October November 2023 Maryland REALTORS Magazine

ALL ABOUT COMPENSATION 10

Vol LVII, No 5 | OCT/NOV 2023

THE BUILDERS’ PERSPECTIVE 14

STATEWIDE FORMS 18

mdrealtor.org | marylandhomeownership.com

Working with Military and Veterans Tips and suggestions for serving those who served

Thank you to our wonderful sponsors who went ALL IN for the real estate industry!

Save the Dates!

We’re headed Back to the Beach!

September 16-19, 2024 | Ocean City, Maryland!

CONTENTS FEATURES 6

Working with Military and Veterans

12 The Issue of

Compensation

18 Housing from a

Builder’s Perspective

22 2024 Forms Update

22 6

12

18 30 From the Hotline

DEPARTMENTS 3

President’s Perspective

10 CEO Corner

4

REALTOR® Talk

26 Sell More with Maryland

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2024 MARYLAND REALTORS® LEADERSHIP TEAM

Maryland REALTORS®

200 Harry S Truman Parkway | Suite 200 Annapolis, MD 21401-7348 443.716.3500 | www.mdrealtor.org

Leadership Team

Chris Hill

Cheryl Abrams Davis

PRESIDENT

PRESIDENT-ELECT

Century 21 New Millennium 23063 Three Notch Road California, MD 20619 301.862.2169 chris@thechrishillteam.com

RE/MAX United Real Estate 14340 Old Marlboro Pike Upper Marlboro, MD 20772 301-702-4200 cherylabrams@remax.net

Chris Hill | President Cheryl Abrams Davis | President-Elect Chris Jett | Treasurer Denise Lewis | Secretary Yolanda Muckle | Immediate Former President Chuck Kasky, RCE | Chief Executive Officer

Editor

Daniel Patrell | dan.patrell@mdrealtor.org

Advisory Committee

Rebekah Kleinman | Chair Kristin Skeweris | Vice Chair

Advertising

Arlene Braithwaite | 410.772.0820

Publication Design

HBP, Inc., 952 Frederick Street, Hagerstown, MD 21741 800.638.3508 | www.hbp.com The opinions expressed by nonstaff contributors may not reflect the official opinion of Maryland REALTORS® and/or policies derived from leadership and staff.

Denise Lewis

Chris Jett

SECRETARY

TREASURER

Brook-Owen Real Estate 41 E. Main Street Westminster, MD 21157 410-871-1110 denise@denisehasthekeys.com

Shore 4U Real Estate 23 Fountain Drive W 2nd Ocean City, MD 21842 443.523.2360 chris@shore4u.com

Mission Statement Maryland REALTORS® exists to support all segments of its membership and their specialties. Maryland REALTORS®, through collective efforts with local boards/associations and the National Association of REALTORS®: ■ Develops and delivers programs, services and related products that maintain and elevate the high standards of the real estate business and the professional conduct of its practitioners; ■ Assists members in ethically and professionally serving the public; ■ Promotes and preserves the right to own, transfer and use real property; and ■ Protects the right of members to conduct business within a framework of fair and reasonable laws and government regulations.

In principle and in practice, Maryland REALTORS® values and seeks diversity and inclusive participation within the field of real estate and recognizes each member as a unique individual.

Yolanda Muckle

Chuck Kasky, RCE

IMMEDIATE FORMER PRESIDENT

CHIEF EXECUTIVE OFFICER

Long & Foster Real Estate 9300 Lottsford Rd., Suite 500 Largo, MD 20774 301.249.1600 yolanda.muckle@lnf.com

Maryland REALTORS® 200 Harry S Truman Pkwy.

Suite 200 Annapolis, MD 21401 800.638.6425 chuck.kasky@mdrealtor.org

Maryland REALTOR® (USPS 0016-017) is published bimonthly by Maryland REALTORS®, Suite 200, 200 Harry S. Truman Parkway, Annapolis, MD 21401-7348. Periodical postage paid at Annapolis and additional mailing offices. Postmaster send address changes to: Maryland REALTOR®, Suite 200, 200 Harry S. Truman Parkway, Annapolis, MD 21401-7348.

Member subscriptions of $3.81 are paid with annual dues.

This publication is designed to provide accurate and authoritative information regarding the subject matter covered. It is offered with the understanding that the publisher is not engaged in rendering professional advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Articles that appear in Maryland REALTOR® are an informational service to members.

Permission to reprint articles appearing in Maryland REALTOR® magazine must be requested in writing.

Also include purpose for request.

While this magazine makes a reasonable effort to establish the integrity of its advertisers, it does not endorse advertised products or services unless specifically stated. ©2023 Maryland REALTORS®, Inc.

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PRESIDENT’S PERSPECTIVE

Keeping in Touch and Keeping Engaged

BY CHRIS HILL

To say that we as Maryland REALTORS® are working in the midst of challenging times would be an understatement. Inflation seems to be easing, but the Federal Reserve hasn’t ruled out further rate hikes. The continuing and extreme lack of inventory has raised the prices of homes in Maryland, hitting first-time buyers and people of moderate and lower incomes hardest. Our national organization, the National Association of REALTORS® (NAR), has—let’s just say it—significant struggles internally that have left us angered and saddened. Numerous lawsuits are winding their way through the legal system, threatening industry norms and practices.

In uncertain times such as these, it is extremely important for associations like ours to work tirelessly in support of our members and to keep you informed. Fortunately, I, like many of you, have experienced firsthand the value that Maryland REALTORS® provides daily. More than keeping in touch, Maryland REALTORS® is keeping us engaged.

Our Advocacy team is operating at the top of its game: last year’s Lobby Day drew maximum attention from legislators and the media alike (Save the Date: Lobby Day 2024 will be February 14—yes, Valentine’s Day…love, flowers, and housing).

Our Legal team continues to dispense invaluable advice individually through the Hotline and

through webinars and in-person instruction.

Our Professional Development team continues to provide opportunities, such as Leadership Academy (I’m a proud graduate, Class of 2018) and GRI to propel our careers forward.

Our Strategic Communications Team has innovated not only our communications to members (this year we’ve seen a new website and dynamic social media you need to follow) but our outreach to consumers via MarylandHomeownership.com.

Maryland REALTORS® has also benefitted from a long line of presidents who are deeply engaged with our members and in their work as REALTORS®. I am extremely grateful for the work of our Immediate Former President Yolanda Muckle.

She was an inspiring leader, and she left big shoes to fill.

So, yes, I’ve taken the baton from Yolanda and am eager to run my lap. In the coming year, we will seek to deepen the connection between the state and our local boards. Our local boards are the frontlines for our members, and our front line to association executives, Grassroots and Policy Advocate Christa McGee, was an association executive herself before joining the state team. With Christa we have a synergy that strengthens the link that joins us all.

Just as last year, we will host two regional roundtables, and to build engagement we will broadcast these roundtables live. We’ll do this so that members, wherever they may be, can be part of these events.

In our outreach to consumers, we will begin a focus on the importance of financial education in our school systems. Our kids graduate from schools with fluencies in science, English, history, athletics, arts, and yes, math—but what about finances?

What about learning how savings work, how to build a nest egg, how to save for the things that will be important later in life, such as a downpayment on a first-time home?

This is an area that the REALTOR® community hasn’t waded into previously, but we’re taking a big leap forward this year in getting behind the need for financial education at all levels of school. We must do our part to encourage the next wave of homeowners.

I’m excited to be here. I’m excited to be your president. We—the entire state association—is here to support the local agent and their work in real estate.

We’ve got a lot to do. Let’s get to work. ■

MARYLAND REALTOR®

Chris Hill Is Maryland REALTORS®’ 2024 President.

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REALTOR® TALK 9/14/23, 9:28 AM

Missing Middle Housing Word Search

Missing Middle Housing

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ADUMARYLAND REALTOR® OCT/NOVDUPLEX 2023 | mdrealtor.org AFFORDABILITY FOURPLEX CHOICE HOMEOWNERSHIP

MEDIUMDENSITY

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MISSINGMIDDLE MULTIFAMILY

SCALE TRIPLEX

Save These Dates!

Maryland REALTORS® has some big events in store in 2024.

Check out the events and dates below and mark them in your calendar!

Lobby Day Calvert House, Annapolis February 14, 2024

Regional Roundtable Hyatt Chesapeake, Cambridge March 7, 2024

Regional Roundtable Baltimore/Towson April 3, 2024

INNOVATE 2024 Maryland REALTORS® Commercial Symposium Location TBD March TBD

Pride in Practice Location TBD June 13, 2024

2024 Annual Conference Ocean City Convention Center, Ocean City September 16-19, 2024 ■

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Serving Those Who Served How to work with your Military and Veteran clients

BY ALISON WISNOM, MRP

M

y grandfather, raised on a farm in Ohio not far from the Wright Brothers’ bike shop, flew P-51s in World War II. I grew up hearing about his death-defying escapades: shooting down Nazi aircraft, being shot down twice himself, going missing behind enemy lines then turning up alive after his parents had received notice that he was missing in action. My father followed in his father’s footsteps, turning a childhood of tagging along at the local grass airstrip into a stint as a Radar Intercept Officer in an F-14 Tomcat during the Cold War—think Goose in Top Gun. He spent the rest of his Navy career as a doctor, inspired by the carrier’s flight surgeon, and served in the Gulf War. So it was no surprise that, I, too, signed up, earning an R.O.T.C scholarship in college and serving as an Army Signal Officer. While I did not make a career of it, I do enjoy serving military and veteran clients with their real estate needs, and I especially enjoy teaching REALTORS® who are unfamiliar with the unique needs of the military community how to adapt their business to better understand, promote the interests of, and serve those who are serving or have served in an authentic way through webinars, workshops, and by teaching NAR’s Military Relocation Professional designation course.

With the D.C. Metro area being the hub of military activity for the nation, we often take for granted that REALTORS® know everything already about how to

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serve the unique needs of this community. After all, it’s our community. But agents who have not served may not fully grasp the different needs of clients moving locally versus those moving around the globe on a short timeline. And even agents who have served may not recall all they need to know about the U.S. Department of Veteran Affairs (VA) loan financing or current move trends. While military service is indeed honored and revered, it is not without hardships. Keeping those challenges in mind allows us to tailor our business and build stronger client relationships.

The Military Family Advisory Network (www.mfan.org) and Blue Star Families (www.bluestarfam.org) regularly survey the military community on challenging issues. One of them, the expense of housing, is one the REALTOR® community is very familiar with, but that’s just the beginning. We can also take steps to better understand other challenges associated with the military community to create possible solutions into our business.

Family Separation/Isolation According to surveys by MFAN and Blue Star Families, 54% of military and veteran family respondents reported feeling lonely. 28% report six or more months of family separation in the past year. 67% of active-duty respondents report not feeling a sense of belonging in their local civilian community; 35% say they have no one to ask for a favor.

Spouse Unemployment and Underemployment Due to the demands of frequent moves, military spouse unemployment and underemployment are perennial issues. In 2021 the Blue Star Families Military Family Lifestyle Survey, 29% report needing but struggling to find paid employment. This situation has improved in recent years with remote work becoming more accessible.

Child Care There are over 1 million military children “on” active duty, yet, according to MFAN, 78.3% of respondents reported finding childcare difficult in the past two years, with female service members reporting the highest level of concern.

What do these statistics have to do with real estate?

These are other pressures and problems your clients are facing at the same time they are moving; understanding them are opportunities to demonstrate your value by acknowledging them and providing resources.

Understanding these challenges, here are a few strategies you can use:

Authentic Marketing Agents often ask how they can earn business from the military community. I advise agents to communicate your value clearly, accurately, and in a high-quality way.

Don’t pretend to be something you’re not or have skills you don’t. Overall, no matter your personal military experience, your underlying theme should be, “I understand what you’re going through, and I can help you.“

While military service is indeed honored and revered, it is not without hardships. Keeping those challenges in mind allows us to tailor our business and build stronger client relationships.

The Meanings of the Military Holidays Knowing the meaning of each holiday and observing the appropriate tone can prevent an embarrassing interaction.

Veterans Day Honors military veterans, which are persons who used to serve in the armed forces. Veterans Day is for all those who have served in the past and in all branches of service, even if they did not formally retire from the military. Service has been difficult and complicated for many, so this isn’t a joyful holiday. The purpose of the day is to honor service.

Memorial Day Honors those who died in military service. Memorial Day remembers those who have given their lives in military service to our nation during war, but recent marketing puts most of the emphasis on cookouts and pool parties.

Real estate agents should remember that this is a personal and solemn holiday for many Americans, and a “Happy Memorial Day” message to clients can flop. If you wish to touch all of your clients with a Memorial Day message, make sure it strikes a respectful tone fitting the true meaning of a remembrance holiday.

Independence Day Celebrates the birth of the nation. July 4th celebrates the date the American colonies were declared free and independent from Great Britain. Today, the holiday is exuberant and patriotic. Feel free to wave flags and cheer! Host parties and barbecues, enjoy fireworks displays, and bring all the fun on this day.

Armed Forces Day Honors those currently serving in the U.S. military.

While Memorial Day celebrates those who died in service to the country, and Veterans Day honors those who used to serve, Armed Forces Day honors those still serving.

Focus your business on honoring those currently serving in the military.

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Military clients are often beginning their home search from afar and well in advance of their move, so build their confidence by personalizing your relationship using video.

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Relocating clients also need those same home services vendor connections we often provide, but since they’re new to the area, they’ll need more of them, and they’ll value them even more! So share your personal experience with the landscaper, plumber, etc., in the same manner you usually would.

Your strength is your expertise. You know contracts, properties, the town, the financing vehicles, and you’re ready to welcome clients to a new place, whether you have personal military experience or not.

Do you remember being the new kid in school? Military kids are the new kid every couple of years! How about making introductions to people in your community who might host a play date so the kids know someone on the first day? Or for your next client event, host a bunco night or wine tasting so your clients can build their own social network. Make introductions and be a matchmaker.

Make Connections

Maximize Video

Military families are looking for “pattern of life replacement” when they move from one duty station to another. They need the same daily resources and comforts they enjoyed previously—a favorite coffee shop, a new gym, a youth soccer team, etc. “Mayor of your town” style community-based marketing is a great resource for them, especially if you include information about local duty stations and their commutes.

Give military families something to get excited about in your city!

Military clients are often beginning their home search from afar and well in advance of their move, so build their confidence by personalizing your relationship using video. Hop on a Zoom call to get “face-to-face” as soon as you can and use video throughout your relationship whenever practical. Investing time in your clients before they arrive builds trust and allows them to move quickly when they arrive. And with so many families experiencing work related separations, video is an excellent way to include a displaced family member.

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Customize Your Intake Interview

Take the Lead

To make sure you’re asking all the right questions, consider adding these to your workflow:

Service members exist in a system with direct communication, a chain of command, a quick pace, and clear process steps. They tend to take instruction well, so you can be a leader of this mission and a direct communicator guiding your clients through each step toward their goal.

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Have you served in the military? With any client this can make sure you’re aware of potential eligibility for VA financing.

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Do you have temporary lodging reserved for your arrival?

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Are you allowed a house hunting trip before your move?

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What steps are you comfortable taking before you arrive? Getting preapproved? Looking at homes by video tour? Buying a home site unseen?

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Will travel or deployment affect your availability?

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What are you looking forward to doing here?

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What worries you about this move?

Learn More about the MRP Designation at GCAAR! The Greater Capital Area Association of REALTORS® (GCAAR) will host a Military Relocation Professional (MRP) on November 1 and 8. Follow this link for more information and to register: https://gcaar.com/ education-events/detail/event-id/231101MR

Boost Your Technical Competence Take the Military Relocation Professional (MRP) designation course. While an agent who has served can certainly benefit from the deep dive into ever changing rules regarding VA loans, the true purpose of the MRP designation is to give agents who have not served a baseline of information, technical skill, and empathy for their clients and those they may encounter in a transaction, thus improving the overall agent pool.

Connect with a lender who is closing a large volume of VA loans. Ask that person to school you on the current rules, trends, and speed bumps they see in the local area; continue to check back quarterly for changes so you’re not stuck with outdated information and false impressions.

With 39% of the community surveyed saying they have no one in the local community to talk to, the words “I’m happy to introduce you,” or “let me connect you,” are gold. I encourage you to be generous with your connections, consider what military and veteran families need from you, and adapt your marketing and business practices in concrete ways to better care for these clients. ■

Resources from NAR and the VA NAR recently collaborated with the VA on a series of videos to assist veterans in purchasing their homes with VA loans.

Please follow the QR Code to learn more.

Alison Wisnom, MR, has served on Maryland REALTORS® Board of Directors and is a graduate of the Maryland REALTORS® Leadership Academy.

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CEO CORNER

My Kingdom for a Crystal Ball

BY CHUCK KASKY

I don’t have to tell you that these are uncertain times. In every arena—economic, political, and societal—norms are questioned and often ignored. Conventional wisdom has been proven wrong again and again. Change is coming and we can’t deny it, hide from it, or wish it away.

The real estate industry faces existential threats from multiple class action suits and Department of Justice antitrust enforcement actions. What these times demand is honest and open minds with the ability to see the consequences of the decisions we will inevitably be required to make.

How are you dealing with it all?

We can take comfort that the economy is resilient, that real estate will always be a significant part of our

…we need to focus on getting the buyer representation agreement signed as soon as possible and explain how compensation works in the transaction.

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gross domestic product, and that REALTORS® will always be at the center of the transaction. Our roles may evolve and the marketplace (especially the compensation model we know today) may look different a few years from now, but one constant is the need for competent professionals to help consumers with what will most likely be the most significant and complex transaction of their lives.

law of agency, and in the absence of buyer representation, every broker and salesperson worked on behalf of the seller, owing all fiduciary duties, including loyalty, to the seller. The problem, of course, was that most buyers were unaware of this, and it created a disconnect between the buyer’s expectations and the legal obligations of the brokers and agents.

One of the central arguments involved in the various lawsuits is that the current system of listing properties on the MLS, in which listing brokers make offers of compensation to buyers’ brokers, is anticompetitive. Until the early 2000s, in most of the U.S. there was no legal representation for buyers of residential properties.

After a broker obtained a listing, it would be published in the MLS with an offer of compensation to “cooperating” brokers. Back then, that meant subagents. Under the

Under that scenario, it made perfect sense for the listing broker to compensate the cooperating broker because they, and the agents affiliated with them, were all working on behalf of the seller.

The advent of buyer representation created its own disconnect, this time between the client and the compensation. Now, although the buyer’s broker and agent owe their fiduciary duties to the buyer, it’s the seller’s broker who pays them.

This is a difficult concept for many

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consumers to understand and for us to explain.

The lawsuits allege, among other things, that because the buyer’s broker’s compensation is set by the listing agreement and as provided in the MLS, buyers are not given the opportunity to negotiate the commission, resulting in higher home prices and anticompetitive market conditions.

In future columns we will explore the substance of the complaints in greater detail.

Although permanent changes, if any, to the industry won’t be felt for several years, we are seeing significant developments already, especially relating to offers of buyer broker compensation in the MLS. As you know, Bright MLS recently implemented a policy under which a listing broker may offer $0 compensation to buyers’ brokers.

Substantively this was not a significant change because under NAR’s Clear Cooperation policy it was acceptable to offer as little as $1, or even $0.01.

So, what does this mean for us in the here and now? Hopefully, not much. While a few sellers may not offer compensation to buyers’ brokers, the marketplace should consider the negative impacts of moving too quickly. First, lenders are reluctant to finance the buyer’s side of the commission.

This forces buyers to shoulder the additional cost of purchasing a home. Considering already high prices, forcing buyers to take on this expense would cause hardship and price many, particularly firsttime and low- and middle-income buyers out of the market. Worse, it

would likely result in buyers forgoing professional representation all together during this most consequential transaction.

Second, brokers should be concerned with this as well.

Almost all firms represent both buyer and seller clients, and many of our members specialize in one or the other side of the transaction. Sellers need to understand that refusing to compensate the buyer’s broker will inevitably reduce the pool of prospective buyers who simply cannot afford the additional expense.

More fundamentally, we need to focus on getting the buyer representation agreement signed as soon as possible and explain how compensation works in the transaction. Buyers need to understand the dynamic and their options in response to different offers of compensation coming from sellers/listing brokers.

Maryland REALTORS® supports

legislation in the 2024 General Assembly Session to clarify what needs to be in the buyer representation agreement, then help develop educational resources for members and consumers.

We don’t have a crystal ball, and we can’t control the outcome of these lawsuits, but we can prepare for different eventualities, and we must be open to the changes that are already here and more that are coming. As always, Maryland REALTORS® will be steadfast in our commitment to our members’ success, and no more so in these dynamic times. ■

MARYLAND REALTOR®

Chuck Kasky is CEO of Maryland REALTORS® and host of the Association’s podcast, “Get Real Estate,” which is available through any podcast app.

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Understanding Compensation

BY KATHLEEN DARTEZ, ESQ.

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n this issue’s “CEO Corner, ” on pages 10 and 11, Maryland REALTORS® CEO Chuck Kasky offers a brief history lesson, outlining the evolution of buyer representation and of the compensation model under which the listing brokerage offers cooperative compensation to subagents and buyer’s agents. Pending seller class-action litigation against the National Association of REALTORS® (NAR) and four corporate brokerage defendants has increased both awareness and scrutiny of the existing compensation model.

Although the litigation demonstrates a certain level of misunderstanding about compensation and the role of local MLS broker marketplaces, we should recognize this as an opportunity to become more transparent about compensation. While the litigation is being handled by attorneys in a courtroom, each of us has a role to play in reducing or eliminating any confusion about the value that REALTORS® provide to consumers, how the MLS works, and how we are compensated. Each of our clients should understand how much we are being paid, how we are being paid, and how the other agent in the transaction is being paid. NAR offers a variety of resources on www.competition.realtor, including information on fostering competition, equal consumer access and opportunity, as well as incredibly helpful FAQs. Please take the time to review the data, reports, infographics, and other information and to share it with your clients, customers, and colleagues.

The Law and Rules Changes Let’s begin with a brief refresher on Maryland law. The Brokers Act specifies that a brokerage relationship begins when the client enters into a written brokerage agreement. The Brokers Act identifies the mandatory provisions of such written brokerage agreements, requiring, among other things, that the brokerage agreement “state the amount of compensation to be paid to the broker and whether the broker is authorized to receive the compensation from a person other than the client;” and “state whether the broker is authorized to cooperate with other brokers and share compensation with the other brokers and the amount of the compensation.”

Consistent with this, the Maryland Code of Ethics mandates that “financial obligations and commitments regarding real estate transactions are in writing, expressing the exact agreement of the parties.” Thus, Maryland law already imposes an obligation of transparency and certainty regarding compensation.

Recent rule changes by Bright MLS have resulted in an increased focus on compensation. Previously, Bright MLS’s Rules and Regulations provided that each listing must include the compensation unconditionally and unilaterally offered to Cooperating Brokers, and that such offer must be a “positive value.” A positive value could be as little as $1.00 or even $0.01. As of August 9, 2023, however, the Rule was revised as follows: continued on page 14

Although the litigation demonstrates a certain level of misunderstanding about compensation and the role of local MLS broker marketplaces, we should recognize this as an opportunity to become more transparent about compensation.

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1.13 Offers of Compensation 1.13.1 Each listing must include entry of a value in the Bright Service fields describing offers of compensation unconditionally and unilaterally offered to compensate a Cooperating Broker as the procuring cause of a sale (also known as an enforceable, unilateral, blanket offer of cooperative compensation). The amount entered may be any value, from zero and greater. Bright does not set or suggest compensation values or the cooperative division of compensation.

Transparency and Certainty Let’s return to the concepts of transparency and certainty in the context of the Maryland REALTORS® brokerage agreements. The Exclusive Right to Sell Residential Brokerage Agreement (“Listing Agreement”) states “The amount of Broker compensation is not prescribed by law or established by any membership organization with which the Broker is affiliated. In the event of a sale, exchange, or transfer, the Compensation to be paid by Seller to Broker shall be ___________ .”

The Listing Agreement also includes language whereby the Seller may authorize the Listing Broker to share fees with Subagents or Buyer Agents (collectively “Cooperating Brokers”). The Seller and Listing Broker agree on any offer of compensation to be paid by the Listing Broker to such Cooperating Brokers, with such amount being inserted as a specified dollar amount or as a percentage of the Compensation

Listing Brokers will have to respond to Bright’s Rule change by having a thorough understanding of how cooperative compensation works, and by being able to explain to Seller clients the advantages and disadvantages of offering or declining to offer compensation to Cooperating Brokers.

being paid to the Listing Broker. As of August 9, 2023, the Seller may authorize zero compensation to Cooperating Brokers. The information entered on Bright MLS must, of course, be consistent with the terms of the Listing Agreement.

Listing Brokers will have to respond to Bright’s Rule change by having a thorough understanding of how cooperative compensation works and by being able to explain to Seller clients the advantages and disadvantages of offering or declining to offer compensation to Cooperating Brokers. The impact of the Rule change is likely to have a more immediate impact upon Cooperating Brokers, particularly Buyer Agents.

It may be helpful to review the Maryland REALTORS® Exclusive Buyer/Tenant Representation Agreement (“Buyer Agency Agreement”) to understand its terms, allowing us to explain it to our clients clearly and effectively. The Buyer Agency Agreement includes the following verbiage: BROKER’S COMPENSATION: The amount of Broker compensation is not prescribed by law or established by any membership organization with which Broker is affiliated.

Compensation to be Paid by Buyer: In the event of a sale or lease, the Compensation to be paid by Buyer to Broker shall be: ____________.

Fee Paid By Seller: Broker is authorized to receive compensation from the listing broker/seller.

Compensation may be offered from the listing broker to Broker through the multiple listing service or from seller as negotiated by Broker and seller for real property which is not listed with another broker. The amount of compensation received by Broker from a listing broker or from a seller shall be credited against the Compensation agreed upon in [the previous paragraph]. Buyer shall be obligated to pay any difference between the amount owed and the amount paid by the listing broker/seller.

Avoid the words “Per MLS” Let’s walk through these provisions, starting with the Compensation to be paid by Buyer to Broker. We have heard that some Buyer’s Agents will insert “Per continued on page 16

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Litigation Facing the Industry From class action lawsuits to a recent Bright MLS rule change, the topic of compensation has been dominating current industry news.

Taking time to understand these changes and being able to effectively discuss them with clients and customers is essential in today’s market/environment. Every REALTOR® needs to understand the value of the services we provide and to be able to clearly explain to clients and customers how we are being compensated for providing those services.

Regardless of whether we embrace or resist change, it is critical that we understand how these changes could impact our clients, ourselves, and our brokerages.

In this issue’s “CEO Corner (pg. 10),” Maryland REALTORS® CEO Chuck Kasky offers a brief history lesson, outlining the evolution of buyer representation and of the compensation model under which the listing brokerage offers cooperative compensation to subagents and buyer’s agents. With that framework in mind, let’s discuss the pending seller class action litigation to which the National Association of REALTORS® (“NAR”) is a party.

NAR and four corporate brokerage defendants were sued in lawsuits filed in Missouri (Plaintiff “Burnett”) and Illinois (Plaintiff “Moehrl”). The Plaintiffs in each case have alleged that commission rates are too high, that buyer brokers are being paid too much, and that NAR’s Code of Conduct and MLS Handbook, along with the corporate defendants’ business practices, lead to price fixing.

NAR and the corporate brokerage defendants adamantly disagree and are vigorously defending against these allegations. What the litigation has made apparent, however, is a pervasive lack of understanding, particularly by class-action attorneys, about NAR, how local MLS broker marketplaces work, and the value of REALTORS®.

REALTORS® are consumer advocates, working tirelessly every day to help our clients achieve the American Dream of homeownership. NAR’s rules are intentionally pro-consumer and pro-competitive. Local MLS broker marketplaces serve as centralized sources of detailed, accurate, and current information about available homes, affording equal access to listings regardless of the size or location of the brokerage with which we are affiliated.

The Burnett litigation is scheduled for a three-week trial, beginning on October 16, 2023. While the litigation is being handled by attorneys in a courtroom, each of us has a role to play in reducing or eliminating any confusion about the value that REALTORS® provide to consumers, how the MLS works, and how we are compensated. NAR offers a variety of resources on www.competition.realtor, including information on fostering competition, equal consumer access and opportunity, as well as incredibly helpful FAQs. Please take the time to review the data, reports, infographics and other information and to share it with your clients, customers, and colleagues.

Let’s move from a relatively high-level discussion about “the industry” to a more granular discussion about compensation. Although the litigation demonstrates a certain level of misunderstanding about compensation and the role of local MLS broker marketplaces, we should recognize this as an opportunity to become more transparent about compensation. Each of us should be able to explain, clearly and simply, how we are compensated. Each of our clients should understand how much we are being paid, how we are being paid, and how the other agent in the transaction is being paid.

This information is accurate as of the date on which this article was written. Litigation is unpredictable, and subject to scheduling changes and other occurrences which cannot be guaranteed with any certainty.

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MLS” or “$0.00” in the space provided to specify their compensation. We have heard that some Buyer’s Agents explain “that means that my services are free to you,” or “you might as well sign the Buyer Agency Agreement because you aren’t paying me, the seller is.” If you are completing the Buyer Agency Agreement or explaining it in this way, you need to stop immediately. While this has never been a good practice, in the context of Bright MLS’s recent Rule changes and in the context of the pending class action lawsuits, this is now clearly a terrible practice. Many of us remember the late Maryland REALTORS® General Counsel Al Monshower explaining why “per MLS” was ill-advised with this pearl of wisdom, “Congratulations—you’ve just agreed to work for $1.00.”

With Bright’s recent rule change, “Per MLS” could mean that you’ve agreed to work for zero compensation.

In addition to the negative impact on your bottom line, completing or explaining the Buyer Agency Agreement in this way likely violates NAR’s Code of Ethics. Article 12 of NAR’s Code of Ethics provides, in relevant part, that “REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.” Standard of Practice 12-1 provides additional direction: REALTORS® must not represent that their brokerage services to a client or customer are free or available at no cost to their clients, unless the REALTORS® will receive no financial compensation from any source for those services. (Amended 1/22) To the extent that any of us have used “Per MLS” or said “my services are at no cost to you” as a way to sidestep a direct conversation about compensation, we need to not only stop doing so, but we also need to become comfortable talking about compensation. A Buyer’s Agent must also be prepared to explain to the Buyer what will happen if the Seller chooses to offer zero compensation, or some amount less than what the Buyer and Buyer’s Broker have agreed upon as the amount due to the Buyer’s Broker. As noted above, the Buyer Agency Agreement states that any Compensation paid through the MLS shall be credited against the amount of compensation the buyer has agreed to pay.

It is quite possible that the amount offered through the MLS is zero. The Buyer’s Agent will have to discuss various options that may be available to the Buyer to

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pay the difference between the compensation the Buyer agreed to pay, and any amount paid per the MLS.

Moving Forward Section 1.13.2 of Bright MLS’s recently revised Rules and Regulations provide some additional nuance and possible strategies for the Buyer and/or Buyer’s Agent.

In the interest of brevity, we’ll summarize these rule changes here, while encouraging everyone to take the time to read the Rules in full. As stated above, the Seller must approve any amount entered in the Bright Service fields describing offers of compensation made to compensate a Cooperating Broker that will be paid in any way by the Seller. This approval may also (but need not) reflect whether the parties agreed that payment will be made by the seller or by the Seller’s Broker, to the buyer or to the Cooperating Broker.

A Cooperating Broker may propose to the Listing Broker that an amount of compensation different from the amount entered into Bright be paid to the Cooperating Broker. While this has always been permissible, it is likely that these discussions may become more frequent. Any such agreement between the Listing Broker and Cooperating Broker should be confirmed in writing. Negotiating a different offer of compensation directly with the Listing Broker is likely the simplest resolution.

If the Listing Broker is unwilling or unable to negotiate, the Buyer’s options will obviously vary depending upon the Buyer’s situation and financial resources. While many of us have had this conversation with our Buyer clients for years, it may be new territory for others. The basic concept that the Buyer must understand is that the Buyer is responsible for paying the Buyer’s Broker in the agreed upon amount.

A move-up buyer, in receipt of significant seller proceeds from the sale of their current home, may not have any difficulty paying the compensation owed to their agent in the purchase transaction. A client purchasing a second home, or an investment property may have more significant financial resources and, again, may be able to pay their agent’s compensation in full. The challenge of requiring a buyer to possess funds to be able to compensate their agent directly will likely have a disproportionate impact on first-generation buyers and first-time buyers, many

If you are completing the Buyer Agency Agreement or explaining it with ‘per MLS,’ you need to stop immediately.

While this has never been a good practice, in the context of Bright MLS’s recent Rule changes and in the context of the pending class action lawsuits, this is now clearly a terrible practice.

of whom are already struggling to save enough for a downpayment and closing costs. What options are available to these Buyers?

One suggestion that you may have heard is to include an Addendum to the Contract, asking the Seller to pay the compensation due to the Buyer’s Agent. While this is an option, it is an option that must be exercised with caution, to avoid violating Article 16 of NAR’s Code of Ethics, as supported by Standard of Practice 16-16, which provides: REALTORS®, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker’s agreement to modify the offer of compensation.

While it is not permissible for the Buyer’s agent to use the offer to purchase to renegotiate the compensation offered by the Listing Broker, it is permissible for the Buyer to include such an Addendum with their offer to the Seller.

We’ve discussed two ways for the Buyer’s Agent or the Buyer to respond when the Seller instructs the Listing Broker to offer Cooperating Compensation of either zero or some nominal amount. Each of these options involves going back to the Listing Broker and/ or the Seller to try to renegotiate the Cooperating Compensation offered. We cannot predict the likelihood of success with such negotiations.

Additionally, Fannie Mae and Freddie Mac will finance “closing costs,” which generally include an origination fee, title exam, title insurance, survey, attorney’s fees, prepaid items such as taxes and insurance escrow payments, and any discount points paid but does not include commissions paid to a Buyer’s Broker. It’s impossible to say whether this policy will change and, if so, when it may change.

No Easy Answers There are not a lot of options for buyers, particularly first-generation or first-time buyers. One option is “save more money.” We are currently in a seller’s market, with a shortage of inventory, increasing sales prices, actual or perceived high interest rates, and a relatively high level of inflation overall. Increasing the amount of money a first-generation or first-time buyer will need to bring to the table may put the American Dream of homeownership out of reach for many of these buyers.

While there are no easy answers, Listing Agents must be prepared to explain to Sellers the possible consequences of offering only a nominal amount or zero Cooperating Compensation. Buyers Agents will have to realistically assess the impact of requiring the Buyer to pay the Compensation directly. While there’s been some speculation that this may help to cool down an overheated market, we must all be cognizant of the impact this will have on housing affordability and who will be most impacted. ■

Kathleen Dartez, Esq., is the Director of Legal Affairs for Maryland REALTORS®’.

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The Builders’ View Maryland REALTORS® talked the housing crisis with the CEO of the Maryland Building Industries Association, Lori Graf

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aryland REALTORS® members know full well the current state of the housing market. Each month in recent history has played the same tune: very little inventory amidst steadily increasing prices, buyers being priced out of the market, and an ongoing housing shortage crisis that may be as high as 150,000 homes—or higher. What can be done with new homes construction? We posed this question, and several others, to Lori Graf, Chief Executive Officer of the Maryland Building Industry Association (MBIA).

The association’s goal is clear: to advocate for the building industry with a commitment to maximizing business opportunities for its members. MBIA, formed from the merger between the Home Builders Association of Maryland and the Lori Graf Maryland National Capital Building Industry Association, advocates strongly for its members in Annapolis and on the public stage, as well, where it seeks to promote a positive image of the work its members do in the cities and neighborhoods where its members work.

Maryland REALTORS®: What is the state of Maryland’s home building industry today?

Lori Graf: It probably depends on who you talk to, but if I had to use one word, it would be “frustrating.” It’s been very challenging the last couple of years. Obviously, we had the pandemic, which created some unforeseen circumstances dealing with supply chain issues and those types of things—or just being able to actually build a house. Right now, the challenge is being able to get

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through the entitlement process in a timely fashion. A lot of our jurisdictions have a lot of hurdles and a lot of barriers to being able to build. As you are well aware, there’s a housing shortage. So, it’s been very challenging over the last couple of years to actually get these projects from ‘point A’ to actually finishing them and selling them.

Maryland REALTORS®: Freddie Mac estimates that Maryland is 3.26% undersupplied in housing. That translates to our state ranked as the 11th highest in housing deficit among states. As you alluded to, we are in the midst of a housing crisis within this state, with a shortage of at least 150,000 homes for Marylanders.

What needs to happen to get more housing into the pipeline?

Graf: It’s simple supply and demand, basic economics.

What we really need to do is figure out a way to create more housing, protect the environment, protect all the other things that we want to protect as what we love about being in Maryland—and I think that the issue is really sitting down with our elected officials in the various jurisdictions and figure out ways to make it easier to get these housing projects moving forward: affordable housing, market rate housing, townhouses, multifamilies, all types of housing.

Maryland REALTORS®: Yet getting these new projects moving has been challenging, nonetheless. The National Association of Home Builders (NAHB) has estimated that anywhere from $100,000 to $200,000 of the cost of a home is due to regulation. What financial impact do you think regulation has on the cost of a home here in Maryland?

Graf: Yes, regulations significantly add to the cost of the house. We often say that 30 to 35% of the cost of the house is the cost of compliance with regulations. If

For Maryland it’s 2,881 people. That, again, is significant. We’ve been going through regulations dealing with electric vehicle charging stations and other things that we must add to these houses, and every time we add something to it, you’re pricing 2,881 people out for every $1,000. It may not sound like a lot to add $4,000, $5,000, to the price of the house, but at that point the person just can’t afford it. At the end of the day, it’s about their monthly payment and if they can’t afford the monthly payment, they can’t afford the house.

Maryland REALTORS®: You mentioned EV hookups.

They are going statewide beginning this month. we can figure out ways to streamline the process and to make it less expensive on the regulatory side, that would help with cost of the house for the end user. We know there are lots of fees that are added in, impact fees and all those other fees. They all add up to make the house more expensive. So, we have to figure out a way to streamline the process in terms of time and money. These are for-profit builders; they have to make a little bit of profit. It would shock you how little profit they actually make.

Maryland REALTORS®: From your perspective, how can the process be streamlined?

Graf: Obviously, every jurisdiction is different. Land use is a very local process, and each jurisdiction has its own challenges. A lot of jurisdictions have moved to the e-permitting process, which certainly helps as far as getting the process done quicker. What we really need to do is take out some of the red tape. There are a lot of duplicative efforts, a lot of different reviews that need to be done. If we could simplify those processes, that would make the process easier, more cost-effective for the county as well as for the builders, and quicker so we can get these houses built more efficiently.

Maryland REALTORS®: The NAHB estimates that for each $1,000 increase in the home price, you’re excluding hundreds of thousands of buyers from the market.

Do you have any thoughts on how this reflects on Maryland’s market?

Graf: Nationally, for every $1,000 you add onto the cost of a house, 140,436 people are priced out of that house. That’s quite significant. When you begin to add $5,000 to $10,000 to the price of a house, it exponentially increases the number of people who can’t afford it anymore.

Graf: Howard County and Frederick County currently require them, and yes there’s going to be a statewide regulation starting in October that requires the plug to be put in, so ‘EV ready’ in all new construction for single family and townhomes that have a dedicated parking area. That’s a new regulation. It costs money. It’ll cost about a thousand dollars per house, but again, it’s another added expense that goes into these new houses.

Maryland REALTORS®: It speaks of the challenges that you have to deal with when working with local zoning.

Between the state, counties, and local jurisdictions, how do you manage and juggle the needs of individual communities?

Graf: That’s a big part of the conversations we’re having right now. We live here, we work here, we want to make our communities better, but zoning in all these different jurisdictions is very challenging. Quite honestly, we don’t have enough land available to build the number of housing units that we really need. There’s a big movement to get away from single family housing, but there’s not a lot of land left that’s zoned the correct way to be able to do townhouses or multifamily. It’s going to require a lot of creativity, a lot of working with various jurisdictions to figure out ways to redevelop in a more cost-effective manner, like redeveloping commercial properties that are no longer needed, that type of thing.

Maryland REALTORS®: Are you finding that some local jurisdictions are using APFOs as simply an excuse to slow or stop development?

Graf: The short answer is yes. It’s been a challenge.

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about how it affects the ability to create new housing.

We’ve been working with a couple of jurisdictions to try to figure out ways to be able to make sure schools get built and schools are not over capacity. Nobody wants overcrowded schools, but to be able to build housing in those jurisdictions remains really important.

Maryland REALTORS®: In June, the sales price of a home exceeded $500,000. What sort of things can builders do to introduce housing that takes into account more diversity in price points and home sizes?

Graf: Currently, there’s not a lot of control over the housing supply. We have to build to where the zoning is. We need to figure out ways to be creative for missing middle housing, ADUs, and the like, which I know your association has a keen interest in. We need to be able to create different types of housing, the types of housing that favor higher density, which could make housing more cost-effective for people.

And then there’s the issue of supply. Honestly, if you had more supply, housing prices will go down. So that’s another factor. But we definitely need to start looking at zoning while also looking at missing middle housing.

From our builders’ perspective it’s very challenging to build that type of product.

Maryland REALTORS®: What makes it challenging for the builders?

Graf: Especially for bigger builders, it’s the way that they purchase things. When you’re building missing middle housing, not everything’s the same size. So, when you’re trying to build on a larger scale, it creates a lot of challenges for them.

Maryland REALTORS®: How do you and your members counter the NIMBYs (“Not in My Back Yard”) that are in every community that oppose much the type of housing that could be built?

Graf: Yes, this is a challenge. It’s everywhere. One of the challenges that we have, and this is somewhat controversial, is that in Maryland there is so much local control over land use. This creates a lot of challenges for local councils because they are so close to NIMBYism, and at hearings you get the “squeaky wheel gets the grease” arguments. The councils in many cases have a lot of political pressure on them to stop building and stop construction, even though they understand at the end of the day we need more housing. It’s a matter of

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how we combat the political pressure that these council members face.

One of the things we’ve talked about is what can the state do to help local jurisdictions counteract some of that? It’s very challenging, and it’s pretty controversial as well, but we’ve started to think about some ways that we can try to incentivize local jurisdictions to increase the number of housing units they put in every year. If you look at the permit numbers, they’ve gone down drastically over the last several years.

Maryland REALTORS®: How do you envision the state getting involved? What role do you see the state playing?

Graf: The state realizes that we have a housing shortage. It’s going to be a monumental task, but the state needs to step in and talk to these local jurisdictions and encourage them to figure out a way—not taking away necessarily local control—but figure out a way to help get more permits online and get more housing. The local jurisdictions know there’s a problem, but nobody knows how to fix it.

And every jurisdiction’s different, which also creates challenges for us because Montgomery County is very different than Anne Arundel County or Baltimore County, and the needs of the citizens are very different.

It’s a balancing act, but we certainly need to figure out a way to increase our permit numbers every year, and that’s just going to have to be something that everybody’s going to have to work together on.

Maryland REALTORS®: Let’s go back to missing middle housing. Earlier you had mentioned the scale of these projects, particularly with larger developers. Are there other difficulties your members face when it comes to housing projects such as this?

Graf: Obviously, the biggest obstacle is what we’ve already talked about: zoning. Also, the public needs to have a better understanding of it because there are certain misnomers about what missing middle housing is. So, we need more education. I’ve been involved, with REALTORS®, in trying to educate elected officials and others on what missing middle housing is, but right now the zoning doesn’t allow for it in most jurisdictions.

And, as we know, NIMBYs are out there who don’t necessarily want that type of housing for various reasons. We just went through a fight in Prince George’s County where the county tried to impose a moratorium

on townhouse development, which obviously is usually going in the opposite direction of all the stuff we’re talking about here.

And there’s a lot of other factors. Baltimore County is talking about redeveloping a mall. A lot of our old shopping malls are kind of going by the wayside, and yet there are challenges in converting them to housing.

Again, it’s a zoning issue, it’s a community issue, but I think we’re going to have to figure out ways to get it done. I’ve been in a lot of seminars about the missing middle. We’ve been trying to get the word out to the elected officials, and I think there’s some understanding of it, but there’s still a lot of hesitancy because of the density required for it and the zoning changes that would be required to do that type of housing.

Maryland REALTORS®: You mentioned converting malls, adaptive reuse. Zoning would be a challenge, obviously. Are there other challenges facing these kinds of projects?

Graf: We’ve already talked about NIMBYism, which is just going to be a factor in any project. Another factor is cost. It’s much more expensive to do a redevelopment project than a traditional greenfield project, and a lot of it has to do with the environmental regulations and other regulations that are placed on these projects. So, one of the things we have to talk about at some point, whether it’s with the state officials or each local jurisdiction, is how do we make that process easier? Again, nobody is trying to kill the environment or do anything harmful, but how can these projects be made easier point A to point Z? So that’s another big challenge that we have to really figure out, and it’s going to have to be through the local jurisdictions for the most part. We did have a bill this year that dealt with adaptive reuse that the legislature passed. So, there’s some different things we can certainly do on a state level, but each local jurisdiction’s going to have to really look at this and try to make it easier to redevelop any project, because that’s the future of development in the state of Maryland.

Maryland REALTORS®: What opportunities do you see for home builders in this current market?

Graf: I do see opportunity. There’s been more and more talk about how we need more housing. Your association talks about it. Everybody talks about supply; I can tune into any radio station or look at any newspaper,

and there’s an article about supply, and obviously the only way to increase supply is to build more housing.

We’ve had a lot of conversations with the local jurisdictions and the state about some solutions. We don’t have anything concrete yet because it is going to be very challenging, but this new administration really wants to fix the problem.

But I think everybody is on the same page, which is exciting. We’ve met with Department of Housing and Community Development Secretary Jacob Day, we’ve met with a lot of other people at the state level and local level, and everybody understands that we need more housing. That’s exciting. It’s an exciting time for the industry. It’s just a matter of how we get there, and what are the solutions that everybody can live with because that’s going to be a real challenge.

Maryland REALTORS®: What about skilled workforce?

Is it harder finding a talented work base to build these homes?

Graf: It is. That’s always been a challenge. I’ve been doing this since 2007 and every year that’s one of the top priorities and challenges for our members. However, we have seen some movement on that. The Kirwan Commission on the Blueprint for Maryland’s Future talks more about career-ready than college-ready and trying to make sure that people understand that this is a good career.

I know under the Hogan administration, they made a lot of headway with apprenticeships. I believe the Moore administration is going to carry that forward. So, I think there’s a lot of movement on that. We haven’t seen it necessarily on the job site yet, but we’ve had a lot of conversations and people are really starting to understand that this is a really good career path.

Maryland REALTORS®: Any final thoughts for the REALTOR® community?

Graf: The biggest thing is we need to educate. We need to educate the elected officials on these issues because they hear a lot from the other side, they hear a lot from the NIMBYs, but they really need to hear from the industry professionals who are selling the houses.

REALTORS® were very instrumental in helping us with the Prince George’s County townhouse moratorium. So, it’s really about educating elected officials on the challenges, what consumers want, and what’s going to bring people to Maryland and keep people in Maryland. ■

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Update on Statewide Forms Information and Practice Tips to help you in your work

BY TAYLOR KITZMILLER, ESQ.

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ach fall, Maryland REALTORS® presents updates to its Statewide Forms Library, which contains the form contracts, disclosures, and addenda that members like you use to service clients and bring real estate transactions to settlement. This Manual is designed as a guide for Maryland REALTORS® members to understand the revisions to existing forms and the creation of new forms which will go into effect on October 2, 2023.

As always, brokers and office managers seeking additional support are welcome to contact our Legal Affairs Department attorneys to schedule Statewide Forms Update sessions for their agents. Association attorneys are also available via our Legal Hotline service to answer questions about all of our Statewide Forms.

Assumption Addendum The Maryland REALTORS® Residential Contract of Sale includes an Assumption Addendum in its list of Addenda, however, such an Addendum did not exist in the Maryland REALTORS® Forms Library.

Thus, Maryland REALTORS® created an Assumption Addendum. The Assumption Addendum is to be used when the property being sold has an existing mortgage and the buyer and seller agree that the buyer may take over or “assume” that mortgage as part of the purchase, subject to lender approval. The Assumption Addendum outlines the terms and conditions under which a buyer assumes responsibility for an existing mortgage on the property being purchased.

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Exclusive Commercial Buyer/Tenant Representation Agreement This agreement outlines the terms and conditions under which a brokerage will exclusively represent a commercial property buyer or tenant in their search for suitable properties.

Members should be familiar with the majority of the terms in this agreement as it has been modeled after the Exclusive Buyer/Tenant Residential Brokerage Agreement.

PRACTICE

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The lender holding the existing mortgage may require the Buyer to submit an application to prove the Buyer’s creditworthiness and ability to assume the mortgage.

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Foreign Investment in Real Property Tax Act (“FIRPTA”) Addendum The Maryland REALTORS® Residential Contract of Sale references a FIRPTA Addendum, however, such an Addendum did not exist in the Maryland REALTORS® Forms Library. Thus, Maryland REALTORS® created a FIRPTA Addendum. Under FIRPTA, a Buyer of residential real property located in the United States must withhold federal income taxes from the payment of the purchase price if the amount realized by the Seller exceeds Three Hundred Thousand Dollars ($300,000.00) and the seller is a foreign person, as defined by the I.R.S. The Seller should use the FIRPTA Addendum to notify the Buyer that the transaction is subject to FIRPTA or whether the Seller is claiming a FIRPTA exemption.

Forest Conservation Act Addendum The Maryland REALTORS® Residential Contract of Sale references a Forest Conservation Act Addendum, however, such an Addendum did not exist in the Maryland REALTORS® Forms Library. Thus, Maryland REALTORS® created a Forest Conservation Act Addendum. The Seller should use the Forest Conservation Act Addendum to put the Buyer on notice that the property is subject to a Forest Conservation Plan which may restrict the Buyer’s use of the property.

The Maryland Forest Conservation Act (“FCA”) states that any activity requiring an application for a subdivision, grading permit or sediment control permit on areas 40,000 square feet (approximately 1 acre) or greater is subject to the FCA and will require a Forest Conservation Plan prepared by a licensed forester, licensed landscape architect, or other qualified professional unless certain exemptions apply. A Forest Conservation Plan provides specifics for retaining and protecting existing natural resource areas and provides for new tree plantings and their maintenance to ensure survival during construction.

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On-Site Sewage Disposal System (“OSDS”) Inspection Notice The OSDS Inspection and Test Addendum calls for the parties to exchange written notifications regarding the results of the OSDS Inspection and Test, however, Maryland REALTORS® did not provide a notice form for the parties to use. Thus, the OSDS Inspection Notice was created. Parties can now use the OSDS Inspection Notice to share the test results and negotiate repairs in connection with the OSDS Inspection and Test.

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Members should be familiar with the format of the OSDS Inspection Notice as it is modeled after the Property Inspections Notice.

Owner Financing Contingency Addendum The Maryland REALTORS® Residential Contract of Sale includes an Owner Financing Contingency Addendum in

its list of Addenda, however, such an Addendum did not exist in the Maryland REALTORS® Forms Library. Thus, Maryland REALTORS® created an Owner Financing Contingency Addendum. The Owner Financing Contingency Addendum outlines the terms and conditions under which a Buyer and Seller agree to a sale where the Seller provides financing to the Buyer. In other words, the Seller acts as the lender, allowing the Buyer to make payments directly to the Seller instead of obtaining a traditional mortgage from a bank or financial institution.

Owner financing is a complex transaction governed by many State and Federal laws. Real estate brokers are not qualified, nor licensed, to ensure that the terms of the Owner Financing Contingency Addendum comply with these laws. Members are strongly encouraged to advise their clients to consult with a competent legal professional when considering Owner Financing.

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Seller’s Home of Choice Addendum The Maryland REALTORS® Residential Contract of Sale includes a Seller’s Purchase of Another Property Addendum in its list of Addenda, however, such an Addendum did not exist in the Maryland REALTORS® Forms Library. Thus, Maryland REALTORS® created such an Addendum but under a different name—Seller’s Home of Choice Addendum. This Addendum allows the Seller to make the Contract contingent upon the Seller’s purchase, financing, settlement, or lease of a new property.

Members should be familiar with the format of the Seller’s Home of Choice Addendum as it is modeled after the Sale, Financing, Settlement or Lease of Other Real Estate Addendum which Buyers currently use to make the Contract contingent upon the Buyer’s sale, financing, settlement or lease of their existing home or other real estate.

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Water Quality Test Notice The Water Quality Test Addendum calls for the parties to exchange written notifications regarding the results of the Water Quality Test, however, Maryland REALTORS® MARYLAND REALTOR®

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did not provide a notice form for the parties to use. Thus, the Water Quality Test Notice was created. Parties can now use the Water Quality Test Notice to share test results and negotiate corrective action in connection with the Water Quality Test.

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Members should be familiar with the format of the Water Quality Test Notice as it is modeled after the Property Inspections Notice.

Water Yield Test Notice The Water Yield Test Addendum calls for the parties to exchange written notifications regarding the results of the Water Yield Test, however, Maryland REALTORS® did not provide a notice form for the parties to use.

Thus, the Water Yield Test Notice was created. Parties can now use the Water Yield Test Notice to share test results and negotiate corrective action in connection with the Water Yield Test.

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Members should be familiar with the format of the Water Yield Test Notice as it is modeled after the Property Inspections Notice.

REVISED FORMS Consumer Notice to Buyers of Residential Real Estate in Maryland A Condominium/HOA Reserve Study disclosure has been added to the Consumer Notice to Buyers of Residential Real Estate in Maryland. House Bill 107, passed by the Maryland General Assembly during the 2022 legislative session, requires all condominiums and homeowners associations (whose common area components require a total initial purchase and installation cost of at least $10,000) to update their reserve study every five years or conduct a new study by October 1, 2023 if no prior study has been performed.

Condominiums or homeowners associations conducting their first reserve study must achieve the recommended annual reserve funding within three fiscal years. To meet this funding requirement, the monthly dues for residents will likely increase, or a special assessment may be imposed. The Condominium/HOA

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Reserve Study disclosure paragraph warns Buyers of the potential increase in dues or special assessments and advises Buyers to pay close attention to the reserve study report of a condominium/HOA. The Consumer Notice to Buyers of Residential Real Estate in Maryland should always be included with an Exclusive Buyer/Tenant Representation Agreement.

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Escrow Agreement Between Buyer, Seller, and Escrow Agent The “Distribution of Deposit” Paragraph has been modified to include the new release of deposit procedure set forth by Senate Bill 651. Senate Bill 651, passed by the Maryland General Assembly in 2023, changed the process for the release of an earnest money deposit when the Buyer terminates the Contract pursuant to a contingency. Under the new law, if a Buyer terminates the Contract pursuant to a contingency as defined by Section 10-803(a)(2) of the Real Property Article, Annotated Code of Maryland, they may provide a written notice to the Seller and the holder of the deposit requesting the full return of the deposit. If the Seller wants to protest the release of the deposit, Seller must provide the holder of the deposit with a notarized, written request for mediation relating to the release of the deposit within ten (10) days of receipt of the Buyer’s request. If the Seller does not protest the release of the deposit or if they fail to provide the holder of the deposit with a notarized, written request for mediation within the ten (10) day period, the holder of the deposit shall distribute the deposit to the Buyer within thirty (30) days of receipt of the Buyer’s request.

The “old” release of deposit procedure still remains in the Distribution of Deposit Paragraph of the Escrow Agreement. The “old” release of deposit procedure should be followed when the Seller terminates the Contract or if the Buyer terminates the Contract for a reason other than a contingency as defined by Section 10-803(a)(2) of the Real Property Article, Annotated Code of Maryland.

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Exclusive Right to Lease Residential Brokerage Agreement, Exclusive Right to Sell Residential Brokerage Agreement, and Exclusive Right to Sell Unimproved Land Brokerage Agreement ■

A Wire Fraud Disclosure has been added to all agreements.

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In accordance with Senate Bill 579, passed by the Maryland General Assembly in 2023, the “Listing Term” Paragraph has been modified on all agreements to note that the listing term of the agreement may not be longer than one (1) year in duration.

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In the Exclusive Right to Sell Residential Brokerage Agreement, the newly created “FIRPTA Addendum” has been added as a checkbox in the “Addenda” Paragraph.

Exclusive Buyer/Tenant Residential Brokerage Agreement In accordance with Senate Bill 579, passed by the Maryland General Assembly in 2023, the “Buyer Agency Term” Paragraph has been modified to note that the buyer agency term of the agreement may not be longer than one (1) year in duration.

General Residential Dwelling Lease Template Pursuant to House Bill 102, passed by the Maryland General Assembly in 2023, a “Pet Protection During Eviction/Loss of Possession of Property” Paragraph has been added to the General Residential Dwelling Lease Template providing a tenant with a link to a flier on the Maryland Department of Agriculture website. The flier provides information on how an evicted tenant can provide temporary or permanent housing for their pet.

Post Settlement Occupancy Agreement The “Term of Occupancy and Consideration” Paragraph has been modified to specify the exact time of day for when the Seller must vacate the property.

Residential Contract of Sale ■

The “Deposit” Paragraph has been updated to reflect the new release of deposit procedure set forth by Senate Bill 651.

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The new FIRPTA and Forest Conservation Act addenda have been added to the list of Addenda.

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The titles of the “Sale, Financing, Settlement or Lease of Other Real Estate” and the “Home of Choice” addenda have been changed to “Buyer’s Sale, Financing, Settlement or Lease of Other Real Estate” and “Seller’s Home of Choice” respectively.

Sale, Financing, Settlement or Lease of Other Real Estate Addendum The Sale, Financing, Settlement or Lease of Other Real Estate Addendum only relates to the Buyer’s disposition of their existing home or other real estate. Thus, to label the Addendum more accurately, the title has been changed to Buyer’s Sale, Financing, Settlement or Lease of Other Real Estate Addendum.

Unimproved Land Contract of Sale Paragraph 26 of the Unimproved Land Contract of Sale has been modified to include an additional contingency for whether the property can connect to the public sewage system.

RETIRED FORMS The following forms will be retired from the Maryland REALTORS® Statewide Forms Library as of October 2, 2023: 1.

COVID-19 Addendum to Exclusive Right to Sell Residential Brokerage Agreement or Exclusive Right to Lease Residential Brokerage Agreement

2. COVID-19 Related Delay Addendum ■

Taylor Kitzmiller, Esq., serves as Associate Counsel at Maryland REALTORS®.

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SELL MORE WITH MARYLAND

3,500+ Marylanders and Counting …

BY GREGORY HARE

Let the State of Maryland help you sell more with the Maryland Mortgage Program (MMP). MMP has been the state’s flagship homeownership program for over 40 years and for the past three years, has achieved about $1 billion annually in home loan reservations, helping more than 3.500 Marylanders purchase their dream home each year.

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The biggest barriers to entry for potential homebuyers include insufficient funds for down payment and closing costs, student debt, and high interest rates. MMP has specially designed products which assist in each of these categories.

We always encourage other local municipalities to reach out to our business economic development team to generate cutting edge new partnerships that promote homeownership in their area.

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Montgomery County departments purchase a home in Montgomery County by offering an MMP first loan with a generous Down Payment Assistance (DPA) second loan.

Below are some of the most advantageous MMP partnership products: Montgomery Homeownership Program: Helps a potential homebuyer purchase a home in Montgomery County by offering an MMP first loan with a generous Down Payment Assistance (DPA) second loan.

Montgomery Employee DPA Loan (MEDPAL): Helps employees of certain

Follow us on social to stay up to date: facebook.com/ marylandmmp/ instagram.com/ marylandmmp/ twitter.com/ marylandmmp

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Greenbelt Home Advantage: Gives current renters in zip code 20770 purchasing in Greenbelt, a grant of $15,000 for d​own payment assistance and closing cost assistance. ■

Gregory Hare is the Assistant Secretary, Maryland Department of Housing and Community Development. mmp.maryland.gov, singlefamilyhousing. dhcd@maryland.gov, 1-800-756-0119

2023 GRI Program The GRI (Graduate, REALTOR® Institute) designation is NAR’s nationally recognized designation, which is administered through state associations. The Maryland program consists of 72 hours, broken into two 36-hour series (i.e. Series 100 and 200). Series 100 and 200 can be taken in any order and can be taken anywhere within Maryland to suit your personal calendar. Series 100 & 200 features six modules, each six hours in length. Each module may be taken independently.

Class topics range from fair housing, agency, finance, business development, ethical conduct, and laws affecting business practice, and procedures to strengthen your skills and your business for a well-rounded real estate foundation.

You have five years to complete the 72-hour program (Series 100 and 200) to obtain the designation.

Maryland REALTORS® offers the additional Series 300 & 400 for those interested in pursuing their broker’s or associate broker’s license. Series 300 & 400 consist of four days each. When you complete all four series, you will meet the education requirements to sit for the broker/associate broker’s exam.

It’s never been a better time to sign up for GRI! See the Maryland REALTORS® course offerings below.

To register visit mdrealtor.org/education/programs/ realtor-institute-GRI.

LOOK WHAT YOU GET: • Nationally recognized credibility • Professional speakers • Continuing education credits • Increased knowledge, skill, and professionalism to better serve customers and clients • Increased income potential • Sets you apart from the competition • Increased visibility toward your commitment to provide superior professional services • Educational credit toward Maryland’s Broker or Associate Broker’s license

EARN YOUR GRI – WORK SMARTER, NOT HARDER! NO ANNUAL DUES! SERIES 300

SERIES 400

Maryland REALTORS® Annapolis

Maryland REALTORS® Annapolis

October 3, 10, 12, 17

October 31 November 2, 7, 9,

To learn more, go to mdrealtor.org/Education/ Programs/Realtor-Institute-GRI or scan this QR code.

FROM THE HOTLINE

The End of 40-Year Agreements

BY KATHLEEN DARTEZ, ESQ.

Q:

I heard that there is a new law in Maryland, limiting the duration of a listing agreement. Can you please outline the details so I can ensure that my brokerage’s agreements are compliant?

A: There is a new law, effective

purchasers that grant a lien or other security interest in the residential property to a Service Provider; or that allow the Service Provider to transfer its rights under the agreement to a third party without notice to the homeowner.

June 1, 2023, which limits the duration of “service agreements.” A “Service Agreement” is defined as “an agreement where a Service Provider agrees to provide an individual services for (i) the maintenance of residential property that the individual owns; or (ii) the purchase or sale of residential property.” The statute defines Service Provider as “a person that provides services to an individual through a service agreement for (i) the maintenance of residential property that the individual owns; or (ii) the purchase or sale of residential property.” If you provide services to an individual for the purchase or sale of residential property, you are a “Service Provider” under the new law.

The new law was prompted by concerns about “40-year listing agreements.” In Maryland, and throughout the country, homeowners were being solicited to enter into agreements with a duration of 40 years. The service provider would pay the homeowner a small sum of money, typically a few thousand dollars. In exchange, the homeowner would sign an agreement stating that if they chose to list their home, they would utilize the service provider. If the homeowner listed their home with another brokerage/service provider, the homeowner would be charged a “termination fee” of 3% of the then market value of the property. These agreements, which were recorded in the land records, would be binding upon the homeowner’s heirs and/or Personal Representatives, and upon subsequent owners of the property.

The law applies only to Service Agreements entered into on or after June 1, 2023. The new law excludes several products from the definition of a Service Agreement including home warranties, utility providers, and mechanics liens.

The new law does more than just limit the duration of a listing or buyer agency agreement. The law also prohibits Service Agreements that bind subsequent bona-fide

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While the new law only applies to Service Agreements entered into on or after June 1, 2023, the Maryland Office of Financial Regulation (“OFR”) issued guidance expressing serious concerns about the legality of agreements entered into prior to that date. In its July 31, 2023 guidance, the OFR noted: You can read the OFR Guidance from July 31, 2023, by following this QR Code:

To remain compliant, your brokerage should ensure that brokerage agreements do not have a duration of more than one year and you should not record your brokerage agreements in the land records. ■

Kathleen Dartez, Esq., is the Director of Legal Affairs for Maryland REALTORS®’.

Sell More With Maryland.

The Maryland Mortgage Program is here to help REALTORS® by offering flexible financing options for their customers to purchase affordable homes throughout the state. Take a look at our Specialty Loan partnership products for eligible Maryland first-time homebuyers:

GREENBELT HOME ADVANTAGE

Gives current renters in zip code 20770 purchasing in Greenbelt, a grant of $15,000 for down payment assistance and closing cost assistance.

MONTGOMERY EMPLOYEE DPA LOAN (MEDPAL)

Helps employees of certain Montgomery County departments purchase a home in Montgomery County by offering an MMP first loan with a generous Down Payment Assistance (DPA) second loan.

MONTGOMERY HOMEOWNERSHIP PROGRAM

Helps purchase a home in Montgomery County by offering an MMP first loan with a generous Down Payment Assistance (DPA) second loan.

Learn more about how our programs can help you sell more:

mmp.Maryland.gov/Realtors

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