As brokerages across the country have begun implementing buyer agency contracts into their business practices in the wake of the Sitzer/Burnett commission lawsuit verdict, the Consumer Federation of America is warning consumers that they may be filled with “unfair provisions” that primarily protect agents and brokers.
The watchdog group reached this conclusion in a report released Tuesday, in which the group examined 43 different contracts from 37 states, with most of the sample contracts coming from state or local Realtors associations. The report was authored by CFA senior fellow Stephen Brobeck.
According to the National Association of Realtors, in 2023, 41% of surveyed buyers signed agency agreements, up from 35% in 2022. Additionally, the CFA noted that at least 13 states require brokers to use buyer agency agreements.
“The important point is that most of these state requirements only require a contract but do not specify what the agreement must contain,” the report said.
In addition to advising homebuyer to take precautions when signing a buyer agency agreement, the CFA also invited regulators to scrutinize these agreements.
“The industry is given great leeway in writing the contracts, which state Realtor associations typically do, then give agencies and brokers the ability to modify them,” the report states. “Accordingly, while the contracts must conform to state laws such as those on agency and confidentiality, these agreements are written to benefit agencies and brokers.”
Some of the provisions the CFA viewed as unfair include charging “unreasonable” fees including administrating, transaction or regulatory compliance fees that are often levied on top of commissions, requiring acceptance of dual agency or transaction brokerage, limiting buyer’s access to litigation and trial by judge or jury in order to deal with complaints, not explaining how conflicts of interest involving other buyer clients are resolved, allowing buyers agents to collect commission from buyer clients and home sellers, and the pre-filling of blanks on contracts related to commission rates and the length of the contract.
According to the CFA, provisions in these contract that allow buyers agents to continue to contact listing agents and ask for additional compensation from the seller beyond what the agent negotiated with their buyer client would result in commission rates staying at their current level.
“Listing agents, most of whom also represent buyers as well as sellers, could continue to persuade their clients that today’s 2.5% or 3.0% were normal and would incent buyer agents to sell their properties,” the report says. “Consequently, despite efforts by buyers to negotiate buyer agent commissions, agent commissions would still effectively be set by the industry.”
Although the Realtor Code of Ethics discourages accepting compensation from more than one party, it is allowed with informed consent. The CFA argues that the practice should be banned by courts through any settlement agreements in the commission lawsuits.
The report also found that most current buyer agreements allow buyers’ agents to keep the difference if the seller offers a larger commission than what the buyer agreed to pay their agent.
“This provision has the potential to inflate seller or buyer costs,” the report states. “The seller either has to pay the one percent themselves or add it to the sale price, increasing buyer costs.”
To ensure buyers get the best deal and don’t come up against any surprises, the CFA recommends that they interview agents and request contracts ahead of time so they can properly evaluate them and potentially prepare to negotiate the terms. The watchdog group said buyers should refuse to sign any contract that prevents them from seeking legal solutions to their complaints.
While the CFA advises that buyers should try to negotiate down their agent’s commission, question any additional fees and find out if the agent will be seeking additional compensation from the listing agent above the agreed upon amount, they suggest buyers should pay their agent a retainer fee. The CFA argues that this would provide an agent some compensation even if they show the client many properties that the buyer decides not to purchase.
“Buyers should make sure the fee is reasonable and request that it be credited to the commission if the sale occurs,” the report states.
While the CFA does have its issues with buyer agency contracts, the report states that it would be wiser to work directly with a listing agent than with a buyer’s agent with no contract. If a consumer chooses to go this route, the CFA suggests hiring an attorney to protect their interests or insisting that the listing agent acts as a facilitator that cannot lawfully favor the seller.
“Buyers should only agree to loss of true representation if they have evaluated a number of properties and concluded that the one listed by the buyer agent or their broker is the one they want,” the report states.
