New rule for Americans wanting to buy a home from August 17 – with extra document and risk of additional charges

PROSPECTIVE homeowners are facing a change to the house-viewing process with new contracts being rolled out in weeks.

A new system will be introduced to force those looking for a new home to sign with a realtor before viewing any properties.

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From August 17, buyers will have to sign a mandatory agreement due to a ruling in a settlement with the National Association of Realtors, according to the Washington Post .

It is hoped that the new process will lower the price for buyers by bringing an end to the artificial inflation of real estate commissions.

This inflated commission has occurred as sellers pay realtors half of the commission fee from a sale or around 6% of the sale price.

Under the new system, buyers will have to pay some of the commission to realtors alongside sellers.

However, concerns have been raised about the contracts that buyers will be asked to sign as templates show they are full of legal jargon.

“Nobody in their right mind is reading these forms,” University at Buffalo law professor Tanya Monestier told the outlet.

Monestier has reviewed several new contract templates and flagged her concerns with the Department of Justice.

The professor claimed that a contract template she reviewed from the California Association of Realtors appeared to be intentionally confusing for buyers.

She described the draft as “dense, complicated, and all over the place.”

The legal experts said she believed the incomprehensibility of the document was “by design.”

However, the Realtor Association had hit back at such comments calling the Professor’s criticism “misguided,” “absurd,” and with little knowledge of state law, though it has since made several changes to the draft.

“The revised forms are greatly simplified, making them more transparent and easier for consumers to understand with the help” of their Realtors, Brian Manson, the California Realtor Association’s general counsel told the Post in an email.

However, other industry figures have raised similar concerns with one noting that having sellers pay commissions benefits buyers with smaller budgets.

“Our marketplace is a lot of first-time home buyers, a lot of middle-class working families trying to buy homes, and they truly can’t afford, or they might not have the savings” for a commission, Edward Rogers, the head of a real estate brokerage firm in Philadelphia told the news outlet.

Policy changes being adopted by the National Association of Realtors:

Following a settlement, NAR is going to adopt a number of policy changes which will come into effect as early as August 17 after being reviewed by the MLS Emerging Issues and Technology Advisory Board.

• Eliminate and prohibit any requirement of offers of compensation in the MLS* between listing brokers or sellers to buyer brokers or other buyer representatives.
• Retain and define “cooperation” for MLS participation.
• Eliminate and prohibit MLS participants, subscribers and sellers from making any offers of compensation in the MLS to buyer brokers or other buyer representatives.
• Require the MLS to eliminate all broker compensation fields and compensation information in the MLS.
• Require the MLS to not create, facilitate or support any non-MLS mechanism (including by providing listing information to an internet aggregator’s website for such purpose) for participants, subscribers or sellers to make offers of compensation to buyer brokers or other buyer representatives.
• Prohibit the use of MLS data or data feeds to directly or indirectly establish or maintain a platform of offers of compensation from multiple brokers or other buyer representatives. Such use must result with the MLS terminating the participant’s access to any MLS data and data feeds.
• Reinforce that MLS participants and subscribers must not, and MLSs must not, enable the ability to filter out or restrict MLS listings that are communicated to customers or clients based on the existence or level of compensation offered to the cooperating broker or the name of a brokerage or agent.
• Require compensation disclosures to sellers, as well as prospective sellers and buyers.
• Require MLS participants working with a buyer to enter into a written agreement with the buyer prior to touring a property.

(*MLS – Multiple Listing Service)

Source: NAR

He advises buyers to carefully go through all contracts with their buyer agents before signing on the dotted line so they fully understand the agreement.

Southern California real estate agent Iain Phillips who has previously issued agreements to buyers before purchase called the draft contracts a “nightmare” for the average person to make sense of.

“Especially for someone who has never purchased a home before…they’ll be looking at that with a lot of questions,” he told the Post.

‘SURPRISE’ FEES

As the contracts are being drawn up, consumer advocacy groups are aiming to help buyers with the new process by implementing certain protections.

The Consumer Federation of America is not only pushing for understandable and clear contracts but also a clause that allows brokers and buyers to opt-out at any time without punishment.

This suggested amendment comes after one draft from Oregon recommends that a buyer is charged $2,500 if they back out of the agreement after making a formal offer.

Meanwhile, a draft from Texas says a client would be responsible for “the amount of compensation that broker would have received under this agreement if client was not in default,” in certain scenarios where the sale falls through.

With potential backout fees amounting to tens of thousands of dollars, Monestier worries for buyers.

“No consumer would ever appreciate the consequences of this default provision. … It would come as a complete surprise to them,” she said.

The Consumer Federation of America has also pushed for clearly stated broker’s fees on the contracts as a full figure or hourly rate.

The U.S. Sun has reached out to the NAR for comment.