Real Estate Brokerage

SELLER BEWARE: NEW CONTRACTS THREATEN TO CONFUSE HOME SELLERS AND UNDERMINE THE INTENT OF THE PROPOSED LITIGATION SETTLEMENT

CFA Releases a New Detailed Evaluation of a Major Proposed Home Seller Listing Agreement

 |  Press Release

Washington, D.C. – On June 21, the California Association of Realtors (CAR) informed its members that in response to a “formal inquiry” initiated by the U.S. Department of Justice (DOJ), the association was delaying its planned release of 21 new forms.  Before then, these forms, especially proposed seller and buyer agreements, had received criticism both from within the industry and from the Consumer Federation of America (CFA).

In April, CFA had written to DOJ criticizing CAR’s proposed seller agreement for “seeming to allow clauses in almost all current listing contracts that require broker commission sharing” that “would seem to make it considerably easier for Realtors to continue practices that fix commissions.”  CFA recommended that “these contracts should be changed to remove all references to broker commission sharing.”  In May, CFA again wrote to DOJ urging the agency to issue a Civil Investigative Demand (CID) to CAR “requesting information about their new proposed residential listing agreement (RLA) form, which we believe would help perpetuate the sharing of commissions between listing and buyer agents.”

On June 10, CFA sent to DOJ two extensive evaluations, totaling 38 pages, of CAR’s proposed seller and buyer agreements that dated from May.  The two critiques had been prepared for CFA by Tanya Monestier, a law professor at the University at Buffalo Faculty of Law who teaches contracts.  On June 25, CFA had released the Report on CAR’s Proposed Buyer Representation Agreement to the press.  Today, CFA is releasing to the press Monestier’s Report on CAR’s Proposed Seller Listing Agreement that evaluates CAR’s proposed Residential Listing Agreement.

As with the buyer document, Monestier criticized the proposed seller agreement as unreadable and incomprehensible.  She wrote: “No seller will read this monster of a document – much less be able to understand it.  The author, a tenured law professor who has been teaching Contract Law for fifteen years, had difficulty getting through the document.”

Monestier also criticized the content of the document as unfair to consumers.  For example, “the Listing Agreement authorizes a seller’s broker to attempt to sign up unrepresented buyers who attend open houses or other property showings.  In other words, the Listing Agreement functions to pre-authorize a conflict of interest that the realtor plans to create.”

Monestier’s critique also identified other “problematic features” of the listing agreement, including:

  • steering sellers in the direction of compensating buyer brokers,
  • specifically asking sellers if they would be willing to consider designating a percentage of the list price as “concessions” (thus making “concessions” the new Realtor compensation field),
  • not clearly laying out the compensation options,
  • mandating mediation in the event of a dispute, and
  • telegraphing that listing brokers will attempt to secure contracts with buyers, creating a dual agency relationship with buyer and seller (illegal in eight states) in which sellers lose fiduciary representation.

While CAR has withdrawn this seller form, it represents the type of document being developed by other Realtor groups.  “For some industry groups, the new listing agreements seek to limit changes proposed by the litigation settlement,” noted Stephen Brobeck, a CFA senior fellow.  “The agreements also represent a continuing effort by the industry to thwart the efforts of DOJ to establish a more price-competitive marketplace.”

Throughout the summer, Monestier and CFA will continue to research and evaluate new buyer and seller agreements issued by Realtor associations and other industry groups.  The industry timetable is for these forms to be in place by August 17.  However, DOJ statements and its formal inquiry may delay their use or ensure that the forms remain the subject of much controversy.

Advice to Home Sellers:

CFA’s advice to home sellers confronting these contracts is similar to that CFA offered home buyers:

  • Request the seller agreement in the first communications with a listing agent.
  • Make sure to take enough time to understand the agreement, perhaps with the help of an attorney, then discuss the contract with the agent, especially how agent compensation will be paid.
  • Try to negotiate the listing agent’s commission down from today’s typical 2.5-3.0 percent level.
  • Resist the listing agent’s advice to offer specific compensation to the buyer agent but consider indicating to the buyer that you would consider helping them bear this expense in exchange for a higher list price.
  • If you do agree to offer compensation to the buyer’s agent, ensure that any excess reverts back to you, not the listing agent.

If the contract is not satisfactory, refuse to sign it.  Talk to other agents or consider selling the property yourself with the help of an attorney you have retained.