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First it came for buyer agreements. Now, the Consumer Federation of America, a consumer watchdog group, has its eye on homeseller listing agreements.
A new California Association of Realtors listing agreement drafted in the wake of a nationwide settlement of antitrust commission suits is “confusing,” “substantively unfair” to sellers and threatens to undermine the intent of the settlement, according to a report commissioned by the watchdog group and released Tuesday.
The CFA released its second report scrutinizing transaction forms drawn up by C.A.R. after the National Association of Realtors reached a proposed settlement agreement whose primary change is that listing brokers will no longer be able to make pre-emptive offers of compensation to buyer brokers through multiple listing services.
The first report took aim at C.A.R.’s new buyer agreement while the second examines the trade group’s new seller listing agreement, which, the CFA notes, is seven pages long, runs nearly 7,000 words in single-spaced 11-point font, has at least 75 cross-references, and contains many grammatical and syntax errors.
Tanya Monestier | University of Buffalo
“No seller will read this monster of a document — much less be able to understand it,” wrote University of Buffalo contracts law professor Tanya Monestier, who also wrote the first report. “The author, a tenured law professor who has been teaching Contract Law for fifteen years, had difficulty getting through the document.”
“There is no reason why a residential listing agreement must be this complicated and confusing,” Monestier added. “The best course of action would be for the California Association of Realtors to abandon this Listing Agreement in its entirety and start from scratch.”
In a statement, C.A.R. General Counsel Brian Manson told Inman the CFA report is based on “an earlier draft of the agreement that was still a work in progress, and spends an inordinate amount of time examining grammar, formatting, and design in an early draft of the form.”
“The assertion that the agreement is overwhelming and unlikely to be read or understood by the average seller underestimates the capabilities and responsibilities of both sellers and their real estate agents,” Manson added.
“The complexity of the agreement reflects the complexity of California real estate transactions. The agreement is designed to cover various scenarios and provide clear guidelines, which ultimately benefit the seller by ensuring that all potential issues are addressed upfront.
“Sellers are not left to navigate these complexities alone; their real estate professional is there to guide them through each provision, ensuring they fully understand the terms before agreeing to them.”
C.A.R. objected to the report’s assertion that the form has too much information about what sellers can expect regarding marketing their home.
“Instead, we think information about the MLS and the offer process helps educate the seller and makes the form more consumer friendly,” Manson said.
In June, C.A.R. postponed release of its new forms due to a U.S. Department of Justice inquiry. In a statement Tuesday, CFA outlined its own role in precipitating that probe. The nonprofit said it had written to the DOJ in April criticizing C.A.R.’s new seller agreement for “seeming to allow clauses in almost all current listing contracts that require broker commission sharing” that “would seem to make it considerably easier for Realtors to continue practices that fix commissions.”
The nonprofit suggested “these contracts should be changed to remove all references to broker commission sharing” and in May urged the DOJ to issue a civil investigative demand — a type of administrative subpoena — to C.A.R. in order to obtain information about the form. On June 10, CFA sent a copy of Monestier’s report on the form to the DOJ, which the watchdog is now releasing publicly.
The report does not mince words, calling concessions fields “a blatant attempt to get around the NAR Settlement provision that prohibits offers of compensation on the MLS.”
“It is interesting that the concession field specifies a percentage of the purchase price as the first option,” the report says. “It would not be surprising to see the number ‘2.5%’ or ‘3%’ routinely populate this field.”
“When one MLS in California recently announced this new concession field, brokers on an online forum admitted that this was ‘the new commission field’ and appeared to be a ‘loophole’ that would subject NAR to further legal scrutiny,” the report adds.
The report also said some of the listing agreement’s provisions are “substantively unfair” to sellers.
“For example, the Listing Agreement authorizes a seller’s broker to attempt to sign up unrepresented buyers who attend open houses or other property showings,” the report says.
“In other words, the Listing Agreement functions to pre-authorize a conflict of interest that the realtor plans to create. The NAR Settlement, which precipitated these form changes, did not envision a seller’s broker using the ‘requirement’ for buyer representation agreements to his advantage to secure clients.”
The report also outlines “other problematic features” in the contract: “it steers sellers in the direction of compensating buyer’s brokers, it specifically asks sellers if they would be willing to consider designating a percentage of the list price as ‘concessions’ (thus making ‘concessions’ the new realtor compensation field), it does not lay out the compensation options clearly, it has a field for additional compensation to the broker if the buyer is unrepresented, and it contains statements that commissions ‘may be negotiable’ rather than ‘are fully negotiable.’”
Manson said the CFA report “contains wild speculations that brokers using C.A.R. forms will try to get around the NAR settlement. C.A.R. supports the goals of the settlement and is working to help members have clear conversations with their sellers around compensation options.”
“For decades, C.A.R. forms have been the best in the industry for a number of reasons, from transparency to compliance,” Manson added. “C.A.R. continues to work diligently to create new forms that will continue that tradition.”
CFA noted that, although C.A.R. had delayed release of the new seller contract, the form represents the type of document other Realtor associations are developing and said CFA and Monestier will continue to examine any new such agreements issued by real estate trade groups.
Stephen Brobeck
“For some industry groups, the new listing agreements seek to limit changes proposed by the litigation settlement,” said Stephen Brobeck, a CFA senior fellow, in a statement.
“The agreements also represent a continuing effort by the industry to thwart the efforts of DOJ to establish a more price-competitive marketplace.”
CFA offered this advice to homesellers:
- “Request the seller agreement in the first communications with a listing agent.
- Make sure to take enough time to understand the agreement, perhaps with the help of an attorney, then discuss the contract with the agent, especially how agent compensation will be paid.
- Try to negotiate the listing agent’s commission down from today’s typical 2.5-3.0 percent level.
- Resist the listing agent’s advice to offer specific compensation to the buyer agent but consider indicating to the buyer that you would consider helping them bear this expense in exchange for a higher list price.
- If you do agree to offer compensation to the buyer’s agent, ensure that any excess reverts back to you, not the listing agent.
- If the contract is not satisfactory, refuse to sign it. Talk to other agents or consider selling the property yourself with the help of an attorney you have retained.”
Read the report:
Editor’s note: This story has been updated with comments from C.A.R. and with the final version of the CFA report.