A tale of two buyer agreements, and why one triggered the DOJ
The Consumer Federation of America blasted C.A.R.’s agreement but praised eXp’s contract. A CFA Fellow told Real Estate News he was “stunned” by the contrast.
Key points:
- After reviewing dozens of buyer agreements, the CFA called out C.A.R.’s as “virtually unreadable,” alleging that some provisions appear “to circumvent the NAR Settlement.”
- The CFA said eXp’s agreement, on the other hand, was “fundamentally pro-consumer.” eXp CEO Leo Paraje agreed, saying “consumers will tell you if you hit the mark or not.”
- A CFA researcher called real estate associations a source of “blockage,” pointing to unfriendly buyer agreements as an example of the industry’s “resistance to change.”
Buyer agency agreements will soon become standard operating procedure for real estate agents, with NAR rule changes taking effect in August. In the lead-up to that deadline, newly drafted buyer agreements are being reviewed — and scrutinized — by industry watchers and the Department of Justice.
Many in the industry have praised the buyer agreement mandate as pro-consumer, saying it will provide much-needed transparency to homebuyers who may not have fully understood how their agent was being compensated (or who was actually paying them). Some have also argued that signed agreements formalize the business relationship, offering greater protections for agents.
But the Consumer Federation of America (CFA) says it has reviewed more than 40 buyer agent agreements and found they are not all created equal — calling out what it describes as "anti-consumer" qualities and language in some.
CFA criticized C.A.R. agreement as 'unreadable,' sent concerns to DOJ
The organization highlighted one buyer agreement — the draft agreement from the California Association of Realtors — as being particularly anti-consumer. In a scathing report analyzing the C.A.R. draft agreement, law professor Tanya Monestier described the four-page contract as being "far too disorganized and complex for the average homebuyer to understand" and characterized the format — small print with "general overall clutter" — as "virtually unreadable."
But perhaps more troubling is the allegation that the C.A.R. agreement "disguises the obligation of the buyer to pay his agent" and "contains compensation provisions that telegraph how Realtors plan to circumvent the NAR Settlement."
CFA Senior Fellow Stephen Brobeck told Real Estate News that his team sent the critiques of the C.A.R. buyer agency agreement to the DOJ "several weeks ago." Last week, C.A.R. disclosed that the DOJ had launched a formal inquiry into the association, which appears to be focused on new forms C.A.R. had drafted in response to the NAR settlement. C.A.R. said it was delaying the release of those forms as a result of the investigation.
But Brobeck stopped short of suggesting that the CFA's research and memo on buyer agreements led to the DOJ action.
"We communicate with the DOJ, but they don't communicate with anybody outside of the DOJ, so we don't know what the specific concerns are, except they really do want there to be an uncoupling and separation of the buyer and the seller commissions," he said. "And clearly, the California contracts don't do that, so that will certainly be a focus of the DOJ."
Brobeck also said he believes the additional eyes on C.A.R. will make "people who write contracts be a little more cautious" going forward.
C.A.R. General Counsel Brian Manson pushed back, calling the report "a misguided critique of the forms" based on an earlier draft of the agreement "that was still a work in progress."
Manson also noted that much of the report was focused on issues of style "rather than substantive legal issues," and said the CFA's suggestion that the association is trying to circumvent the NAR settlement is "wrong" and "absurd."
eXp provides a model, but ultimately consumers may drive changes
When asked how C.A.R. could make their buyer agreement more consumer-friendly, Brobeck suggested they could model it after eXp's much simpler one-and-a-half page agreement, which Brobeck and the CFA described as being "fundamentally pro-consumer."
"I was just so stunned when I saw that eXp agreement. It's so different in every way from the California [draft contract]," Brobeck told Real Estate News. "That just reveals how resistant to change much of the traditional industry is."
In addition to its brevity and legibility, Brobeck said eXp's buyer agreement more clearly aligns with the spirit of the NAR settlement and the goal of establishing a higher level of professionalism in the real estate industry. Brobeck argues that it is agents "who don't act like professionals" who use complexity and ambiguity to take advantage of consumers.
Naturally, eXp Realty CEO Leo Pareja would agree.
"I often say that 'legal, ethical and within the new rules of engagement' — those are like my North Stars," Pareja told Real Estate News. "We gave it to our agents in the field as soon as possible, and they've already given us feedback on how to make it better. And consumers will tell you if you hit the mark or not."
Pareja said providing a clear, concise contract to agents and consumers is "capitalistic" in the sense that a straightforward agreement creates the "least friction" and ultimately "the best consumer experience."
When asked if NAR should create a standard buyer agency agreement that could be used nationwide, Brobeck said he also likes "marketplace competition" and wants to see which brokerage or association's model ends up working best for consumers.
"Unfortunately, the associations here are where the blockage has occurred — or what's holding things back, it appears," he said. "But there is a crack in the door, and now there's an opportunity to achieve some change."