Tag: NAR Settlement

Navigating Listing Broker Contracts: Better Terms For Sellers

Navigating the world of real estate can be overwhelming, especially when it comes to signing a listing agreement. Many sellers may not realize that some standard contract terms can be disadvantageous. To address this, Consumer Advocates in American Real Estate (CAARE) has drafted suggested terms and recommendations aimed at better protecting home sellers from unfavorable conditions. As the only nonprofit dedicated to consumer protection in residential real estate, CAARE provides guidance on negotiating fairer agreements to help sellers avoid unnecessary costs and safeguard their interests.

Here are some key tips from CAARE on negotiating better terms in your listing agreement.

better listing agreement terms (2)Download

1. Termination Clause

Standard language often states that the contract can only be canceled by mutual agreement. Instead, ensure the agreement allows for unilateral termination by either the seller or broker, provided there’s no ongoing contract for the property. This flexibility can be crucial if circumstances change or the broker isn’t meeting expectations.

2. Marketing Choices

Some agreements allow automated valuations and public comments on websites. While these may seem harmless, they can lower your property’s perceived value or reduce market exposure. Avoid agreeing to these terms to maintain control over your listing’s presentation and maximize market visibility.

3. Broker Compensation

Be wary of clauses obligating you to pay the broker regardless of how the property sells. Consider including an “Exclusion List” of individuals who could buy the property without incurring commission fees. Additionally, strike out conditions where broker fees apply if a sale doesn’t close due to unforeseen reasons.

4. Negotiating Commission

Standard commission structures are often percentage-based. However, you can negotiate alternative arrangements, such as a flat fee or basing the commission on the net sale price (after seller concessions). This ensures you aren’t paying more than necessary.

5. Dual and Designated Agency

Dual agency arises when the broker represents both the buyer and seller. This can limit your broker’s ability to advocate solely for your interests. It’s advisable to decline dual agency agreements to avoid conflicts of interest and secure dedicated representation.

6. Avoiding Buyer Broker Commissions

Pre lawsuit, sellers were encouraged to pay commissions that were split between the listing and buyer’s brokers. With recent changes, buyers now negotiate broker fees directly with their own agent. Instead of setting fees upfront, allow buyer agents to negotiate with you via seller concessions. This approach can save money and foster a more competitive market.

7. Referral Fees

If the broker has pre-arranged referral agreements, you may be at a disadvantage. Ensure they disclose any such arrangements so you can make informed decisions or consider other agents without hidden obligations.

8. Office Exclusives

Some agents push for “office exclusive” listings to gather feedback before public listing or avoid the hassle of showings. However, these arrangements can restrict your home’s market exposure and may lead to dual agency scenarios. Opt for open listings to maximize reach.

9. Closing Arrangements

When selecting a closing agent, avoid brokers who steer you toward affiliated firms. Instead, request recommendations for at least three independent companies, ensuring the broker has no financial ties to them.

10. Beware of Arbitration Clauses

Real estate agreements sometimes include arbitration requirements or prohibit class action lawsuits. These terms can limit your legal rights. Choose agents who don’t impose such restrictions.

11. Home Warranties

Avoid agreeing to purchase home warranties through brokers. These products often include broker kickbacks, and the coverage may not be worth the added expense.

Empower Yourself in the Real Estate Process

By understanding and negotiating these key terms, you can protect your interests and avoid paying unnecessary fees. Always review your agreement with a real estate attorney who can advise you on state-specific laws and ensure your contract aligns with your goals. Remember, the real estate landscape is evolving, and staying informed is your best defense against unfavorable terms.

For more consumer-focused advice, reach out to us at any time with questions.

Navigating Buyer Broker Contracts: Empowering Consumers with Better Terms

When entering into a buyer broker agreement, it’s crucial to understand the terms and conditions laid out in the contract. These contracts can often contain provisions that may not be in the best interest of the buyer. To help consumers make informed decisions, Consumer Advocates in American Real Estate (CAARE) offers insights and suggestions for negotiating more favorable terms.

CAARE Buyer Broker SuggestionsDownload

Our Buyer Broker suggestions review key aspects of buyer broker agreements and how to ensure you’re protected as a homebuyer.

1. Termination Clauses

  • What They Say: “This contract may only be canceled by mutual agreement of the parties.”
  • Consider This Instead: Include a clause allowing either party to terminate the contract before its expiration without any obligations if not under contract for a property.

2. Failure to Close

  • What They Say: “If Buyer refuses to close the Purchase for any reason other than the failure of seller to perform, Buyer shall pay Broker all the compensation due under this Contract.”
  • Consider This Instead: The buyer should only be obligated to pay the fee upon successful closing. This protects you from being financially liable if the deal falls through for reasons beyond your control.

3. Additional Fees

  • What They Say: “Buyer agrees to pay an administrative fee/transactional fee of $______ in addition to other compensation owed.”
  • Consider This Instead: Be cautious of these junk fees hidden within the contract. Avoid agreeing to them as they can inflate your costs unnecessarily.

4. Protection Period

  • What They Say: “Buyer owes the Broker the full compensation if within ______ days after expiration of this Contract, Buyer purchases a property Broker has shown or exhibited to Buyer.”
  • Consider This Instead: Reject protection periods that could require you to pay the broker even if you don’t use them to buy a house after the contract expires.

5. Dual and Designated Agency

  • What They Say: “Buyer will agree to dual or designated agency representation and will consider properties listed by Broker.” OR “If Buyer declines Dual Agency, Buyer will not be shown listings owned by the brokerage.”
  • Consider This Instead: Maintain the right to cancel the contract if dual or designated agency arises, allowing you to hire a different broker without any obligations.

6. Additional Services

  • What They Say: “Buyer directs Broker to arrange for a qualified closing agent to conduct the closing.”
  • Consider This Instead: Ensure that the broker/agent assists in shopping for and comparing prices for lending, title, warranty, and insurance services. They should recommend at least three providers in each category who are unaffiliated and not offering additional compensation to the broker.

7. Arbitration & Class Action Lawsuits

  • What They Say: Terms related to arbitration or prohibitions on class action lawsuits.
  • Consider This Instead: Avoid brokerages that include such terms, as they strip you of important rights and legal recourse.

8. Referral Fees

  • What They Say: “Neither the Broker nor Agent shall accept or pay any referral fees on any transactions that involve the Buyer.”
  • Consider This Instead: Prohibit referral fees, as they can limit your negotiation power by directing significant commissions to third parties.

9. Seller Compensation

  • What They Say: “If compensation is not being offered, Buyer instructs Broker to negotiate seller credits to cover broker fees.”
  • Consider This Instead: If you’re unable to pay your broker out of pocket, include a request for seller credits in your offer to cover broker fees. Communicate this strategy with your lender.

10. Bonus Tips for Buyer Broker Negotiations

  • Dual & Designated Agency: This type of representation is often a source of consumer complaints. We suggest you decline it to ensure proper representation.
  • Seller Concessions: These can reduce closing costs, offer flexibility, and improve negotiation outcomes, giving you better control over your funds.

Why CAARE’s Advice Matters The real estate industry has long operated under traditional methods that may not always serve consumers’ best interests. CAARE provides guidance that empowers buyers to negotiate better terms and avoid common pitfalls. If something in your broker’s advice seems off, don’t hesitate to reach out to us.

About CAARE Consumer Advocates in American Real Estate is the only nonprofit organization in the nation dedicated to consumer protection in residential brokerage. Our goal is to ensure transparency, fairness, and advocacy for homebuyers navigating the often complex world of real estate transactions.

For more information or assistance, feel free to reach out to us at info@caare.org. We’re here to help you make informed decisions and be better protected in your home buying journey.

CAARE is not your attorney and is not licensed to provide you with legal advice. These suggested contract changes should be reviewed by your attorney. We are not familiar with your state’s laws surrounding these matters and only an attorney in your state may properly advise you. The purpose of these suggestions is to call attention to some of the contract terms we believe are anti consumer and anticompetitive. How you address these terms is a matter of law and is to be determined between you and your attorney.

Consumer Friendly Contracts: Compensation Suggestions

New Guidelines Just Released

CAARE is thrilled to release the first draft of our model compensation language for consumers hiring Buyer or Seller Brokers. This is the beginning of a series focusing on Realtor fee agreements, which have often been unfairly standardized, making it hard for consumers to negotiate terms.

Key Points Of Our Compensation Suggestions:

  • Empowering Consumers: When crediting money directly to the Buyer instead of their broker, we enable Buyers to negotiate their agent’s fees and services, introducing healthy competition into the market.
  • Combating Unfair Practices: Our models address predatory pricing practices and aim to save consumers billions in real estate commissions.
  • Promoting Transparency: We believe Sellers should not pay Buyer Brokers, eliminating conflicts of interest and promoting fairer practices.
  • Encouraging Innovation: Our complex but flexible compensation sections give innovators more options to compete on fees.

Why This Matters:

  • Reduces Bribery: Paying someone else’s Buyer Broker is akin to bribery and can influence the advice given to Buyers.
  • Protects Fiduciary Relationships: Interfering with the Buyer Broker’s duty to their client is problematic.
  • Enhances Competition: Current systems are anticompetitive, preventing Buyers from negotiating effectively.
  • Respects Common Law Duties: Our language restores the common law duties that brokers should follow.

Moving Forward

This is just the start! We expect our compensation clauses to evolve as new business practices emerge. Let’s work together to create a fairer, more competitive real estate service market!

Questions?

Whether you are a broker trying to navigate the upcoming changes, or a consumer confused on what you are about to sign, we’d love to talk with you. dmiller@caare.org or wendygilch@caare.org