The National Association of Realtor’s settlement of a class action lawsuit, scheduled to be carried out by August 17, requires realtors to obtain buyer signatures on home buyer contracts.
The $418 million settlement did away with the traditional agent’s commission of 5-6 percent, which should lead to more negotiation, more competition, and lower costs.
Consumers will have more opportunity to shop around for a realtor.
It may be possible for sellers to ask for a flat fee to market their house, a fee that has no connection to the selling price. For buyers, they could only pay for some services and leave out others such as being driven around to look at houses.
Or a seller might decide not to pay the buyer’s agent, so the buyer would need to pay their agent or perhaps not have an agent.
It’s very important that consumers read these new home buyer contract forms carefully.
The Consumer Federation of America has released criteria for evaluating the forms.
“These criteria will assist regulators, consumer groups, and the industry itself to assess the fairness of new buyer agreements,” Stephen Brobeck, a CFA senior fellow, said in a statement. “CFA has already shown that some revised contracts are very anti-consumer while others are much fairer to buyers.”
The CFA said a study showed the buyer contract developed by the California Association of Realtors or CAR to be “virtually unreadable” and “telegraphs how Realtors plan to circumvent the NAR Settlement.” However, the CFA called a contract issued by eXp – the largest U.S. residential brokerage firm – much more understandable and fairer to buyers.
The CFA proposes 15 criteria for evaluation. Four relate to the agreement’s form – Is it readable and understandable? And 11 relate to the contract’s content – Is it fair to consumers?
“Understandable agreements have the ability to empower buyers and transform their relationship to agents,” said Brobeck. “These contracts will reveal how buyer agents are compensated and how buyers can negotiate this compensation.”
In the past, less than half of buyers reported signing contracts, the contracts often didn’t explain buyer compensation, and they were signed late in the sales process.
The contract criteria being recommended by the CFA includes the following:
- Brokers have the right to terminate contracts at any time; buyers should have the same right with no fees charged.
- The broker’s fee should be clearly stated, always as a dollar figure or as an hourly rate. The dollar value of today’s percentage commissions is often underestimated by buyers. In addition, buyer agents shouldn’t have a financial incentive to be paid more the higher the sale price.
- Any additional fees should always be deducted from the commission paid in a sale.
- Any seller concessions, including a willingness to help pay buyer agent compensation, should be approved by and paid to buyers not their brokers, then used by buyers as they see fit.
- There should be no limitations on buyer remedies. Buyer contracts shouldn’t include mandatory mediation or arbitration clauses.
The U.S. Department of Justice investigated the CAR buyer and seller agreements, among other forms, and CAR withdrew these forms to make revisions, Brobeck said.
