Washington, D.C. – According to the March 2024 National Association of Realtors (NAR) settlement of class action lawsuits, buyer agents using multiple listing services will be required (by August 17) to obtain buyer signatures on buyer representation contracts.  Since then, industry groups have been rewriting these contracts which until now, most buyers did not sign.

The Consumer Federation of America (CFA) has been evaluating industry buyer contracts over the past several months.  It has learned that many contracts are anti-consumer but also found one that is understandable and much fairer to everyday buyers.

An example of an anti-consumer contract is the draft “Buyer Representation and Broker Compensation Agreement” released by the California Association of Realtors (CAR), one of the largest and most influential Realtor groups in the country.  Tanya Monestier, a law professor at the University at Buffalo Faculty of Law, prepared a detailed evaluation of the CAR draft for CFA (“Report on CAR Proposed Buyer Representation Agreement”) and found that “it is virtually unreadable.  No layperson will be able to understand and appreciate the terms they are agreeing to.”

In evaluating the compensation provision, Monestier concluded that the contract 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 critique also identifies problematic provisions related to dispute resolution, dual agency, commissions owed, and buyer cancellation, among other issues.  Monestier recommends that CAR “jettison the contract in its entirety” and “truly pursue a buyer-friendly agreement that enables home purchasers to understand their rights and obligations.”

This would not be hard to do.  In fact, eXp, a leading national real estate company, just released a “Buyer-Broker Representation Agreement” that is much simpler, clearer, and pro-consumer than the CAR agreement.  This agreement can serve as a model for how Realtor organizations and brokerages can craft an agreement that is much more understandable and fairer to everyday buyers.

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

Two weeks ago, CFA sent to DOJ both Monestier’s critique of CAR’s buyer representation agreement and her critique of CAR’s seller representation agreement (to be released in two weeks).  CFA is now sending the buyer form critique, together with the eXp form, to the California Attorney-General, to other state Attorneys-General, and to state real estate regulators in the hope that these state agencies will require buyer contracts that are pro-consumer.

The CAR form analyzed was dated May 7 and sent to us on May 31.  Since then, according to a reliable industry source, CAR has obtained our analysis and made changes to their form but has not shared these changes with us.  However, CAR recently reported to its members that it is delaying release of many of its forms because DOJ has initiated a “formal inquiry” into these forms.

In February, CFA published a critique of more than 40 buyer contracts (“Required Buyer Agency Contracts: Impacts on Home Buyers”) that identified several anti-consumer provisions in almost all of these contracts.  CFA urges buyers to:

• request a buyer contract in their first communications with an agent,
• after taking time to understand it, perhaps with the help of any attorney, discuss the contract with the agent, especially the agent’s compensation and how that will be paid,
• try to negotiate the buyer agent’s commission down from today’s typical 2.5-3.0 percent level,
• see if the seller will help provide this compensation, keeping in mind that the seller may compensate this loss by raising the home sale price, and
• not sign buyer agreements that look anything like the CAR form.

Monestier has published in leading academic journals, including articles in the areas of real estate and consumer protection.  In the near future, CFA will release an analysis of selling agency contracts that features Monestier’s critique of CAR’s proposed seller listing agreement.