Key Details:
- Today, the Consumer Federation of America released “Proposed Criteria for Evaluating Home Seller Contract Forms.”
- In its press release, the CFA also shared eXp’s new seller contract titled “Exclusive Authorization and Right to Sell,” which eXp CEO Leo Pareja first shared on a BAM Breaking livestream with Byron Lazine.
Tomorrow, we officially enter August. And as every real estate professional knows, that means practice changes due to the NAR settlement proposed agreement are fast approaching. For many, that means new forms to use with buyers and sellers.
The Consumer Federation of America has been vocal about new forms being rolled out, including critical reports on the California Association of Realtors’ (C.A.R.) proposed buyer agreement and seller listing agreement forms. After the CFA reports, C.A.R. withdrew these forms and made improvements.
Following the reports mentioned above, the CFA also released its suggested set of criteria for home buyer contract forms on July 16th.
Today, the CFA followed up with its “Proposed Criteria for Evaluating Home Seller Contract Forms.” In addition, the CFA shared eXp’s new seller contract, which CEO Leo Pareja first shared with the BAM audience last week.
Stephen Brobeck, a CFA senior fellow, explained the purpose of the criteria in a CFA press release:
“These criteria will assist regulators, consumer groups, and the industry itself in evaluating the fairness of new seller contracts. Recent CFA research has shown that these contracts have the potential to harm or help home sellers depending on their clarity and content.”
eXp’s New Seller Form
In today’s release, the CFA also shared eXp’s new seller contract titled “Exclusive Authorization and Right to Sell,” which eXp CEO Leo Pareja first shared on a BAM Breaking livestream with Byron Lazine.
As Pareja promised, eXp’s seller contract is now available to all industry professionals.
CFA’s Brobeck highlighted that this new form, similar to a buyer contract form released earlier by eXp, is both understandable and fair to consumers. Notably, eXp was the largest U.S. residential brokerage firm by agent count in 2022.
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Now, let’s look at the CFA’s recommendations.
CFA CRITERIA FOR A READABLE AND UNDERSTANDABLE FORM
Like its criteria for home buyer forms, the CFA first addresses readability. After all, if a consumer cannot understand what they are signing, they “expose themselves to great risk by signing it,” said Brobeck.
Four key criteria are outlined in this section:
- Length: “The contract should not include marginal provisions designed solely to protect the interest of the broker. And the agency agreement should be in a separate document.”
- Type Size: “Most courts recommend 12-point. Any size smaller will be difficult for some people to read.”
- Organization: “The most important information, including compensation arrangements, should be at the beginning of the document and clearly labeled.”
- Plain Language: “The contract should be written so that it can be understood by home sellers. It should not contain words and language that can be understood only by lawyers.”
CFA CRITERIA TO ENSURE FAIRNESS TO HOME SELLERS
In addition, the CFA outlines criteria to ensure the contract is fair to home sellers. These include five criteria that address real estate agents’ compensation.
In regards to agent compensation, Brobeck stated the following:
“CFA does not oppose monetary assistance from sellers to buyers, only broker manipulation of this assistance to ensure current levels of broker compensation that are strongly influenced by broker collusion.”
Here are the remaining criteria:
- Length of Contract: The criteria states the contract should clearly state an end date. In a footnote, the CFA “suggests that sellers request a three-month contract and recommends that they never sign an agreement for more than six months.”
- Termination of Contract: Allow sellers the same right to terminate the contract as brokers, without incurring fees.
- Compensation, Continuing Obligation: Limit the seller’s obligation to compensate a broker who showed a home that was then purchased after contract termination to a reasonable period, no more than 60 days.
- Compensation, Disclosure: Prominently state that the broker fee is negotiable and not set by law.
- Compensation, Commission: Separate the listing agent’s commission from any buyer concessions and state it as a dollar amount or hourly rate.
- Compensation, Fees: Deduct any additional fees from the commission.
- Compensation, When Owed: Ensure compensation is due only upon successful closing of the sale.
- Seller Concessions: Indicate a willingness to negotiate concessions without specifying dollar amounts for buyer agent compensation.
- Unrepresented Buyers: Include a provision for an administrative fee (expressed in dollars) if a buyer is unrepresented, with this clause initialed by the seller.
- Buyer Offers: Ensure all written offers from buyers are presented to and decided upon by the seller.
- Dual Agency: Require written seller approval for dual agency situations as they arise, rather than pre-approving such arrangements.
- Seller Remedies: Allow sellers to pursue all available remedies without being required to submit to mediation or arbitration first.
One could argue that these guidelines are a little late to the game, as associations and brokerages have been working on revising forms since the August 17th deadline was announced. Several, like C.A.R., have already released new forms, including Las Vegas REALTORS®, eXp, Pennsylvania Association of Realtors®, Florida Realtors®, and others.
With 17 days to go, many are still looking for clarification from their respective associations. But agents of change know this is not the end of revisions—and they are ready to move forward by staying informed and educating the consumer.
For the complete set of CFA proposed recommendations, read the consumer watchdog’s “Proposed Criteria for Evaluating Home Seller Contract Forms.”
