Consumer watchdog shares its recipe for buyer agreements 

The Consumer Federation of America is back, this time with recommendations for brokerages and organizations working to create new and revised buyer agency agreements ahead of the August 17 deadline.

The watchdog group has been keeping a close eye on buyer agreements and other consumer-facing real estate forms in recent weeks, offering harsh criticism of some and praising others.

Now, the CFA is providing specific guidelines intended "to assess the fairness" of buyer agreements. 

A buyer agreement checklist

The CFA created a list of 15 items that can help ensure buyer agreements are readable, transparent and fair to consumers. 

The first four criteria are focused on structure and readability:

• Overall length: The CFA didn't specify how long the contract should be, but applauded eXp's short, one-and-a-half page agreement last month.

• Type size: The CFA said anything smaller than 12-point font "will be difficult for some people to read."

• Organization: The most important aspects of the agreement, such as compensation, "should be at the beginning of the document and clearly labeled."

• Plain language: "The contract should be written so that it can be understood by home buyers," the CFA wrote, adding that complex lawyer-speak should be avoided. 

The CFA also laid out 11 specific items that should be included in a buyer agreement:

• Length of contract term

• Termination of contract

• Disclosure that compensation is negotiable

• Commission or compensation amount

• Additional fees related to compensation

• When compensation is to be paid

• Continuing obligation to compensation (if relevant)

• Seller concessions

• Dual agency disclosure

• Conflict of interest

• Buyer remedies 

Focus on readability first

"If the forms don't meet the first four criteria, there's no way for consumers to practically understand whether the forms meet any of the other criteria," CFA Senior Fellow Stephen Brobeck told Real Estate News, reiterating the importance of readability and fairness. 

In coming up with their recommendations, Brobeck and CFA researchers reviewed more than 40 buyer agreements, and in the process, singled out the California Association of Realtors — specifically its four-page draft buyer agreement the group described as "far too disorganized and complex for the average homebuyer to understand." Additionally, the CFA criticized C.A.R.'s 7,000-word, seven-page listing agent contract.

Brobeck said that after receiving scrutiny from the CFA and DOJ, C.A.R. has "made significant improvements to the content of their forms," but noted that the watchdog group was still evaluating the changes.  

NAR, associations should do more: 'This is the time to fix the forms'

Brobeck believes NAR could be doing more to help state associations and regional MLSs understand and determine how to craft new contracts.

"It appears to me the industry is being trapped by the state associations and their attorneys, and that the national office is not pushing hard enough on the states to dramatically improve some of the contracts we've seen," he said. "The national office has got to take constructive leadership on this issue and make it a priority to ensure that the forms are consumer-centric."

Separately, Brian Schneider, legal counsel for Bright MLS, suggested that brokers hire their own lawyers to review draft forms and agreements and also felt that associations could be doing better.

"I do not believe associations nationwide — some will — are doing the forms right. And if you don't do it right, you're absolutely inviting the problem [of more lawsuits]," he said last month at a conference for real estate journalists in Austin. 

"I've seen forms that haven't been updated in a decade. I'm baffled that more litigation hasn't come. I think this is the time to fix the forms."