I was blessed to find myself as Chair of the 2024 Risk Management Committee for Arizona REALTORS®. It was a year of some of the biggest changes many REALTORS® have ever seen. Compensation rules were rewritten due to the notorious NAR Settlement Agreement. To be in the room while solutions and paths forward were debated was fantastic, an education I doubt I could have obtained elsewhere.
Our committee edited and/or published something like 22 forms over the course the year – which was a huge undertaking. The amount of volunteer and staff hours put in was significant and nothing I’m going to say here should diminish the work that was done. However, one of the forms that was created was called the Compensation Agreement Between Brokers (CABB). It facilitated the ability for Listing Agents to share their compensation with Buyer Agents.
This particular form got a lot of heat on the street.
There was a petition to have it decommissioned. People said it was confusing, that it was trying to keep the old pre-settlement way of doing business alive, and that more lawsuits were going to be filed if we keep doing it the old way. Lots of naysayers.
Despite the large not-gonna-use-it crowd, there were also many agents that liked the CABB. The loudest pro-CABB argument that I heard was that it allowed the REALTORS® to pre-negotiate compensation for the buyer’s agent ahead of making an offer.
“Before I drive my buyer 45 mins to that house, let me make sure the seller is willing to pay my compensation.”
Assuming this is what the buyer asked their agent to do, this makes sense. Pre-negotiating compensation at the instruction of your buyer is fine. So then why did the CABB get heat?
The problem wasn’t what it was accomplishing, but how it was accomplishing it.
In essence, the CABB would raise the listing agents compensation by the amount the buyer agent charged their buyer so that the listing broker could share their money with the buyer broker. Seems silly to even write it out this way, but this is how the old world worked so it seemed normal to do it this way at the time. Also, the lending institutions were all set up to handle the agent compensation when routed this way so in an effort to not break anything the CABB was born.
Compensation sharing is bad!
After the NAR Settlement was finalized these lyrics got louder and louder, especially from lawyers and brokers that listen to lawyers. Having the listing broker charge the seller more in order to cover the buyer agent compensation was forecasted by many legal experts as the root of the next class action lawsuit. So what happens in response to this forecast? Allow me skip to the end, the CABB is killed.
No more sharing of compensation being facilitated by AZ state forms.
And the crowd goes wild!
ish
The people that wanted the form gone are happy, but what about the agents that liked hashing out compensation prior to driving across town? They no longer have a document with the REALTOR® stamp of approval to accomplish this. True. But, there is a form circling the interwebs that can still achieve the same benefit without the controversy.
Insert the Direct Compensation From Seller form. This doc lets the seller agree to pay the buyer broker compensation without it being routed through the listing broker.
The benefit of pre-negotiating compensation lives, but in a much cleaner way.
So here it is… here lies the Compensation Agreement Between Brokers (Aug 1, 2024 – Jan 31, 2025). It lived a very short and powerful 6 months. It was 100% effective at bridging the gap from the pre-settlement era to the post-settlement era. The removal of this form and consequent edits to the listing contract has officially ended compensation sharing between brokers for residential purchase transactions facilitated on Arizona state forms.
Here’s to the new world, may we all prosper without compensation sharing lawsuits.
PS: I posted a video about pre-negotiating compensation on IG.
PJS
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