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A for sale sign outside a home in Denver. The Consumer Federation of America is warning home buyers that the contracts they will soon be required to sign for representation by a buyer’s agent might not always work in the buyer’s favor.
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Consumer group warns homebuyers: Beware new contracts with buyer agents

David Zalubowski/Associated Press

Consumer group warns homebuyers: Beware new contracts with buyer agents

The Consumer Federation of America is urging home buyers to beware of the contracts they soon will be required to sign for representation by a buyer’s agent.

Buyer agents using multiple listing services will be required by Aug. 17 to obtain buyer signatures on buyer representation contracts, which according to the CFA, might not always work in the buyer’s favor.

“The Consumer Federation of America has been evaluating industry buyer contracts over the past several months. It has learned that many contracts are anti-consumer,” the CFA statement said.

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But the consumer watchdog organization also “found one buyer contract that is understandable and much fairer to everyday buyers.”

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The real estate industry as a whole is still reeling from the National Association of Realtors class action settlement reached in March, which found the industry conspired to keep commissions artificially high and forced home sellers to pay the commission of the seller and buyer agent.

The landmark settlement ends the practice of sellers paying a 6% commission that was split 3% each between the buyer and seller agent. Buyers will have to pay their own agents’ commission. However, homebuyers and home sellers can negotiate how much they pay their agents going forward.

Buyer agents will now receive their compensation from the buyer — if the buyer chooses to use an agent — which is why the industry is creating the contracts to ensure that buyer agents get paid either by commission or fees.

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The CFA pointed to one buyer agreement released by the California Association of Realtors that is “virtually unreadable.”

“No layperson will be able to understand and appreciate the terms they are agreeing to,” said Tanya Monestier, a law professor at the University of Buffalo Faculty of Law who evaluated the California agreement for the CFA.

Ms. Monestier concluded that California’s contract seems to “disguise the obligation of the buyer to pay his agent,” and that it “telegraphs how realtors plan to circumvent the NAR settlement.”

Her critique also identifies problematic provisions related to dispute resolution, dual agency, commissions owed and buyer cancellation, among other issues. She recommends California start all over and rewrite an agreement that will better allow home purchasers to understand their rights and obligations, according to the CFA.

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On the other hand, EXP real estate company has released a buyer agreement that is much simpler, clearer, and pro-consumer, the CFA said.

“This agreement can serve as a model for how realtor organizations and brokerages can craft an agreement that is much more understandable and fairer to everyday buyers,” the CFA said.

The CFA recently examined 43 buyer-agency contracts in 37 states — including the Pennsylvania Association of Realtors. The group found the Pennsylvania Association of Realtors model contract was “not the worst, but still not great.”

Consumer advocates pointed out that in the Pennsylvania contract, homebuyers have no ability to sue a real estate agent, and buyers are unable to get out of agreements if they want to.

Pennsylvania homebuyers are instead required to go through arbitration. But consumers are less likely to want to shoulder the expense and aggravation of arbitration, which will deter them from ever litigating a matter, consumer advocates said.

The CFA has sent the California buyer agreement critique as well as the EXP form to the California attorney general, to other state attorneys general and to state real estate regulators in the hope that these state agencies will require buyer contracts that are pro-consumer.

Stephen Brobeck, a CFA senior fellow, summed up the comparison between the two-buyer contracts.

“The contrast between the [California Association of Realtors] and EXP contracts could not be sharper,” Mr. Brobeck said. “The EXP contract is written with the buyer in mind. The CAR contract is written with the interests of the realtor in mind.”

Tim Grant: tgrant@post-gazette.com or 412-779-5834

First Published: June 26, 2024, 9:30 a.m.
Updated: June 27, 2024, 6:22 p.m.

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A for sale sign outside a home in Denver. The Consumer Federation of America is warning home buyers that the contracts they will soon be required to sign for representation by a buyer’s agent might not always work in the buyer’s favor.  (David Zalubowski/Associated Press)
David Zalubowski/Associated Press
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