The Department of Justice (DOJ) raised some eyebrows when it hinted that buyer representation agreements, if used as mandated in the National Association of Realtors’ (NAR) commission lawsuit settlement, may be a source of future antitrust litigation based on its statement of interest in the Sitzer/Burnett suit. But in Alabama, this proclamation did more than just pique the interest of the state’s Realtor trade group.
Earlier this year, the Alabama Association of Realtors began working with lawmakers in the state to champion a bill that would prevent consumers from being forced to sign a buyer representation agreement before they can tour a property with a Realtor. The bill passed the Alabama House of Representatives in mid-February and is currently on the calendar of the state Senate’s banking and insurance committee for further review.
While Alabama-based brokerage leader Anna-Marie Ellison said she supports the state association’s efforts, she also said her agents have not expressed concerns about signing a buyer representation agreement prior to touring a house with a prospective client.
“We haven’t noticed too much of a change in operating procedure, at least with the agents at our firm,” said Ellison, the qualifying broker at ARC Realty. “I think agents are definitely doing more on the buyer presentation and initial consultation side, laying out what clients can expect from them and what they expect from clients. And that is positive.”
Legislative wranglings
Buyer representation agreements are not new for consumers and agents in Alabama, but the timing of when they must be signed under the NAR settlement is certainly sooner than most were accustomed to. But Ellison said that her agents have not had any issues with clients about these agreements.
Under current state law, real estate professionals must provide clients with a written disclosure for describing the types of brokerage services, as required by the state’s Real Estate Consumers Agency and Disclosure Act (RECAD), prior to a consumer disclosing any confidential information. A further written agreement between parties is then required to establish an agency relationship, but it is not required to establish a transaction brokerage relationship.
According to the bill, the NAR settlement rule surrounding buyer representation agreements conflicts with the existing state law, an issue that House Bill 230 seeks to fix. If passed, the bill would provide that after the state-mandated disclosure, a consumer can enter into a buyer representation agreement with their agent if they choose, but they are not required to enter into a written brokerage agreement as a prerequisite to the real estate professional showing them a property.
But the agent and their client would be required to execute a written brokerage agreement to submit an offer on a property. Additionally, as NAR’s settlement maintains, any brokerage agreement entered into must provide terms of compensation to the agent and their company.
“You want to be able to establish a relationship with a professional you’re going to be working with. That’s one of the biggest complaints from consumers,” Jeremy Walker, the CEO of Alabama Realtors, said on an episode of Capitol Journal in February. “They may see a property listed, or know someone and want to work with them and see a property, but they don’t want to be forced into a buyer agreement too soon.
“They want to get to know you before they say, ‘Hey, I want to work with you.’ And that’s where we want to get that part right,” Walker added.
Becoming a ‘good fit’
Amy McCann, the district sales manager and agent at The Keyes Co. in Florida, agrees that it takes time for agents and their clients to establish a rapport. She said that no one should rush into signing a six-month exclusive buyer representation agreement with an agent they don’t know. And she explained that this is why agents at her firm use a variety of agreements.
“In Florida, we have showing agreements and they are malleable in the sense that you can adjust them, because a buyer really wants to know you and trust you before they really make a commitment,” McCann said.
“You can lock them in for the properties you are going to see that day or that week, but it doesn’t have to be a three-month-long agreement. After that day or that week, then you can talk about extending that agreement as they get to know you and understand how you work. Just because I am the first person you call when you want to look at a house doesn’t necessarily mean that you and I are going to be a good fit.”
According to McCann, the flexibility of these agreements allow agents and consumers to make sure they have a good rapport before entering a long-term business relationship.
Further up the East Coast in Massachusetts, Anthony Lamacchia spent months training his agents on these agreements. The broker-owner of Lamacchia Realty said his agents have had no issues with consumers in this area.
“Buyers don’t really seem to care,” Lamacchia said. “If the agent explains it well and it is clear that the agent knows what they are talking about, then most buyers are fine with it. There are way more buyer agreements getting signed now than ever in history, so it is becoming normal for consumers, which means that it is easier to get them signed.”
Like many other brokers, NextHome CEO James Dwiggins appreciates that people are concerned about antitrust issues and the DOJ. But he also thinks this law could open up agents to more liability rather than protecting them from further litigation.
“The reason why the buyer rep agreement is there — and the reason why NAR agreed to it and the lawyers pushed for it — was to remove any potential steering from the conversation,” Dwiggins said. “If you are required to sign a buyer rep agreement with an agent, and outline your fees and services in advance of showing any house, there will not be any potential steering issues because you’ve agreed to your rate of compensation before you look at any properties.
“What Alabama is missing in this particular regard is the fact that they’re opening themselves up and their members up for potential steering claims again. I think it is a bad move.”
According to Dwiggins, if a consumer is having an issue with signing a buyer representation agreement, then there was an issue in how it was presented to the client — especially considering the flexibility of the agreements, as McCann highlighted.
“Just be clear with them that if they want you to act as their fiduciary even on one specific property, then they have to sign an agreement for that property, but that does not mean they have to work with you to see other houses,” Dwiggins said. “It’s just not a big, complicated conversation.”
Attempt at clarity
Although the potential steering issues Dwiggins mentions may concern some real estate professionals, these risks are not tipping the scales for Alabama Realtors when it comes to the DOJ’s warning.
The industry has faced numerous consumer lawsuits and an investigation by the DOJ over allegedly anticompetitive practices. In this light, it’s understandable that when the DOJ claims the NAR settlement-mandated buyer representation requirement “bears a close resemblance to prior restrictions among competitors that courts have found to violate the antitrust laws in other proceedings,” some professionals may start looking to their legislatures for protection.
Back in Alabama, Ellison feels that while the bill may be redundant, it does create some clarity on when a buyer agency agreement should be signed.
“There has been a lot of confusion on the part of us real estate practitioners on buyer representation agreements,” Ellison said. “I understand the hesitation and the reservations that a buyer can have about signing a document before they even really get to know you as their agent.
“But I think that it is positive that it gives some clarity to the fact that this needs to be signed before you write up an offer. When you list a house, nobody puts a sign in the yard without a signed agreement, so this creates a more concrete standard on the buy side.”
