LegalReal Estate

Consumer advocates call California Realtors’ buyer rep agreement ’unreadable’

In response, CAR calls the CFA's suggestions 'absurd'

Editor’s note: This article has been updated with a lengthy comment from the California Association of Realtors.

A report released Tuesday by the Consumer Federation of America (CFA) found that the California Association of Realtors’ (CAR) buyer representation and broker compensation agreement is “virtually unreadable.”

The release notes that the CFA sent this analysis to the Department of Justice (DOJ) two weeks ago. Additionally, the CFA stated that California Realtors have obtained a copy of the analysis.

CAR has since announced to its members that it is delaying the release of its 21 standard forms related to the business practice changes outlined in the  National Association of Realtors’ (NAR) nationwide commission lawsuit settlement agreement due to a “formal inquiry” by the DOJ.

CAR was previously slated to release these standard forms on Tuesday, along with all of the other new and updated forms it promulgated.

The analysis of the buyer representation and broker compensation agreement was done by Tanya Monestier, a law professor at the University of Buffalo. Under the terms of NAR’s settlement agreement, agents will be required to have a signed buyer representation agreement prior to taking a buyer on a home tour. This requirement goes into effect Aug. 17.

In her analysis, Monestier wrote that “no layperson will be able to understand and appreciate the terms they are agreeing to.” She added that CAR’s agreement seems to “disguise the obligation of the buyer to pay his agent” and that it “telegraphs how Realtors plan to circumvent the NAR Settlement.”

Her analysis also notes problematic provisions in CAR’s contract related to dispute resolution, dual agency, commissions owed and buyer cancellation.

According to the release, the CFA has been told by a “reliable industry source” that CAR has made changes to its form, but it has not shared this with the CFA.

In contrast to CAR’s buyer representation agreement, the CFA found that the buyer broker representation agreement released by eXp Realty is “much simpler, clearer, and pro-consumer than the CAR agreement.”

“The contrast between the CAR and eXp contracts could not be sharper,” Stephen Brobeck, a CFA senior fellow, said in a statement. “The eXp contract is written with the buyer in mind. The CAR contract is written with the interests of the Realtor in mind.”

The CFA noted that it has sent copies of eXp’s agreement to the California attorney general, as well as the attorneys general and real estate regulators of other states, as a model of a pro-consumer buyer contract.

In an emailed statement, a CAR spokesperson stated that while CAR welcomes valid feedback, it feels that this report is, “for the most part, a misguided critique of the forms.” Additionally, the Realtor association noted that the CFA commentary is on an earlier draft of the agreement “that was still a work in progress.”

“CAR has already made changes that address many of the concerns from the CFA,” the spokesperson wrote. “For example, the CFA piece says the form doesn’t comply with the NAR settlement. That is wrong. Both the draft reviewed and the latest draft of the form comply with all practice changes required by the NAR settlement, as well as with California law.

“The CFA also suggests that buyers might expect their agents to represent them even if the buyer says they don’t have enough funds to pay the broker. They suggest that offers of compensation outside the MLS are attempts to circumvent the NAR settlement, even though the settlement explicitly makes clear this is permitted.

“The CFA’s suggestions are absurd. Hardworking buyers’ agents are entitled to be compensated by their clients according to the terms of their agreements. Indeed, that clarity around compensation is the very substance of the NAR settlement. Nearly half the report consists of commentary on punctuation, capitalization, and the author’s opinions on design, rather than substantive legal issues.”

The CAR spokesperson also noted that “consistent forms that cover myriad situations are important so that buyers, sellers and their agents can efficiently manage complex transactions,” and that CAR forms have been “the best in the industry” for decades, “for a number of reasons, from transparency to compliance.”

“CAR continues to work diligently to create new forms that will continue that tradition,” the statement concludes.

This is not the first time the CFA has taken issue with buyer representation agreements. In February, the organization published a critique of more than 40 buyer contracts, identifying many perceived anti-consumer provisions in almost all of them.

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