After brokerages and MLSs reached out, the Consumer Federation of America created criteria focused on whether agreements are readable, understandable, and fair to buyers.

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After requests from real estate companies, nonprofit consumer watchdog the Consumer Federation of America has developed a list of factors to consider when creating a buyer contract in preparation for upcoming practice changes in the industry.

CFA released its “Proposed Criteria for Evaluating Home Buyer Contract Forms” on Tuesday. The 15 criteria focus on the contracts’ form — whether the documents are readable and understandable — and content — whether they are fair to homebuyers.

For instance, they say compensation arrangements should be at the beginning of a document and clearly labeled, both brokers and buyers should be able to terminate the agreement at any time without fees, buyers should not be required to go into mediation or arbitration if there is a dispute, and that any seller concessions should go to buyers, not brokers, to dispose of at their will.

Steve Brobeck | Consumer Federation of America

“These criteria will assist regulators, consumer groups, and the industry itself to assess the fairness of new buyer agreements,” said Stephen Brobeck, a CFA senior fellow, in a statement.

“CFA has already shown that some revised contracts are very anti-consumer while others are much fairer to buyers.”

Brobeck created the list after several multiple listing services and several brokers sought CFA’s advice about their new contracts, he told Inman.

He declined to name the companies, but said they had reached out in the wake of CFA’s reports of the last few weeks in which the watchdog criticized two of the California Association of Realtors’s new forms as “anti-consumer”: its buyer representation agreement and its listing agreement. At the same time, CFA praised a buyer broker representation agreement issued by eXp Realty as more understandable and fairer to buyers.

Brokerages and associations such as C.A.R. are developing new transaction forms in order to incorporate business practice changes associated with a proposed nationwide settlement between the National Association of Realtors and homeseller plaintiffs in multiple antitrust lawsuits.

The NAR settlement includes several rule changes set to go into effect on August 17, including a prohibition on listing brokers making offers of compensation to buyer brokers on multiple listing services and a requirement that brokers and agents sign contracts with buyers they are working with before a buyer tours a home.

There are four criteria listed in regard to the form of the buyer contracts, including their length, type size (no less than 12-point font, CFA says), organization, and whether the document is written in plain language.

There are 11 criteria listed in regard to the content of the buyer contracts, including:

  • the document’s expiration date (CFA recommends buyers asks for a three-month contract and never sign one longer than six months)
  • the right to terminate the contract
  • the disclosure that compensation is negotiable
  • the broker’s compensation clearly stated and that the buyer broker can’t receive additional compensation for facilitating a sale
  • that any additional fees, such as for showing a home, will be deducted from the broker’s commission if there is a successful sale
  • that the commission is due only if there is a successful closing
  • that buyers have an obligation — for no longer than 60 days, CFA recommends — to pay a broker who earlier showed them a home they purchased after the contract ended
  • seller concessions paid directly to buyers
  • dual agency not pre-approved by the contract
  • an explanation of how a broker treats different buyer clients interested in the same property
  • that buyers should not be required to first go through mediation or arbitration if they have a complaint

“Understandable agreements have the ability to empower buyers and transform their relationship to agents,” Brobeck said. “These contracts will reveal how buyer agents are compensated and how buyers can negotiate this compensation.”

Read the CFA’s full criteria:

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