Washington, D.C. – This morning, the Consumer Federation of America (CFA) released “Proposed Criteria for Evaluating Home Buyer Contract Forms.”  The National Association of Realtor (NAR) Settlement of class action litigation, scheduled for implementation by August 17, requires Realtors to obtain buyer signatures on these contracts.

“These criteria will assist regulators, consumer groups, and the industry itself to assess the fairness of new buyer agreements,” noted Stephen Brobeck, a CFA senior fellow.  “CFA has already shown that some revised contracts are very anti-consumer while others are much fairer to buyers,” he added.

On June 25, CFA released two important related documents.  The first was a “Report on CAR Proposed Buyer Agreement,” written by Tanya Monestier, a law professor at the University at Buffalo Faculty of Law, that found a buyer contract developed by the California Association of Realtors (CAR) to be “virtually unreadable” and “telegraphs how Realtors plan to circumvent the NAR Settlement.”  The second document was a recently issued “Buyer-Broker Representation Agreement” by eXp — in 2022 the largest U.S. residential brokerage firm by number of agents — that CFA called much more understandable and fairer to buyers.

CFA was encouraged to develop the criteria because of requests it received, after the June 25 release, from several real estate companies asking CFA to evaluate their new buyer contracts.

CFA proposes 15 criteria for evaluation.  Four relate to the agreement’s form – is it readable and understandable?  And 11 relate to the contract’s content – is it fair to consumers?

“Understandable agreements have the ability to empower buyers and transform their relationship to agents,” said CFA’s Brobeck.  “These contracts will reveal how buyer agents are compensated and how buyers can negotiate this compensation,” he added.  In the past, fewer than half of buyers reported signing contracts, the contracts often did not explain buyer compensation, and they were signed relatively late in the sales process.

The content related criteria, most with explanatory notes, include the following:

• Brokers have the right to terminate contracts at any time; buyers should have the same right with no fees charged.
• The broker’s fee should be clearly stated, always as a dollar figure or as an hourly rate.  The dollar value of today’s percentage commissions is often underestimated by buyers.  Moreover, buyer agents should not have a financial incentive to be paid more the higher the sale price.
• Any additional fees should always be deducted from the commission paid in a sale.
• Any seller concessions, including a willingness to help pay buyer agent compensation, should be approved by and paid to buyers not their brokers, then used by buyers as they see fit.
• There should be no limitations on buyer remedies.  Buyer contracts should not include mandatory mediation or arbitration clauses.

CFA was encouraged recently when the U.S. Department of Justice decided to investigate CAR buyer and seller agreements, among other forms, and CAR withdrew these forms to make revisions.