California lawmakers are considering a bill that would limit homebuyer-agent contracts required under the national Realtor settlement to three months.
If the bill passes, California would become one of at least 20 states with mandatory buyer-broker contract laws.
“Without legal protection, buyers and brokers are susceptible to potential disputes over compensation, legal uncertainties and conflicts of interest,” said the bill’s author, Assemblymember Stephanie Nguyen, D-Elk Grove, during a committee hearing in June.
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Currently, sellers sign listing agreements, consenting to pay both buyer and seller commissions when their transaction closes.
But the vast majority of buyers purchase a home without signing an agreement with their agents.
Just 41% of U.S. homebuyers had a written agreement with their agents as of June 2023, according to NAR’s most recent “Profile of Home Buyers and Sellers,” which was based on a survey of 6,817 buyers. Among first-time buyers, just a third had written agreements, the survey showed.
That will change under the National Association of Realtors’ proposed legal settlement, effective by Aug. 17, which shifts responsibility for paying buyer agents to buyers themselves, unless they can get sellers to cover those costs.
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Under the pact, NAR will abolish its longstanding rule requiring sellers to say how much they’ll pay a buyer’s agent when posting their home on the multiple listing service, or MLS. Instead, such offers will be banned from the MLS database of homes for sale.
In addition, buyers must sign representation agreements before their agent can begin showing them homes.
Under Assembly Bill 2992, state law would also mandate such contracts.
The agreements would end automatically after three months unless both sides agree in writing to extend it or unless the buyer is a corporation, LLC or partnership.
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The contacts must be signed before buyers can bid on a home, and must spell out agent compensation, when payment is due, services to be rendered and the contract’s end date.
As of July, 19 U.S. states require buyer representation agreements, including Washington, Pennsylvania, Minnesota and Maryland, according to WERC, which advises relocated workers on buying homes, among other things.
A similar law will take effect in Oregon next year. If passed, AB 2992 also would take effect Jan. 1.
The measure already won approval from the state Assembly and two Senate committees without opposition.
But with the legislature scheduled to adjourn Aug. 31, the bill still needs to go through a “suspense” hearing, a process required for bills with a fiscal impact of $150,000 more to a state special fund.
The state Department of Real Estate estimated that enforcement and administrative costs would total more than $800,000 a year.
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