Despite recent scrutiny, the California Association of REALTORS® (CAR) has shown a willingness to take feedback and adapt ahead of fast-approaching policy changes slated to hit the industry.
CAR officials announced Wednesday that 30 new and revised forms were released as part of a semi-annual standard forms update. Most notably, the real estate organization has removed listing broker offers of compensation from its forms, a decision made after significant outside scrutiny of planned changes to the forms that critics said could confuse or mislead consumers.
“After careful and thoughtful deliberation, CAR has concluded that members and their clients are best served by making informed compensation decisions without relying on historically common practices,” CAR General Counsel Brian Manson said in a statement.
According to Manson, the change is meant to be proactive, in preparation for practice changes that will take effect on August 17 in accordance with the National Association of REALTORS®’ (NAR) proposed settlement. CAR had previously delayed releasing the forms in response to an inquiry by the Department of Justice.
Among NAR’s changes are the elimination of buyer broker compensation offers on multiple listing services and the requirement that buyer agents obtain a signed agreement with prospective buyer clients before showing them listings.
This has been the subject of unending debate and dialogue industry-wide as brokerages and real estate organizations—CAR included—have worked to create and revamp their consumer-facing forms as the clock ticks down on the much-anticipated deadline.
That has come with its share of growing pains, many have found that the scrutiny the industry has been under isn’t exclusively reserved for the buyer side of the business.
A high-profile example of this scrutiny has involved CAR and the Consumer Federation of America (CFA), which lambasted the real estate organization’s listing agent agreement in another commissioned report.
Much like an earlier critique of CAR’s buyer representation forms, the CFA argued in its report that CAR’s seller side forms were “undecipherable” and claimed they would undermine NAR’s settlement.
“No seller will read this monster of a document—much less be able to understand it,” writes Tanya Monestier, a law professor at the University of Buffalo Faculty of Law, who prepared the report.
“It is unrealistic to think that the average seller will understand anything more than, perhaps, 20% of this document,” she continues. “With a transaction of this magnitude, sellers need to understand exactly what they are agreeing to.”
CAR fired back at CFA’s most recent critique, asserting that the report and commentary were on an earlier draft, similar to its report on the CAR buyer representation agreement draft.
“Moreover, the report contains wild speculations that brokers using CAR forms will try to get around the NAR settlement,” said Manson in a statement. “CAR supports the goals of the settlement and is working to help members have clear conversations with their sellers around compensation options.”
The big picture
Although removing the cooperative compensation element might be the largest change made, the CAR forms had received criticism for other reasons. As with its critique of CAR’s buyer representation agreement, the CFA took issue with the sheer size and complexity of the association’s seller contract. From word count and font size to formatting and cross-referencing, Monestier characterizes the form as incomprehensible for most consumers.
She also criticizes the form for containing “far too much background information on the MLS and various logistical issues.”
“A contract is not the place to spell out what an MLS is, how offers might be presented, or the pros and cons of a seller reading a supplemental offer letter,” Monestier wrote. “Certainly, all this information should be discussed and worked out between the parties. But putting this all in the Listing Agreement serves to detract from more important provisions of the contract, including the compensation and agency provisions.
Monestier also criticized the fairness of the Listing Agreement to sellers, pointing out “problematic features,” which include allegedly steering sellers toward compensating buyer agents or designating a percentage of the listing price as “concessions.”
The report also states that the form “authorizes a seller’s broker to attempt to sign up unrepresented buyers who attend open houses or other property showings.”
“There is a fundamental difference between a dual agency situation arising from an existing client base and a dual agency that is actively pursued and solicited by a seller’s agent,” Monestier writes. “Making buyers sign documents’ refusing representation’ at open houses or showings serves no purpose other than to scare them into signing with the broker.”
While all this controversy only directly affects agents working in California, the process and reaction will be closely watched as the rest of the industry seeks a path forward.
According to CFA Senior Fellow Steven Brobeck, the new CAR listing agreements seek to limit changes proposed by the litigation settlement for some real estate groups.
In a recent statement, he pointed out that CAR’s forms “represent a continuing effort by the industry to thwart the efforts of the DOJ to establish a more price-competitive marketplace.”
In light of the CFA’s criticism of the CAR, Brobeck tells RISMedia that he remains hopeful that the buyer contract scrutiny will force the industry to strongly consider decoupling commissions.
It is still unclear whether that outcome will occur in the foreseeable future, but it has been the position that the CFA has taken on the matter as a longstanding critic of the industry, especially amid past and ongoing litigation focused on the real estate commission structure.
Brobeck believes that the contract is an attempt to preserve the existing compensation system.
“That was (Monestier’s) and the CFA’s major substantive criticism and our major substantive criticism of contracts,” he says. “On the buyer side, we have a great example of a major company that’s come out with a simple, essentially pro-consumer contract, eXp Realty. We’re still looking for good seller contracts, and we haven’t found them, but we’re talking to people about that.”
Manson criticized the report’s notion that there would be “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,” he said. “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 also suggests that the form’s complexity reflects the complexity of California real estate transactions. It is designed to cover several situations and provide clear guidelines that would benefit sellers by addressing all potential issues that can arise.
“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,” he said. “For decades, CAR forms have been the best in the industry for a number of reasons, from transparency to compliance. CAR continues to work diligently to create new forms that will continue that tradition.”
This is a developing story.
