On September 24, California Governor Gavin Newsom signed a new law that aims to enhance protections for home buyers by limiting the duration of agency agreements with real estate agents to three months. This legislation, which follows a recent settlement involving the National Association of Realtors (NAR), is designed to establish a clearer framework for buyers navigating the real estate market.
Set to go into effect on January 1, 2025, California will join at least 28 other states in requiring home buyers to sign buyer agency agreements with their agents. The bill, known as AB 2992, received unanimous support in the state legislature last August.
Currently, California law mandates that only sellers sign written agreements with their agents. However, the NAR settlement now requires that all buyers who work with agents affiliated with a Multiple Listing Service (MLS) sign a buyer agency agreement as well.
The new legislation stipulates that when buyers and agents renew their agency agreements every three months, they must obtain written consent from each other. This change addresses previous NAR policies that obligated sellers to pay commissions to both parties involved in the transaction. A survey from NAR indicates that, as of 2023, only 40% of buyers had formalized their agreements with agents in writing.
Under the new rules, buyers will be accountable for their agent’s commission but will have the option to negotiate with sellers to share some of that cost during the transaction. This policy shift comes in light of NAR’s recent loss in a federal class-action lawsuit, which resulted in a notable $1.8 billion settlement.
This law is part of a broader initiative, with Governor Newsom signing a total of 18 consumer protection bills. Recent data from the California Association of Realtors shows that as of August 2023, at least 27 states, including Washington and Oregon, have enacted similar regulations.
