Legal scholar criticizes realtors’ group response to California settlement

A School of Law professor recently issued two critical reports on the California Association of Realtors’ (CAR) revised standard forms.

Tanya Monestier’s work led CAR to significantly amend its proposed documents.

California is one of a number of states revising their standard forms following a groundbreaking settlement involving the National Association of Realtors (NAR). The organization settled numerous lawsuits in March, agreeing to pay more than $400 million in damages and changing its rules on commissions.

Realtors are now required to have a representation agreement in place with a buyer prior to touring a property, and compensation can no longer be advertised on the Multiple Listing Service, a tool brokers use to make transactions more efficient.

“The goal here is decoupling,” Monestier explains. “Sellers pay for their agent; buyers pay for their agent. Because you are now paying for your own services, the thinking is that it will become more competitive. So, we might see buyers’ agents agreeing to do deals for flat rates, or 1%, or 1.5%. Ultimately, both buy side and sell side commissions should come down.” 

The settlement is effective Aug. 17 and subject to final approval by a federal judge in November. But in advance of these dates, state realtor and private brokerage organizations are “completely revamping standard forms,” Monestier says.

The California forms are filled with “complicated and inconsistent language,” she notes.

“No layperson will be able to understand and appreciate the terms they are agreeing to,” Monestier wrote in a report she prepared on behalf the Consumer Federation of America (CFA), an association of nonprofit consumer organizations that advance the consumer interest through research, advocacy and education.

In a related report for CFA on CAR’s Proposed Selling Listing Agreement, Monestier concluded only about 20% of the seven-page form would be understandable to the average seller. In addition, Monestier wrote that CAR’s draft listing agreement contained “provisions that are substantially unfair to the seller.”

In response to Monestier’s critique, the U.S. Department of Justice launched an inquiry into the CAR forms. CAR then halted their distribution, which were scheduled for release on June 25.

Last month, CAR released a new version of the listing agreement that implemented many of the changes for which Monestier advocated. Importantly, the forms eliminated two of the most problematic features of the listing agreement that Monestier had flagged: cooperative compensation and pre-determined concessions. CAR also just released its new buyer representation agreement, which also eliminates at least one of the provisions that Monestier had identified as problematic.

Monestier has also separately been in touch with the Department of Justice expressing concerns about widespread industry efforts to undermine the settlement.

“This is such a critical time in the real estate industry,” Monestier says. “If we are going to effect meaningful change in the way real estate commissions work, we need to make sure everyone is playing by the rules.

“I’m grateful that organizations such as the Consumer Federation of America are fighting the good fight every day on behalf of home buyers and home sellers,” she adds. “And I look forward to continuing to work with them to shine a light on unscrupulous industry practices.”