California’s real estate landscape is set for a significant shift with the implementation of AB-2992, which amends existing regulations governing buyer-broker agreements. Effective January 1st, 2025, this law introduces new regulations designed to clarify representation agreements, strengthen transparency, and provide additional protections for buyers and sellers in all types of real estate transactions, not just residential home sales. In this blog post, we break down the key provisions of AB-2992 and explain how it affects buyers, property owners, and brokers alike.
Key Provisions of AB-2992
1. Mandatory Buyer-Broker Representation Agreements
- A buyer-broker representation agreement must now be executed between a buyer’s agent and the buyer no later than the execution of the buyer’s offer to purchase real property, regardless of whether the property is residential, commercial, vacant land, or otherwise.
- This agreement formalizes the relationship between the buyer and the agent, detailing key aspects of the professional arrangement.
2. Broad Scope of Application
- AB-2992 applies to all real property transactions, including but not limited to single-family homes, multi-unit residential properties, commercial real estate, and mobile homes.
- Unlike some other regulations, this law applies even to properties not listed on the Multiple Listing Service (MLS).
3. Required Terms in Buyer-Broker Agreements
The agreement must outline the following elements:
- Compensation of the broker: Specifies how much the broker will be compensated and by whom.
- Services to be provided: Clearly defines the scope of services, such as property searches, negotiations, and paperwork assistance.
- When compensation is due: Indicates whether payment is contingent on the successful close of escrow or another milestone.
- Termination clause: Establishes how the agreement can be terminated by either party.
4. Three-Month Limitation on Buyer-Broker Agreements
- Buyer-broker agreements cannot exceed three months unless renewed in writing.
- Automatic renewals are prohibited—any renewal must be signed and dated by all parties.
- Exception: This rule does not apply to agreements with corporations, LLCs, or partnerships. While corporate entities are exempt from the time limitation, they are still subject to all other provisions of the law.
5. Required Disclosure Before Agreement
- Before executing the buyer-broker agreement, agents must provide buyers with the Disclosure Regarding Real Estate Agency Relationship form (Civil Code Section 2079.14).
- This disclosure explains the roles and duties of the agent and helps buyers make informed decisions about their representation.
Sample AIR CRE Buyer-Broker Exclusive Contract (BBE-1.00)
AIRCRE Buyer-Broker Exclusive Representation Agreement (BBE-1.00 – Published 2025)
Changes to Commission-Related Clauses
- The bill mandates that any printed agreement regarding the payment of compensation to real estate agents must include notice in at least 10-point bold type stating:
“The amount or rate of real estate compensation is not fixed by law. They are set by each broker individually and may be negotiable.” - Additionally, the actual amount or rate of compensation cannot be pre-printed within the agreement—it must be negotiated and added as a custom term.
Implications for Property Owners and Buyers
For Property Buyers:
- Increased Transparency: Buyers will have a clear understanding of their agent’s duties and compensation structure from the outset.
- Shorter Commitments: The three-month cap on representation agreements provides flexibility for buyers, ensuring they are not locked into long-term contracts with agents who may not meet their expectations.
For Property Owners:
- Seller’s Responsibility: While the buyer’s agent may be compensated via the seller’s proceeds in some cases, sellers must still carefully review offers to ensure they understand any associated buyer-side commission agreements.
- Clarity on Dual Agency: The revised disclosure forms emphasize dual agency roles, ensuring that both buyers and sellers are aware of potential conflicts of interest when an agent represents both parties.
Impact on Real Estate Brokers and Agents
For Brokers:
- Brokers must adjust their practices to ensure compliance with the new three-month limit and disclosure requirements.
- Buyer-broker agreements must be crafted with careful attention to legal language to avoid automatic renewals and ensure compensation clauses are negotiable.
- The requirement to provide and collect acknowledgments for agency disclosures creates additional administrative steps but reinforces transparency.
For the Brokerage Industry as a Whole:
- Standardization and Accountability: By formalizing buyer-broker agreements, AB-2992 aims to enhance trust and accountability, reducing the potential for misunderstandings between agents and clients.
- New Compliance Challenges: Failure to comply with these new regulations could result in agreements being deemed void and could lead to potential disciplinary actions from the Department of Real Estate (DRE).
Arbitration Clause Requirements
- Contracts containing binding arbitration clauses must be clearly titled “Arbitration of Disputes” and formatted in at least 8-point bold type or in contrasting red in at least 8-point type, and if the provision is included in a typed contract, it shall be set out in capital letters.
- The agreement must include a prominent notice informing parties that they are waiving their rights to litigation and jury trials by agreeing to arbitration.
Legal and Practical Considerations
Real estate professionals must work closely with legal counsel to update their forms and ensure that contracts meet the updated formatting and disclosure requirements. Clients, too, should be diligent in reading agreements and seeking clarification where needed.
Final Thoughts
AB-2992 represents a step forward in California’s approach to real estate transactions by promoting transparency and formalizing buyer-agent relationships. Importantly, this legislation applies broadly to all types of real estate deals, not just residential homes. For buyers, sellers, and agents, understanding and complying with these new regulations is essential for a smooth transaction process.
At Stratton Commercial Real Estate, we are committed to keeping our clients informed and compliant with the latest legal changes. Whether you’re a property investor or a first-time homebuyer, our team is here to guide you every step of the way. Contact us today to discuss your real estate needs and how we can provide expert representation under these new regulations.