After brokerages and MLSs reached out, the Consumer Federation of America developed standards that focused on whether the agreement was readable, understandable and fair to buyers.
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At the request of real estate companies, the nonprofit consumer watchdog the Consumer Federation of America has developed a list of factors to consider when crafting buyer’s contracts in preparation for upcoming changes in industry practices.
The CFA on Tuesday published “recommended standards for evaluating homebuyer contract forms”. The 15 criteria focus on the form of the contract (whether the document is readable and easy to understand) and the content (whether it is fair to the home buyer).
For example, they say compensation arrangements should be at the beginning of the document and clearly marked, both brokers and buyers should be able to terminate the agreement at any time without charge, and buyers should not be required to go to mediation or arbitration if: Leave it to the buyer, not the broker, at the buyer’s discretion.
Steve Brobeck | Consumer Federation of America
“These standards will help regulators, consumer groups and the industry itself assess the fairness of new buyer agreements,” CFA senior fellow Stephen Brobeck said in a statement.
“The CFA has shown that some revised contracts are deeply anti-consumer, while others are fairer to buyers.”
Brobeck told Inman he created the list after several Multiple Listing Services and several brokers seeking CFA’s advice on their new contracts.
He declined to name the companies but said that following CFA reports over the past few weeks, regulators criticized the California Association of Realtors’ two new forms as “anti-consumer”: its Buyer Representation Agreement and its Listing Agreement. At the same time, the CFA praised eXp Realty’s release of a buyer’s agent representation agreement that is easier to understand and fairer for buyers.
Brokerage firms and associations like CAR are developing new transaction forms to incorporate changes in business practices related to proposed nationwide settlements between the National Association of Realtors and home seller plaintiffs in multiple antitrust lawsuits.
The NAR settlement includes several rule changes that will take effect on August 17, including prohibiting listing brokers from compensating buyer agents for servicing multiple listings and requiring brokers and agents to conduct buyer tours of homes.
Regarding the form of the buyer’s contract, four criteria are listed, including length, font size (the CFA requires no less than 12 point font), organization and whether the document is written in plain and understandable language.
There are 11 criteria listed for the content of the buyer’s contract, including:
- Expiry date of documents (CFA advises buyers to ask for a three-month contract and never sign a contract for more than six months)
- Right to terminate contract
- Disclosure compensation is negotiable
- Broker compensation clearly states that a buyer’s broker cannot receive additional compensation for facilitating a sale
- If a sale is successful, any additional costs (such as the cost of showing the home) will be deducted from the agent’s commission
- Commissions are only payable on successful transactions
- The buyer is obliged (the CFA recommends a period of no more than 60 days) to pay the agent who previously showed them the home for purchase after the contract has ended
- Seller offers are paid directly to the buyer
- Dual agency without contract pre-approval
- Explain how an agent treats different buyer clients interested in the same property
- If buyers have complaints, they should not be required to go through mediation or arbitration first
“An easy-to-understand agreement can empower buyers and transform their relationship with their agent,” Brobeck said. “These contracts will reveal how the buyer’s agent is compensated and how the buyer negotiates compensation.”
Read the full CFA standards:
Send an email to Andrea V. Brambila.
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