The world of California real estate is undergoing significant changes, and whether you’re looking to buy or sell a home, it’s crucial to stay informed about new practices that could reshape the entire process. As of August 17, new rules have been put in place following a settlement involving the National Association of REALTORS and real estate brokerages. These changes aim to enhance transparency and improve the communication between agents and their clients, making the home-buying and selling process clearer for all parties involved.
Here’s what buyers and sellers in California need to know about the latest developments in the real estate market.
The Traditional Real Estate Process
If you’ve previously purchased a home, you might remember spending time with your buyer’s agent touring homes, often without much thought about how the agent was compensated. Typically, the seller’s broker would cover the buyer’s agent’s commission as part of the marketing strategy to sell the property.
On the other hand, if you’ve sold a home before, you likely reviewed documents outlining the sale price, agreed on a compensation figure for your agent, and then saw that part of the agent’s compensation went to the buyer’s agent.
However, due to the recent settlement, these norms are changing, bringing about new processes that aim to make the entire transaction clearer for everyone involved.
Key Changes in Real Estate Practices
The settlement introduced two major changes that buyers and sellers must understand.
1. Mandatory Buyer Representation Agreements
From now on, buyers who work with agents must sign a written agreement before visiting homes with them. This contract will clearly outline the terms of the relationship between the buyer and the broker, including what services the buyer can expect and how the agent will be compensated.
These agreements can either be exclusive or non-exclusive, meaning the buyer can choose to work with one agent exclusively or not. The compensation for the buyer’s agent will be discussed and written into the agreement, and it could come from the buyer, the seller, or a combination of both. This payment will be a matter of negotiation between the buyer and seller during the offer process.
It’s also worth noting that starting January 1, 2025, California Assembly Bill 2992 will limit the length of these agreements to a maximum of three months.
2. Elimination of Offers of Compensation in MLS
Another significant change is the removal of any offer of compensation for buyer’s agents in property listings on the Multiple Listing Service (MLS). Previously, sellers’ agents would specify in the MLS how much commission they were willing to offer the buyer’s agent. This practice will no longer be facilitated within the MLS or by the California Association of REALTORS’ Residential Listing Agreement form.
That said, sellers can still negotiate compensation for the buyer’s agent during discussions with their real estate professional, or they can wait for the buyer to request compensation in a purchase offer. Offering concessions like covering closing costs or making price reductions remains an option to attract buyers.
How These Changes Affect Home Buyers
For buyers, the most immediate impact is that they will now have to negotiate their agent’s compensation from the start, which might involve paying for their agent’s services directly, in addition to closing costs and the down payment. This shift could be intimidating, particularly for first-time buyers or those with limited budgets.
However, this change also offers an upside: buyers now have more control and transparency in the services they receive. By signing a Buyer Representation Agreement, they’ll have a clear understanding of their agent’s role, responsibilities, and fees, allowing for more informed decision-making throughout the home-buying process.
Importantly, buyers can still negotiate with sellers to cover their agent’s compensation as part of the overall transaction.
Implications for Home Sellers
Sellers, too, will see changes, particularly in how they approach buyer agent compensation. Without the ability to list an offer of compensation in the MLS, sellers may need to find alternative ways to make their property appealing to buyers who are now faced with additional financial responsibilities.
While this could seem like a disadvantage, it also opens the door to more creative marketing strategies. Sellers might consider offering incentives—such as covering closing costs or providing price concessions upfront—which could make their home more attractive to buyers balancing agent fees and other expenses.
Navigating these new dynamics will require sellers to lean on their agents for expert advice. Real estate professionals will play a vital role in helping sellers decide on effective marketing tactics and negotiating prices that align with these regulatory changes.
