BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Broker Risk Management (“BRM”) has received a number of questions regarding the requirements to have a buyer representation agreement under the NAR settlement as compared with the new California law requiring a buyer representation agreement. The following clarifies the differences.
The NAR settlement requires a buyer representation agreement for the sale of residential property containing one to four units by a member of NAR (i.e., Realtor) or is otherwise a member of a Multiple Listing Service that is associated with NAR. The NAR settlement does not apply to residential properties with 5 or more units or commercial properties. The NAR settlement requirements became effective August 17, 2024, or earlier if your MLS implemented the NAR settlement protocols earlier.
The California legislature recently passed AB 2992 which will require a written buyer representation agreement, “As soon as practicable, but no later than the execution of the buyer’s offer to purchase real property.” That law goes into effect on January 1, 2025. The law will apply to the following properties:
- Real property improved with one to four dwelling units including a unit in a stock cooperative, condominium or plan unit development.
- Multi-unit residential property with more than one dwelling unit.
- Commercial real property.
- Vacant land.
- A ground lease containing improvement.
- Manufactured home or mobile home when offered for sale or sold through an agent pursuant to the authority contained in §10131.6 of the Business & Professions Code.
AB 2992 will not apply to the following:
- Leases and rental agreements
- Sale of state or federal land
- Loan brokering services
The “soon as practicable” language is identical to the requirement of an agent providing a buyer with an Agency Disclosure pursuant to Civil Code §2079.14(a)(2). The most prudent means of approaching these requirements is to consider that the stricter rule will apply.
The new law does not specify a particular form for a buyer representation agreement, but the agreement must include the following:
- Compensation of the real estate broker
- Services to be rendered
- When compensation is due
- Contract termination
A buyer representation agreement is limited to 3 months or less unless the buyer is a corporation, limited liability company, or partnership. Further, such agreement:
- Cannot renew automatically;
- Any renewal must be in writing and be dated and signed by all parties to the agreement; and
- Any renewal must be in writing and be dated and signed by all parties to the agreement; and
PRACTICE TIPS:
- Between now and December 31, 2024, the only requirement for a buyer representation agreement is set forth in the NAR settlement applying to residential property, one to four units.
- Effective January 1, 2025, a buyer representation agreement will be required for all residential property except for leases, the sale of governmental land, and loan brokering services. The representation of a buyer in all other properties will require a buyer representation agreement.
- Effective January 1, 2025, the buyer representation agreement must be executed as soon as practicable, but before an offer is written on the property.
- This new law will require that an Agency Disclosure form be signed no later than the signing of the buyer representation agreement, just as has been required before the signing by a seller of a listing agreement, or before the signing by a buyer of a purchase agreement.