Updates to standard real estate forms may require purchasers in California to put down significantly more money

The California Association of Realtors regularly changes the documents that real estate agents use to report regular real estate transactions like property purchases and sales. Yet some in the real estate sector are perplexed by a modification made to the form that outlines how a homebuyer's agent is paid. As a result of the shift, some agents are confused whether the buyer would be responsible for paying their agent instead of the seller, which might result in thousands of dollars extra to bring to the closing.

At a time when the disparity between the white and Black homeownership rates is higher than it was fifty years ago, there is also concern about whether this adjustment may drive Black and Latinx purchasers out of the market.

In the Bay Area, the average house price is still $1.1 million in 2023 despite a small decline in housing costs. The minimum cash outlay required to purchase a property at that price would be $71,500, which includes a 3.5% down payment for an FHA loan and an extra 3% for closing expenses.

The California Association of Realtors regularly changes the documents that real estate agents use to report regular real estate transactions like property purchases and sales. Yet some in the real estate sector are perplexed by a modification made to the form that outlines how a homebuyer's agent is paid. As a result of the shift, some agents are confused whether the buyer would be responsible for paying their agent instead of the seller, which might result in thousands of dollars extra to bring to the closing.

At a time when the disparity between the white and Black homeownership rates is higher than it was fifty years ago, there is also concern about whether this adjustment may drive Black and Latinx purchasers out of the market.

In the Bay Area, the average house price is still $1.1 million in 2023 despite a small decline in housing costs. The minimum cash outlay required to purchase a property at that price would be $71,500, which includes a 3.5% down payment for an FHA loan and an extra 3% for closing expenses.

Nevertheless, a recent modification to a widely used real estate form by the California Association of Realtors has brokers worried that purchasers in the market may be asked to put down even more money to the tune of an extra 3%.

According to Rico Rivera, president of the National Hispanic Association of Real Estate Associates (NHORA), it may be disastrous. Rivera is worried about the recent modification to the contract known as the Seller Payment for the Buyer's Broker agreement, which governs how a buyer's agent is paid. A significant alteration to the state's real estate transactions might result from the modification in the form, which could indicate that the purchaser may be responsible for paying their agent. It will have an effect on populations with lower incomes. This will contribute to the growing wealth divide, which is something that worries Rivera even more.

A trio of cases causing controversy in the real estate sector prompted the California Association of Realtors (CAR) to modify the form. The National Association of Realtors (NAR), the parent company of the California Association of Realtors, and the U.S. Department of Justice reached a settlement in the first complaint in 2020. The Government sued the trade association on claims that NAR guidelines had permitted brokers to falsely claim that a buyers' agent's services were provided free of charge, which is untrue. With the money the seller receives from the sale of the property, escrow is used to pay the buyer's agent. The NAR rule requiring all sellers to pay a buyer's broker a standard, non-negotiable compensation when listing a property through the Multiple Listing Service (MLS), according to the second and third lawsuits, which are class action lawsuits out of Kansas City and Chicago, is unfair, according to the plaintiffs in these cases.

Usually, that rate ranges from 2.5 to 3%. In California, this seems to be the seller's agent asking for a 6% fee, to be shared 50/50 with the buyer's agency after closing.

Real estate agents are afraid that the modifications being made to the California Association of Realtors' form might result in the present model being turned on its head. The California Association of Realtors claims that the changes are being made to the form in order to avoid litigation. "We know home ownership increases your wealth. So it's going to ex us out," said Anna Tutt, president of the Realtist. "That's the sad part of the puzzle, because now we're not passing on generational wealth." The Realtist is a trade association that represents African real estate professionals and dates back to the 1940s, when prejudice prevented Black agents from holding the title of realtor.

Nevertheless, a recent modification to a widely used real estate form by the California Association of Realtors has brokers worried that purchasers in the market may be asked to put down even more money to the tune of an extra 3%.

According to Rico Rivera, president of the National Hispanic Association of Real Estate Associates (NHORA), it may be disastrous. Rivera is worried about the recent modification to the contract known as the Seller Payment for the Buyer's Broker agreement, which governs how a buyer's agent is paid. A significant alteration to the state's real estate transactions might result from the modification in the form, which could indicate that the purchaser may be responsible for paying their agent. It will have an effect on populations with lower incomes. This will contribute to the growing wealth divide, which is something that worries Rivera even more.

A trio of cases causing controversy in the real estate sector prompted the California Association of Realtors (CAR) to modify the form. The National Association of Realtors (NAR), the parent company of the California Association of Realtors, and the U.S. Department of Justice reached a settlement in the first complaint in 2020. The Government sued the trade association on claims that NAR guidelines had permitted brokers to falsely claim that a buyers' agent's services were provided free of charge, which is untrue. With the money the seller receives from the sale of the property, escrow is used to pay the buyer's agent. The NAR rule requiring all sellers to pay a buyer's broker a standard, non-negotiable compensation when listing a property through the Multiple Listing Service (MLS), according to the second and third lawsuits, which are class action lawsuits out of Kansas City and Chicago, is unfair, according to the plaintiffs in these cases.

Usually, that rate ranges from 2.5 to 3%. In California, this seems to be the seller's agent asking for a 6% fee, to be shared 50/50 with the buyer's agency after closing.

Real estate agents are afraid that the modifications being made to the California Association of Realtors' form might result in the present model being turned on its head. The California Association of Realtors claims that the changes are being made to the form in order to avoid litigation. "We know home ownership increases your wealth. So it's going to ex us out," said Anna Tutt, president of the Realtist. "That's the sad part of the puzzle, because now we're not passing on generational wealth." The Realtist is a trade association that represents African real estate professionals and dates back to the 1940s, when prejudice prevented Black agents from holding the title of realtor.

Home purchasers being required to pay their agent's fees may become the new standard, according to Tutt, who expressed worry about the shift in paperwork. Less Black and brown purchasers could purchase homes if they must bring 3% more cash to closing. "Making the buyer pay the buyers' agent fee is actually going to force away not only Black buyers and Hispanic purchasers-all minorities," she said. Due to income disparity, greater student loan debt, and poorer credit scores, homebuyers from underrepresented groups often have less buying power.

Remember the $1.1 million national average for property prices? If the buyer is required to cover the cost of their agent, it will cost an extra $33,000 to complete the loan, increasing the out-of-pocket expenses from $71,500 to $104,500.

Home purchasers being required to pay their agent's fees may become the new standard, according to Tutt, who expressed worry about the shift in paperwork. Less Black and brown purchasers could purchase homes if they must bring 3% more cash to closing. "Making the buyer pay the buyers' agent fee is actually going to force away not only Black buyers and Hispanic purchasers-all minorities," she said. Due to income disparity, greater student loan debt, and poorer credit scores, homebuyers from underrepresented groups often have less buying power.

Remember the $1.1 million national average for property prices? If the buyer is required to cover the cost of their agent, it will cost an extra $33,000 to complete the loan, increasing the out-of-pocket expenses from $71,500 to $104,500.

Jennifer Branchini, president of the California Association of Realtors, said, "We're not going down the road where it's a required document at this time". Despite the availability of this new form, she told ABC7 News in an interview that she still thinks the present model, in which the seller is responsible for paying the buyer's agent, is the best choice. Most houses that are MLS listed include a compensation offer for the buyer's agents. So, very few purchasers are required to either pay the difference between what they and their realtor agreed upon or directly reimburse the agent, Branchini said.

When ABC7 News questioned her on the worries of Black and Latinx agents that a shifting pay model may drive potential Black and Brown buyers out of the already-expensive market, she said, "certainly, that is not what we want to see. Being inclusive to everyone in California having access to becoming a homeowner is front and center for all of that is at CAR."

More education is required, according to the real estate professionals. "It's not where it's forced yet, but it is an option. How do we make sure that we're still building generational wealth in our community?" insisted Tutt. It's a discussion agents need to have with their customers, according to Rivera. "We have to say 'Look, these are the homes that are paying my commission and these are the homes that are not.' So the buyer can make that decision."

The trade association, according to CAR, is monitoring how often the form is used internally and is attempting to inform its members about the change. According to Branchini, it won't ever be customary for the buyer to pay the agent.

Jennifer Branchini, president of the California Association of Realtors, said, "We're not going down the road where it's a required document at this time". Despite the availability of this new form, she told ABC7 News in an interview that she still thinks the present model, in which the seller is responsible for paying the buyer's agent, is the best choice. Most houses that are MLS listed include a compensation offer for the buyer's agents. So, very few purchasers are required to either pay the difference between what they and their realtor agreed upon or directly reimburse the agent, Branchini said.

When ABC7 News questioned her on the worries of Black and Latinx agents that a shifting pay model may drive potential Black and Brown buyers out of the already-expensive market, she said, "certainly, that is not what we want to see. Being inclusive to everyone in California having access to becoming a homeowner is front and center for all of that is at CAR."

More education is required, according to the real estate professionals. "It's not where it's forced yet, but it is an option. How do we make sure that we're still building generational wealth in our community?" insisted Tutt. It's a discussion agents need to have with their customers, according to Rivera. "We have to say 'Look, these are the homes that are paying my commission and these are the homes that are not.' So the buyer can make that decision."

The trade association, according to CAR, is monitoring how often the form is used internally and is attempting to inform its members about the change. According to Branchini, it won't ever be customary for the buyer to pay the agent.