TOP REAL ESTATE AND DEVELOPMENT LAWYERS 2025
Buyer-broker relationship overhauled: Key changes under AB 2992 By Bryan Mashian
E ffective Jan. 1, 2025, California Assembly Bill 2992 introduced groundbreaking changes to the buyer-broker relationship. This law mandates that all brokers representing real estate buyers must sign a representation agreement with their clients, a move designed to enhance transparency and accountability regarding services, compensation and responsibilities. The legislation represents one of the most significant shifts in California real estate law in recent years, with far-reaching implications for buyers and brokers alike. Timing: Agreement required early in the process A key provision of AB 2992 is the requirement that a written buyer- broker representation agreement be signed “as soon as practicable,” but no later than the execution of the buyer’s offer. This change now not only mandates a written broker-client relationship but also requires this agreement much earlier than was customary in the past. Brokers must now take proactive steps to secure agreements with buyers before significant progress is made in the deal, ensuring that expectations and obligations are clearly outlined. This timing requirement encourages informed decision-making and ensures buyers understand the nature of the services they are receiving, the costs associated with them, and the options available for compensation. Compensation: Who pays? By requiring early execution of a buyer-broker agreement, the law ensures that buyers are aware of their options, including: • Requesting the seller to pay:
Buyers can request that the seller cover all or part of the buyer’s broker fees. While sellers may agree to such requests in competitive markets, they are under no obligation to do so. • Paying the broker directly: If the seller declines, buyers may opt to pay their broker out of pocket, which would be in addition to the purchase price and other transaction-related costs. • Exploring dual agency or proceeding without representation: Buyers may also consider dual agency arrangements or forgo representation altogether, although both options carry risks. For many buyers, particularly those purchasing residential properties, the financial burden of paying broker fees directly may be prohibitive. As a result, the practice of seller- paid commissions, which remains common, is likely to continue as a preferred option in many transactions. Core provisions of the agreement The buyer-broker representation agreement must include several key elements to comply with AB 2992: 1. Services provided: A description of the services the broker will perform on behalf of the buyer. 2. Compensation details : The amount and structure of the buyer’s agent’s compensation. 3. Payment terms: When compensation is due, whether upon closing or at another stage of the transaction. 4. Expiration date : A specified end date for the agreement. Limits on duration and renewal To further protect consumers, AB 2992 imposes strict limits on the
duration and renewal of buyer-broker agreements with individual buyers: • Term of the agreement cannot exceed three months. • Automatic renewal clauses are prohibited. • Any renewal must be in writing, signed, and dated, with each renewal limited to three months. Notably, these restrictions do not apply to agreements with corporate buyers, LLCs, or partnerships. Scope of applicability The buyer-broker representation agreement requirement applies to all property purchases, including residential and commercial real estate. This includes properties listed on the Multiple Listing Service (MLS) as well as those that are not. However, the law does not extend to lease or loan transactions, providing some flexibility for brokers handling such deals. Compliance and enforcement: Serious consequences The penalties for non-compliance with AB 2992 are substantial, highlighting the importance of adhering to the new requirements: • Void agreements: Agreements that do not meet the statutory requirements are void and unenforceable, preventing brokers from recovering commissions. • Licensing violations: Brokers who fail to comply with the law are also deemed to have violated real estate licensing regulations, exposing them to disciplinary action from regulatory authorities. Implications for buyers and brokers The impact of AB 2992 will likely vary based on the type of property, the
price range, and the sophistication of the parties involved. For residential transactions, where many buyers are usually less familiar with real estate processes, the law provides significant consumer protections by ensuring transparency and fostering trust between brokers and their clients. In commercial transactions, where buyers often have greater experience and access to resources, the requirement for a written agreement ensures that even sophisticated parties benefit from clear, consistent standards. Looking ahead: Evolving practices As AB 2992 takes effect, its full impact on brokerage practices remains to be seen. Buyers, meanwhile, will benefit from greater clarity and transparency, empowering them to make informed decisions about representation and compensation. For brokers, the written agreement offers a layer of protection, formalizing their relationship with clients and providing a clear basis for compensation.
Bryan Mashian is a real estate attorney at Mashian Law Group and chair of the AIR CRE Contracts Committee.
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