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New Law Requiring All DRE Licensees to Have a Buyer Representation Agreement

by | Jan 10, 2025 | Uncategorized

BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP

Question:   I understand that there is a new law for 2025 requiring all buyer agents to have a buyer representation agreement with their buyer but that the requirements are different from those imposed by the NAR Settlement Agreement which went into effect in August 2024.  What does the new law require and how is it different from how Realtors have been practicing for the past several months?

Answer:  This new law went into effect on January 1, 2025 and is substantially different in several respects from the NAR Settlement.  Also, the new law does not supersede the NAR settlement agreement which remains in effect.

This new law requires a buyer representation agreement to be executed between a buyer’s agent and a buyer “as soon as practicable, but no later than the execution of the buyer’s offer to purchase real property.”  This is different from the NAR Settlement which requires a written buyer representation agreement when “working with a buyer” prior to touring a property.

The term “as soon as practicable” is not defined in the statute, however, the Department of Real Estate is writing a regulation which will add clarity to what that term means.

Some other requirements of this new state law:

  1. This law applies to nearly all types of real estate sales including:
    • Real property improved with 1 to 4 dwelling units including a unit in a stock cooperative, condominium or planned unit development
    • Real property improved with 1 to 4 dwelling units including a unit in a stock cooperative, condominium or planned unit development
    • Commercial real property
    • Vacant land
    • A ground lease coupled with improvements, and
    • A manufactured home or a mobile home when offered for sale or sold through an agent pursuant to the authority contained in Section 10131.6 of the Business and Professions Code.
  2. A manufactured home or a mobile home when offered for sale or sold through an agent pursuant to the authority contained in Section 10131.6 of the Business and Professions Code.
    • A manufactured home or a mobile home when offered for sale or sold through an agent pursuant to the authority contained in Section 10131.6 of the Business and Professions Code.
    • Sale of state or federal land
    • Sale of state or federal land
  3. While the law does not mandate that a certain form must be used, the agreement must include the following terms:
    • Compensation of the real estate broker
    • Services to be rendered
    • When compensation is due
    • Contract termination
  4. Three-month limit: A buyer representation agreement cannot extend longer than three months from the date the agreement was made, except for agreements entered into between a real estate broker and a corporation, limited liability company, or partnership.
  5. Renewals:
    • A buyer representation agreement shall not renew automatically.
    • Any renewal shall be in writing and be dated and signed by all parties to the agreement.
    • Renewals cannot last longer than three months from the date the renewal was made.
  6. Agency Disclosure: The Agency Disclosure (CAR Form AD) must be provided prior to a buyer representation agreement, just as with listing agreements.
  7. Void and Unenforceable: A buyer representation agreement that violates these provisions is void and unenforceable.
  8. Licensing law violation: Any person licensed by the DRE who violates the provisions related to buyer representation agreements is deemed to have violated the licensing law.
  9. Notice regarding negotiability of commissions: Statutory notice that compensation is not fixed by law and is negotiable must be included in all form buyer representation agreements.
  10. Enforcement: This law is enforced by the DRE and can result in a license sanction.  The NAR Settlement is enforced by the local MLSs but not the DRE.

PRACTICE TIPS

  1. Current standard buyer representation agreements from CAR and PRDS meet the requirements of the state law above.
  2. If there is an inconsistency between the NAR Settlement and the state law, the general rule is that the stricter rule prevails. For that reason, all California agents must have a buyer representation agreement for the sale of all property types identified in the law.  Unless and until the state law is clarified in this regard by regulation, agents should have a signed buyer representation agreement at the latest when the agent tours a property with the buyer, either in person or virtually.
  3. All agents should make sure that their buyer representation agreement fully complies with both the NAR Settlement and the state law. If that agreement is not fully compliant with state law, such as it is for more than three months, the agreement is void and unenforceable; and can subject the agent to discipline by the DRE.

WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS.  This Weekly Practice Tip is an attorney-client privileged communication for the exclusive use of clients of Broker Risk Management and their agents.  It may not be reproduced or distributed without the express written consent of Broker Risk Management LLP.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices