As a real estate attorney, I have witnessed many changes in the industry, but the recent shifts in buyer representation and compensation are particularly noteworthy. These changes are crucial for
both real estate brokers and potential buyers to understand, especially here in California.
The Traditional Approach
In the past, the seller and their listing agent determined the commission for both the seller’s agent and the buyer’s agent when signing the listing agreement. This arrangement often excluded the buyer and their agent from discussions about commission, leaving buyers unaware of how these fees might influence the transaction.
New Practices Post-Settlement
Recent legal settlements have reshaped these practices. Now, buyer’s agents must negotiate compensation directly with their clients rather than relying on the seller’s listing agreement. Key changes include:
- Buyer’s agents must secure a signed representation agreement with their buyer clients before showing properties.
- This agreement must detail the agent’s compensation.
- The agreed-upon amount becomes the maximum the agent may receive for brokerage services, regardless of the source.
California’s New Requirements: AB 2992
In addition to these changes, California’s Assembly Bill 2992 (AB 2992), effective January 1, 2025, further regulates buyer representation. This legislation mandates that:
- Buyer’s agents must sign a buyer-broker representation agreement with their clients as soon as practicable, and no later than when submitting an offer to purchase property.
- The agreement must include:
- The agent’s compensation.
- The services provided.
- When compensation is due.
- An expiration date (not exceeding three months from signing).
This legal requirement differs slightly from trade association practices, which require agreements before property tours.
Buyer’s Compensation Options
Under the new rules, buyers and their agents must clearly define compensation terms. While the buyer is ultimately responsible for their agent’s fees, they have several options:
- Pay out-of-pocket.
- Request that the seller contribute to the agent’s compensation as a seller concession.
- Negotiate the purchase price to offset compensation costs.
- Proceed without representation or negotiate dual agency with the seller’s agent if terms cannot be agreed upon.
If no agreement is reached and the out-of-pocket costs are prohibitive, buyers may choose to walk away from the transaction.
Enforcement and Best Practices
The California Department of Real Estate (DRE) will enforce compliance with AB 2992 and related laws. Agents should adhere to the following best practices to avoid legal pitfalls:
- Provide clear, written agreements regarding compensation.
- Ensure buyers understand their financial responsibilities.
- Avoid misrepresenting commission terms, as commissions are fully negotiable in California.
- Give buyers adequate time to review contracts before signing.
Why These Changes Matter
These evolving rules prioritize transparency and fairness in real estate transactions. By requiring written agreements and clear communication, the industry aims to reduce misunderstandings and ensure all parties are aware of their obligations.
Need Legal Guidance?
Navigating these changes can be complex. If you have questions about buyer representation, compensation, or compliance, don’t hesitate to reach out.
Mitch Abdallah
Real Estate Attorney
Abdallah Law Group
