HOUSTON — The National Association of Realtors Board of Directors voted in favor of a proposal Monday that would have imposed stronger requirements on Realtors to disclose all referral fees involved in a transaction.
Shortly after that vote, however, a group of local delegates known as the Delegate Body rejected the proposal — and as a result the change to the Realtor Code of Ethics won’t be made.
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The votes took place at NAR’s NXT conference in Houston.
The proposal would have expanded the requirement for Realtors to disclose to clients when they or their companies receive any compensation or fees from a referral. The proposal’s failure comes as a setback to transparency advocates amid a laser focus on the topic within the real estate industry, and amid efforts by NAR specifically to beef up its own transparency.
A draft version of the proposed change to the Code of Ethics around which referral fees must be disclosed to clients.
“The change did not pass at the Delegate Body, so the change is not going into effect at this time,” NAR’s past president Kevin Sears told Inman Monday.
The proposed change would have amended Article 6 of the Code of Ethics, which addresses rules around referral fees.
Specifically, the amendment would have required a Realtor to obtain a client’s consent any time they receive any money, rebate or profit from referrals.
Victor Lund, managing partner at the WAV Group, called the result a “bad vote.”
“Realtors should disclose commissions paid to all brokers/agents that are party to a transaction. The failure to do so is analogous to the Sitzer settlement,” Lund said. “When it’s not disclosed, the client has no opportunity to negotiate for a service. In many cases, the consumer does not even know that another broker was involved in the transaction. That is horrible for consumers.”
Another change in the section would have specifically included real estate referral fees Realtors or their companies might receive in exchange for a referral. Current rules only apply to commissions paid for referrals, and referral fees are exempt from disclosure.
“When Article 6 was amended in 1999, it may have been reasonable to exclude real estate referral fees from the articles’ disclosures obligations,” Todd Beckstrom, chair of the NAR committee that proposed the changes, said Monday at NAR NXT in Houston.
“However, the committee now sees no valid reason to continue this exclusion, and believes that clients and customers have the right to be aware of any financial benefits a Realtor may receive when recommending products and services,” Beckstrom added.
What about the portals?
It’s not immediately clear if the change would have applied to lead-generating platforms like Zillow, Redfin and Realtor.com. None of the platforms immediately responded to requests for comment. Homes.com does not sell leads to buyer agents.
Zillow, which is now an NAR member, didn’t exist in 1999. Since it launched in 2006, Zillow has grown to become the largest real estate search platform in the nation. Redfin and Realtor.com also were founded, changed or adapted into a valuable source of leads since their origins years ago.
Zillow generates money by tapping into its huge audience and selling leads to agents who are within its Zillow Preferred program (formerly Zillow Flex). Zillow Preferred agents pay the referral fee, which Zillow calls a Success Fee, after closing the transaction.
The proposed change follows a lawsuit filed in September that targeted Zillow’s Flex program. In that complaint, attorneys alleged that consumers were “tricked” into working with Zillow agents, not knowing that the agent would pay up to 40 percent of their eventual commission to Zillow.
Kevin Sears, NAR president, runs the meeting of the Board of Directors at NAR NXT 2025 in Houston.
“When potential buyers are on Zillow’s website, Zillow tricks them into signing up with a Zillow agent,” the complaint states. “If the agent is part of Zillow’s ‘Flex’ program, Zillow gets 40 percent of the agent’s commission — a payment on the back end that is undisclosed to all parties involved.”
The proposed change passed the full NAR Board of Directors with 84 percent of the more than 880 members in favor. But in the end it did not obtain the two-thirds vote in favor required by the Delegate Body to pass.
