Buyer's agent contract now required by California law

A California bill mandating the use of agreements between a potential home buyer and their real estate, a side effect of the real estate industry commission settlements, has been signed by Gov. Gavin Newsom.

While required in at least 18 states (California would be 19), for most of the country, such agreements have been optional.

The legislation, sponsored by the California Association of Realtors, passed both houses unanimously at the end of August.

Such agreements are an outgrowth of the Aug. 17 implementation by the National Association of Realtors of its settlement over buyer's broker commission payments. Even if not mandated by law, many real estate agents will not work with home purchase prospects unless they sign a contract.

When asked what tactics they might adopt because of the settlement, 43% of agents surveyed by Clever Real Estate said they would have buyers sign a short-term agreement, either for a single showing or for a limited duration.

Until now, California real estate salespeople only had to have a contract with the home seller.

The new law was introduced in the state's assembly by Stephanie Nguyen, D.-Elk Grove. "Without protection, buyers and brokers are susceptible to potential disputes over compensation, legal uncertainties and conflicts of interest," Nguyen testified during a Senate committee hearing on the bill on June 26.

"The California Association of Realtors applauds Gov. Newsom for signing C.A.R.-sponsored bill AB 2992 (Nguyen) into law as part of a package of bills that will strengthen protections for California consumers," said Melanie Barker, the organization's president, in a press release. "By mandating buyer broker representation agreements, consumers will have more choice and more clarity about the services they are getting from the Realtor they choose to help them through a complex transaction."

The agreement would formalize the relationship, including the real estate agent's fiduciary duty to the homebuyer, Anna Buck, CAR's senior legislative advocate, said during the Senate hearing.

"First and foremost, these agreements, which are currently statutorily required in 18 states, provide clear and defined roles and responsibilities between the buyer and their agent," Buck said. "This clarity helps to establish trust and ensures that both parties are on the same page from the outset."

Under the new law, the buyer-broker agreement has a three-month term and cannot be renewed automatically. If it is renewed, it is also limited to three months, and needs to be in writing, signed and dated.