Consumer watchdog releases criteria for evaluating buyer agency agreements

After slamming the California Association of Realtors (CAR) for a draft of its buyer representation agreement, the Consumer Federation of America (CFA) on Tuesday released its proposed criteria for evaluating buyer representation agreements.

The CFA said the proposed criteria was created after the group received requests from several unnamed real estate companies. Stephen Brobeck, a senior fellow at the CFA, created the criteria.

“These criteria will assist regulators, consumer groups, and the industry itself to assess the fairness of new buyer agreements,” Brobeck said in a statement. “CFA has already shown that some revised contracts are very anti-consumer while others are much fairer to buyers.”

The criteria consist of 15 factors real estate leaders should consider when creating a buyer representation contract. The criteria are primarily focused on the form and content of the contract.

Notably, the CFA recommends in the criteria that information about agent compensation should be listed at the beginning of the form and clearly labeled. The watchdog group also recommends that both the broker and the buyer should be able to terminate the agreement at any time without a fee; that 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 use how they see fit.

The criteria also address the form of the buyer contract, recommending that buyer contracts should be written in no less than 12-point font and in plain language.

Additional criteria includes that the contract’s expiration should be clearly stated; that the disclosure of the compensation is negotiable; that the commission is due only if there is a successful closing; that the contract does not act as preapproval of dual agency; and an explanation of how a broker treats a different buyer client who is interested in the same property.

“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.”

In June, the CFA released a report in which it called CAR’s buyer representation agreement “virtually unreadable.” The agreement is required by the business practice changes outlined in the National Association of Realtors’ nationwide commission lawsuit settlement agreement.

The CFA also revealed that it sent the report to the Department of Justice, which had announced days prior that it had launched a formal inquiry into CAR’s forms.

Last week, CAR announced that it plans to release updated forms by the end of this month.