How did we get here?

With so much misinformation floating around, it’s important to understand the basic facts that led to these forms changes. In 2019, Missouri homesellers filed a class-action lawsuit claiming that NAR and several large brokerages engaged in anticompetitive practices. The plaintiffs alleged that cooperative compensation—offers of compensation by listing brokers to cooperative brokers—created inflated commissions. In October 2023, a jury found in favor of the plaintiffs, and copycat lawsuits spread around the country, including in Texas.

While NAR leaders and lawyers felt there were sufficient grounds for an appeal, following that path would have put members at substantial risk for additional lawsuits, costs, potential liability, and uncertainty. After weighing the options, NAR began working on a settlement.

NAR announced a settlement agreement on March 15, 2024, which the court granted preliminary approval in April. Most copycat suits—including those in Texas—have been paused while the settlement agreement is finalized. The court will hold a hearing regarding final approval of the settlement in November this year.

Highlights of the settlement terms

The NAR settlement agreement releases liability and ends the lawsuit—and copycat lawsuits with these types of claims—for NAR, more than 1 million members, state and local REALTOR® associations, brokerages with residential transaction volume of $2 billion or less, and REALTOR® association-owned MLSs. Other entities had the opportunity to opt into the settlement.

NAR will pay $418 million over four years and has pledged to not change dues in 2024 or 2025 because of the payment.

NAR updated its MLS rules in May to comply with the terms of the settlement agreement. The new rules:

  • Prohibit listing brokers from offering compensation in the MLS to buyer brokers.
  • Eliminate all broker compensation fields and information in the MLS.
  • Prohibit filtering out or restriction of MLS listings that are communicated to customers or clients based on the existence or level of compensation offered to the cooperating broker.
  • Prohibit MLSs from creating, facilitating, or supporting any non-MLS mechanism for brokers, agents, or sellers to make offers of compensation to buyer brokers.
  • Require compensation disclosures to sellers and buyers:
    • Disclose to sellers and buyers that broker compensation is not set by law and is fully negotiable. Must be included in listing and buyer written agreements.
    • Disclose to sellers, and obtain sellers’ authority for, payments or offer of payments that the listing broker or seller will make to buyer representatives. Must include the amount or rate of such payment.
    • Require MLS participants working with a buyer to enter into a written agreement with the buyer prior to showing a property:
      1. Must disclose the amount or rate of compensation the broker will receive
      2. Amount of compensation must be objectively ascertainable and not open-ended
      3. Must include a term that prohibits the broker from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer.

Smooth real estate transactions are built on clarity and transparency, and nothing fosters these conditions more than properly used written agreements. Many of the Texas REALTORS® contracts and forms you and your clients rely on have recently been revised to handle changes related to NAR’s compensation-lawsuit settlement. Read on for the list of revisions, information on three new forms, and details about their proper use.

New Forms

Residential Buyer/Tenant Representation Agreement – Short Form (TXR 1507)

This one-page version of the Residential Buyer/Tenant Representation Agreement – Long Form (TXR 1501) is essentially two forms in one. It can be used in residential transactions for full representation of a buyer or tenant from showing properties all the way through closing, or it can be used to provide showing services only.

This form includes the provisions to comply with the recent NAR policy changes and has the flexibility for buyers and tenants who are not ready to commit to a long-term, exclusive relationship with an agent. The duration of the agreement can be as short as one day, and the market area can be as limited as one property.

FAQs for the new short buyer-representation agreement

What do I do if a buyer signs the Residential Buyer/Tenant Representation Agreement – Short Form (TXR 1507) for showing services but then wants me to provide additional services, such as writing an offer to purchase a property?

Under the showing services option, brokers have only agreed to provide clients with access to properties in the defined market area. Any additional services desired by clients, including activities like drafting offers, advising on terms of offers, or negotiating with sellers on the client’s behalf, must be agreed to by the client. There are a couple of options the broker and client can consider to add full services. The broker and client can amend the Residential Buyer/Tenant Representation Agreement – Short Form to full services using Amendment to Buyer/Tenant Representation Agreement (TXR 1505) if the original agreement for showing services is still in place. Alternatively, the parties can choose to execute a new Residential Buyer/Tenant Representation Agreement –Short Form or Residential Buyer/Tenant Representation Agreement – Long Form (TXR 1501) to provide a full range of services. The parties should also determine if intermediary authorization is needed and what the broker’s fee should be.

How can I use the Residential Buyer/Tenant Representation Agreement – Short Form (TXR 1507) and only provide showing services in compliance with minimum duty requirements under Texas law?

Association lawyers and the task force took a close look at the minimum duties required under section 1101.557 of the Texas Occupations Code while drafting the showing services option. The Occupations Code requires license holders to, at minimum, answer the party’s questions and present any offer to or from the party. This simply means the agent is required to give the offer to the intended party. This does not require the agent to write the offer or negotiate the terms for the buyer or seller. This requirement is intended to prevent agents from withholding information from their clients. If the seller sends an offer to an agent, the agent cannot hold onto the offer but must forward the offer to the buyer. Likewise, if a buyer has an offer to send to the seller, the agent must forward the offer to the seller.

So, if buyers give their agent an offer under a showing services agreement, the agent will have to forward the offer to the seller. Keep in mind that the agency relationship exists only for the term of the agreement. If the showing services agreement is for one day or a weekend, many buyers will not provide an agent with an offer during that short period of time.

Note also that brokers are permitted under the law to agree on which services the broker will provide to clients. For example, there are limited-services listing brokers and there are referral agents who have agreed to provide only certain services to their clients. These brokers still have to meet their legal and ethical duties while performing the limited services agreed to in the contract.

Fiduciary duty underlies every other duty of the agent. So, when an agent is determining how to answer questions or present offers, the agent should do so in a manner that puts the client’s best interests first. Yes, a broker can contractually limit the broker’s services to the client, but it should be done in a manner that is abundantly clear and leaves no room for doubt. Buyers, when presented with an IABS notice and the Residential Buyer/Tenant Representation Agreement – Short Form (TXR 1507), won’t fully comprehend that the broker is not agreeing to prepare an offer on their behalf if, for example, they fall in love with a home and want to place an offer on the spot. Buyers would most likely think that preparing an offer is part of the agent’s job, despite the terms of the representation agreement.

Addendum Regarding Broker Compensation (TXR 2406)

This new form is designed to be used as an addendum to the TREC residential contracts (except the Farm and Ranch Contract) to document payment of brokers’ fees, including from a listing broker or seller to a buyer’s broker. Use this addendum if the parties have negotiated that the seller will pay any of the buyer’s broker’s fees under the sales contract. In that case, this form would need to be used to amend the contract, and Paragraph D2(b) can be checked to specify the amount and authorize that payment. Use this box only when the seller has agreed to pay all or part of the buyer’s broker’s compensation not otherwise addressed in a separate compensation agreement, as this option creates a new obligation for the seller to pay the buyer’s broker. And remember, if a listing agent or seller is paying buyer broker compensation, and that compensation exceeds the amount the buyer and buyer’s broker previously agreed to, a buyer’s broker would need to amend the representation agreement to have the buyer authorize that the buyer broker may receive this amount to be in compliance with the updated MLS requirements.

Amendment to Representation Agreement (TXR 2701) [Temporary form]

This amendment can be used with listing and buyer/tenant representation agreements to allow brokers under a current representation agreement to meet the requirements of the NAR settlement. It includes the disclosures and authorizations that are required beginning August 17. This form will be pulled down when no longer needed for this purpose.

If you entered into a client-representation contract with a pre-June 24 version of a representation agreement, and that client has entered into a sales contract to purchase or sell a home prior to August 17, you do not need to update your representation agreement. However, if you entered into an agreement with a pre-June 24 version of this form, and that client has not entered into a sales contract to purchase or sell a home prior to August 17, you either need a new agreement or you can use this amendment.

Changes to Existing Forms

[Listing Agreements]

Residential Real Estate Listing Agreement, Exclusive Right to Sell (TXR 1101)

Residential Real Estate Listing Agreement, Exclusive Right to Lease (TXR 1102)

Farm and Ranch Real Estate Listing Agreement, Exclusive Right to Sell (TXR 1201)

  • Adds required disclosure that broker compensation is not set by law and is fully negotiable.
  • Removes a reference to broker fees in relation to MLS participation.
  • Allows the seller to authorize if and how the seller or listing broker will compensate a buyer’s broker.

Named Exclusions Addendum to Listing (TXR 1402)

Exclusive Agency Addendum to Listing (TXR 1403)

  • Reflects changes to Residential Real Estate Listing Agreement, Exclusive Right to Sell (TXR 1101) and clarifies signatures.

Amendment to Listing (TXR 1404)

  • Adds required disclosure that broker compensation is not set by law and is fully negotiable.
  • Provides specific provisions to amend the broker’s fees paragraphs in Residential Real Estate Listing Agreement, Exclusive Right to Sell (TXR 1101) and Farm and Ranch Real Estate Listing Agreement, Exclusive Right to Sell (TXR 1201).

Seller’s Authorization to Disclose and Advertise Certain Information (TXR 1412) [updated name]

Designed to be used as written authorization from the seller that the agent may disclose and/or advertise certain information. For example, the seller can include a specific dollar amount that the seller would consider contributing towards the buyer’s expenses that can be advertised to buyers and their agents on an MLS and elsewhere.

Representation Disclosure (TXR 1417)

May be used in two separate ways:

  1. By a listing broker or the broker’s agent to disclose to a consumer that the listing broker represents the seller of the residential property to be shown.
  2. By a broker or the broker’s agent to inform another party to a transaction—or another license holder who represents another party to a transaction—who the broker represents.

Referral Agreement Between Brokers (TXR 2405) also revised

The forms task force saw an opportunity to bring additional clarity to the Texas REALTORS® form for referral agreements between brokers, although the changes don’t directly stem from the settlement. The revised form:

  • Adds a new paragraph to clarify the length of the agreement.
  • Adds a new paragraph to specify whether the agreement is for one transaction or multiple transactions.

[Buyer Representation Agreements]

Residential Buyer/Tenant Representation Agreement – Long Form (TXR 1501) [updated name]

  • Adds the required disclosure that broker compensation is not set by law and is fully negotiable as well as the limitation that the broker is prohibited from receiving compensation for brokerage services from any source that exceeds the amounts stated in the agreement.
  • Broker compensation is moved to the top of page 2, and the language is updated to allow for authorization of broker to receive additional compensation in compliance with MLS rules.

Amendment to Buyer/Tenant Representation Agreement (TXR 1505)

  • Includes a paragraph to amend the broker obligation paragraph in the Residential Buyer/Tenant Representation Agreement – Short Form (TXR 1507) and to amend broker’s fees or other compensation paragraphs in the Residential Buyer/Tenant Representation Agreement – Long Form (TXR 1501) and the Residential Buyer/Tenant Representation Agreement – Short Form (TXR 1507).

[Forms for buyers and sellers]

General Information and Notice to Buyers and Sellers (TXR 1506)

  • Adds a compensation paragraph to explain compensation and provide the disclosure that broker compensation is not set by law and is fully negotiable.

[Agreements between brokers and sponsored sales agents]

Independent Contractor Agreement for Sales Associate (TXR 2301)

  • Adds the requirement that associates (including broker associates) notify the broker in writing about any TREC complaint or NAR Code of Ethics complaint.
  • Adds a requirement that associates keep files for four years from the completion of a transaction.

[Compensation agreements]

Compensation Agreement Between Broker and Owner (TXR 2401) [updated name]

  • Updates the name to reflect that the form deals with compensation and adds language to clarify the broker’s fee if the owner leases the property to the broker’s prospect.
  • Adds language stating the agreement supersedes all prior agreements between the parties.

Compensation Agreement Between Brokers (TXR 2402) [updated name]

  • Updates the name to reflect that the form deals with compensation.
  • Allows one broker to compensate a cooperating broker.

[Leasing & Property Management Agreements]

Residential Leasing and Property Management Agreement (TXR 2201)

  • Removes a reference to broker fees in relation to MLS participation.