As the real estate landscape continues to evolve, agents and brokers must adapt to new regulations requiring buyer representation agreements. Both the NAR settlement requirements (effective August 2024) and California’s new AB 2992 law (effective January 2025) introduce stricter rules for these agreements, ensuring transparency and protecting all parties in a transaction.
Here’s a deeper look at what these changes mean for you and how they’ll impact your transactions in California.
Understanding the NAR Settlement Requirements
Under the NAR settlement, Realtors® and members of Multiple Listing Services (MLS) affiliated with NAR are required to execute a buyer representation agreement for residential transactions involving one to four units. This rule became effective on August 17, 2024, or earlier if your local MLS implemented the protocols sooner.
However, the NAR settlement does not apply to:
Properties with five or more residential units.
Commercial real estate transactions.
For a broader look at the changes stemming from the NAR settlement, read our blog on How the NAR Settlement Has Changed Buyer’s Agent Compensation
California’s AB 2992: A New Mandate for Buyer Representation
Effective January 1, 2025, California’s AB 2992 expands the requirement for buyer representation agreements to include nearly all property types. This law applies to:
Residential properties (one to four units, including condos and stock cooperatives).
Multi-unit residential properties with more than one dwelling unit.
Commercial real estate.
Vacant land.
Ground leases with improvements.
Manufactured homes and mobile homes sold through an agent under Business and Professions Code §10131.6.
AB 2992 mandates that a buyer representation agreement must be signed "as soon as practicable" but no later than the execution of the buyer’s offer. This aligns with the timeline for signing Agency Disclosure Forms under Civil Code §2079.14(a)(2).
For details, view the full bill here: California AB 2992
What Does a Buyer Representation Agreement Require?
Under AB 2992, the agreement must include:
Broker Compensation: Clearly outlined payment terms.
Services to Be Rendered: A description of the broker’s responsibilities.
When Compensation is Due: Specific triggers for payment.
Contract Termination: Terms outlining how the agreement can be ended.
Additional Limits:
Agreements are limited to three months unless the buyer is a corporation, LLC, or partnership.
Automatic renewals are prohibited.
Renewals must be in writing and signed by all parties, with extensions limited to three months.
How This Impacts Real Estate Professionals
1. Increased Documentation
Agents now need to formalize relationships earlier in the process. While the NAR settlement focused on residential transactions, AB 2992 expands the scope to include commercial real estate and other property types. This creates additional administrative responsibilities for agents and brokers.
2. Compliance Is Key
The timeline for executing a buyer representation agreement is crucial. Missing the “as soon as practicable” deadline could expose agents to legal risks. Ensure you integrate this step into your client onboarding process.
3. Broker Risk Management
For brokers, it’s essential to verify that all agents are aware of these requirements and have updated their workflows accordingly. Review your E&O insurance policy to confirm it covers any potential disputes related to buyer representation agreements.
Practice Tips for Agents
To help you navigate these changes:
Begin discussing representation agreements early in your client relationship. Use the opportunity to explain your value as their agent.
Ensure your Agency Disclosure Form is signed at the same time as the representation agreement to maintain compliance.
Regularly review the specific terms of your agreement, including the compensation structure, especially in light of commission negotiations. Learn more about handling these scenarios in our blog on Increased Escrow Negotiations in California.
To learn more about navigating California’s dynamic real estate market, explore our comprehensive blog library at AIDE Real Estate Blog.
Comments