California Governor Newsom signed a new bill to provide three-month home purchase agency agreement

On September 24, California Governor Gavin Newsom took a significant step in reforming real estate practices by signing a new law that limits the duration of agency agreements between homebuyers and real estate agents to three months. This legislation is tailored to enhance protections for homebuyers, setting a clear timeframe for agreements that emerged from a recent settlement involving the National Association of Realtors (NAR).

Set to take effect on January 1, 2025, this law positions California among at least 28 states that require homebuyers to establish a buyer agency agreement with their agents. The bill, known as AB 2992, passed smoothly through the state legislature in August, garnering no objections.

Currently, California law mandates that sellers must have a written agreement with their agents, while buyers are not held to the same standard. However, the recent NAR settlement requires all buyers who work with agents linked to the real estate association and its multiple listing service (MLS) to sign a buyer agency agreement.

Under the new regulations, when homebuyers and agents renew their agency agreements every three months, they will need to secure written consent from both parties. This change aims to alter NAR’s previous policy, which placed the burden of paying commissions on sellers for both the buying and selling agents. Notably, a survey by NAR revealed that as of 2023, only 40% of buyers had formal written agreements with their agents.

Additionally, the update outlines that buyers will now be responsible for covering their own real estate agent’s commissions, though they can request that sellers contribute to these costs during negotiations. This adjustment follows NAR’s defeat in a federal class action lawsuit, culminating in an $1.8 billion settlement.

Governor Newsom’s signing of this law is part of a broader initiative, including 18 consumer protection measures aimed at enhancing real estate transaction transparency and fairness. The California Association of Realtors reports that, as of August 2023, at least 27 states have implemented similar regulations, with Washington and Oregon leading the charge.