The U.S. Justice Department has launched a “formal inquiry” into the California Association of Realtors’ contracts and forms after a national consumer group complained that 2024 documents contained “anti-consumer provisions.”
The association’s new buyer-agent representation agreement, for example, was “too disorganized and complex for the average homebuyer to understand,” the Consumer Federation of America said in one analysis.
In a response, the state’s 200,000-member trade group issued a statement online, arguing that the Consumer Federation had issued a “misguided critique” of draft forms “that was still a work in progress.” CAR said it released updated forms on July 10.
See also: How to make a buyer’s real estate contract consumer friendly
The industry group has been revising dozens of standard forms, addenda and contracts to comply with a national real estate commission settlement scheduled to take effect Aug. 17. Realtors use these forms and contracts for housing transactions.
The National Association of Realtors reached the proposed settlement in March with plaintiffs in a federal class-action lawsuit challenging seller payments of buyer agent commissions.
The settlement would ban home-sales agents from posting offers to pay buyer commissions in an MLS, a Realtor-run listing database. Such offers still could be publicized by other means, and seller-paid commissions could continue.
In addition, the settlement would require all home shoppers sign contracts with agents before visiting any homes. A CAR official estimated last fall that four out of five buyers purchase a home without such a contract.
On June 24, CAR announced it was delaying the release of 19 forms after receiving the DoJ’s formal inquiry, saying it needed additional time to consider the department’s concerns.
CAR officials declined to reveal details of the inquiry or to say what those DoJ’s concerns were. Justice Department officials also declined to respond to a reporter’s request for details about the inquiry.
While the government has been looking into “potentially anticompetitive conduct” by NAR and has been monitoring the commission settlement, this is the first public report that a federal agency has been investigating the state Realtor group.
Under a decades-old practice, most home sellers pay buyer agents a 2.5%-3% commission as well as their own agent’s commission — or $39,000 to $46,500 for both commissions for a median-priced Southern California home of $775,000.
Consumer advocates believe U.S. real estate commissions — deemed to be among the highest in the world — would come down if buyers paid their agents directly.
The Consumer Federation issued 19-page critiques of two new CAR contracts — the “Buyer Representation and Broker Compensation Agreement” and the “Residential Listing Agreement.”
In a June report, University at Buffalo law professor Tanya Monestier called the buyer representation agreement “virtually unreadable” because of its formatting, numbering and lettering scheme, extensive cross-referencing and “complicated and inconsistent language.”
“No layperson will be able to understand and appreciate the terms they are agreeing to,” Monestier wrote.
She added that pay provisions “are drafted in a way that disguises the obligation of the buyer to pay his agent” and “telegraph how Realtors plan to circumvent the NAR settlement.”
In a separate report, Monestier wrote that only about 20% of CAR’s listing agreement, a “monster of a document” that sets out terms for a home sale, would be understandable to the average seller.
In addition, she wrote, CAR’s draft listing agreement contained “provisions that are substantively unfair to a seller.”
By authorizing brokers to sign up and represent buyers without agents who view a home, “the listing agreement functions to pre-authorize a conflict of interest,” she wrote.
The Consumer Federation acknowledged that CAR has revised its forms since its critiques were written.
CAR argued in online posts that Monestier’s critiques contained flaws of their own.
The association argued, for example, that it was “absurd” to suggest that offers of compensation outside the MLS circumvents the NAR settlement.
“The settlement explicitly makes clear this is permitted,” CAR said.
It argued further that its forms are based on California law and that the Consumer Federation critique “demonstrates the author’s lack of familiarity with California-specific statutory language required for our real estate contracts.”
“The (Consumer Federation) report contains wild speculations that brokers using CAR forms will try to get around the NAR settlement. CAR supports the goals of the settlement,” the association’s post added.
“The report also says that the draft form has 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.”
