"Problematic" home seller form under scrutiny

Consumer group rips proposed form, while realtors defend buyer choice

"Problematic" home seller form under scrutiny

A proposed home seller listing agreement has sparked a disagreement between the Consumer Federation of America (CFA) and the National Association of Realtors (NAR), raising questions about transparency and consumer protection in real estate transactions.

The CFA argued that the one-sided agreement is not only difficult for consumers to understand but also contains clauses that could be disadvantageous to sellers. The NAR, on the other hand, defends the agreement, emphasizing consumer choice in the real estate transaction process.

“Problematic” seller form

CFA’s evaluation, prepared by law professor Tanya Monestier, focused on the California Association of Realtors’ (CAR) proposed Residential Listing Agreement. This form was part of a set of 21 new forms that CAR delayed releasing in response to a “formal inquiry” by the US Department of Justice (DOJ).

Monestier critiqued the document as “unreadable” and “unfair to consumers”. The professor highlighted the document’s complexity, raising concerns that everyday sellers would struggle to grasp its meaning and potential implications.

“No seller will read this monster of a document – much less be able to understand it,” Monestier wrote, adding that she herself, a tenured law professor who has been teaching Contract Law for 15 years, had difficulty getting through the document.

Beyond readability, the CFA identified specific clauses within the agreement that it believes are problematic. One clause allows sellers’ brokers to attempt to sign up unrepresented buyers who visit open houses.

“In other words, the listing agreement functions to pre-authorize a conflict of interest that the realtor plans to create,” Monestier said.

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This practice, according to the CFA, creates a potential conflict of interest, as the seller’s broker would now be representing both the seller and the buyer.

Additionally, the agreement allegedly steers sellers towards offering compensation to buyer brokers, potentially inflating costs for sellers.

Other “problematic features” of the listing agreement included:

  • specifically asking sellers if they would be willing to consider designating a percentage of the list price as “concessions” (thus making “concessions” the new Realtor compensation field),
  • not clearly laying out the compensation options,
  • mandating mediation in the event of a dispute, and
  • telegraphing that listing brokers will attempt to secure contracts with buyers, creating a dual agency relationship with buyer and seller (illegal in eight states) in which sellers lose fiduciary representation.

While CAR has withdrawn this seller form, CFA said similar agreements are still being developed by other realtor groups.

“For some industry groups, the new listing agreements seek to limit changes proposed by the litigation settlement,” CFA senior fellow Stephen Brobeck said.  “The agreements also represent a continuing effort by the industry to thwart the efforts of DOJ to establish a more price-competitive marketplace.”

NAR counters

In response, NAR released a statement defending the settlement and the use of form agreements.

“Consumer choice is paramount, particularly when it comes to determining the nature and cost of professional representation in a real estate transaction,” the statement read. “It is deeply concerning that the Consumer Federation of America has taken a position on listing agreements and offers of compensation that would harm consumers by leaving them with less choice than ever before.”

NAR argued that form agreements “serve as a positive foundation for real estate professionals to engage in clear and open conversations with consumers about the full range of choices.”

NAR said standard agreements, like the one in question, promote clear communication between realtors and clients about these choices.

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The association further highlighted the potential benefits of offering compensation to buyer brokers. NAR argued this practice increases homeownership opportunities, particularly for first-time buyers, by making representation more accessible. 

It said the CFA’s suggestion of placing the onus on buyers to request compensation from sellers would put them at a disadvantage, especially in competitive markets where multiple offers are on the table.

“The ability for listing brokers to make an offer of compensation to a buyer broker has significant implications for buyers who struggle to come up with cash to make it to the closing table,” NAR said. “CFA’s proposal would put an additional strain on their finances, resulting in these buyers sitting out of the housing market or going through the biggest transaction of their lives without professional representation. The CFA’s other suggestion, that buyers bid up the home price in order to win a concession from seller, will have the perverse effect of driving up home prices in the midst of a housing shortage and historic affordability crisis.

“Ahead of the August 17 practice change implementation date, NAR encourages associations and other form providers to address form updates early and educate real estate professionals to ensure they can confidently engage with consumers about what the practice changes and form agreements mean for consumers. To be clear, NAR opposes any attempts to circumvent the settlement: members and associations must implement the practice changes fully and in good faith, doing so with the goal of promoting consumer empowerment, consumer choice, and healthy competition.”

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