might align with the DOJ’s position, meaning there should be no preset buyer-broker compensation agreements between sellers and listing brokers and, therefore, no upfront advertising of compensation offers. Alternatively, brokers may allow the advertising of compensation terms outside the MLS and will need an internal process to govern these displays.
Regardless of the designated broker’s stance on advertising protocols, they must closely monitor their agents’ marketing activities — particularly on social media. It’s not just consumers who are paying attention; private attorneys and the DOJ are also scrutinizing agents’ marketing efforts for conformity with the NAR settlement.
Forms and training
The new practice rules require mandatory buyer representation agreements, which must be introduced before touring properties with homebuyers. However, there’s a lack of uniformity in these forms — varied wording and boilerplate terms, an assortment of commission structures or options, and potentially very different compliance outcomes.
Wherever the designated broker lands with its forms — whether using association templates or creating custom ones — they have a duty to educate and train agents on their proper use and address any nuances that could arise when discussing representation agreements and real estate commissions with clients.
Though it goes without saying, brokers must also affirm that agents are using the approved company forms.
In addition, will there be any broker approval process for agents who wish to incorporate addenda to modify agreements with non-conventional terms? Content matters, and designated brokers must verify that their agents’ buyer representation and listing agreements align with the new practice standards.
Transaction document review and approval
Most designated brokers presumably have systematic methods in place for reviewing and approving real estate documents throughout a transaction. However, due to the NAR settlement, an additional layer of compliance must be addressed, as new documents will need to be incorporated, reviewed and approved.
For example, with the new requirement for buyer representation agreements, brokers will have to make sure these agreements are executed before agents tour properties with clients. Also, many states have introduced new disclosures regarding commission structures, which may need to be added to a broker’s transaction file checklist.
Going forward, purchase contracts prepared by agents will need to be reviewed with extra care, ensuring that any terms related to offers of compensation or concessions are correctly drafted and align with corresponding listing and/or buyer representation agreements. The proper completion and execution of these documents are tantamount and should be monitored by designated brokers.
It’s worth noting that buyer brokers are now prohibited from receiving compensation from any source that exceeds the amount agreed upon between the broker and the buyer. Hence, this is a critical compliance area that designated brokers must carefully monitor when approving their agents’ paperwork.
Finally, while post-closing file audits provide value, prudent designated brokers must address file compliance prior to closing, when active issues can still be corrected — hopefully preventing liability or regulatory non-compliance.
Requisite reporting
For a designated broker to be aware of and respond to compliance threats, their sales force must report issues to them as they arise. Without required reporting, the broker may be left in the dark and at a disadvantage when it comes to correcting non-compliance in a timely fashion.
In this new age of real estate, a designated broker may require agents to notify them when working with new buyer clients, so they can supervise the timely execution of buyer representation agreements prior to property tours.
Other scenarios that may require reporting to the broker include when an agent has a client who is concerned about the terms of an agreement and wishes to modify it with atypical conditions or when a listing agent wants to advertise a unique offering related to buyer-broker compensation outside the MLS.
Naturally, the designated broker’s involvement in such situations largely depends on having reporting procedures in place. With knowledge of their agents’ activities and engagements with clients, they can actively assist them in mitigating issues, procuring compliant resolutions, and preventing consumer complaints from potentially escalating into legal or regulatory matters.
4. Staying up-to-date, vigilant and fluid
If a designated broker had initiated a new policy on March 16, one day after the NAR announced the settlement agreement covering new practice rules, they would have certainly revised it about five times by now. Granted, the settlement agreement itself hasn’t changed, and the interpretations and guidance regarding the practice changes have not remained static.
What you learned yesterday may change tomorrow. As a designated broker leading the charge, you are expected to be agile, ready to react and guide your agents in the right direction. Therefore, staying informed is an integral part of a designated broker’s job.
The supervision elements discussed here are part of a larger compliance dynamic that designated brokers must navigate when overseeing real estate agents.
By comprehending the layers of compliance — much like charting the multilevel dreams in Inception — designated brokers can guide agents through myriad work obstacles, build robust policies and training programs, and safeguard the supervision of all licensed activities.
Similar to the film, where each layer requires precision and control, brokers must maintain dedicated oversight at every level of compliance. When approached with diligence and foresight, designated brokers can ultimately strengthen the integrity and professionalism of the real estate industry.
Editor’s note: The opinions, suggestions, or recommendations contained in this discussion are based on Summer Goralik’s experience working for, and knowledge of the laws enforced by, the California Department of Real Estate and must not be considered legal advice or relied upon as legal advice. Licensed real estate brokers would be wise to consult with a licensed attorney for legal clarification and support.
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