Justice Department investigates California Realtors’ sales paperwork

Federal investigators will look into California Association of Realtors’ forms and contracts that a national consumer group calls “anti-consumer” and “unreadable.”

The U.S. Justice Department has launched a “formal inquiry” into the trade group’s paperwork for home sales drafted ahead of a national real estate commission settlement slated to take effect next month, the Orange County Register reported.

The Consumer Federation of America maintains the documents contain “anti-consumer provisions,” according to an analysis. It said the association’s new buyer-agent representation agreement was “too disorganized and complex for the average homebuyer to understand.”

The 200,000-member California Association of Realtors, in response, said that the Consumer Federation had issued a “misguided critique” of draft forms that remain “a work in progress.”

The local trade group has been revising dozens of standard forms, addenda and contracts to comply with the commission settlement set to go into effect Aug. 17. Realtors use the forms and contracts for housing transactions.

The National Association of Realtors reached the proposed settlement in March with plaintiffs in a federal class-action lawsuit challenging seller payments of buyer agent commissions.

The settlement would ban home-sales agents from posting offers to pay buyer commissions in an MLS, a Realtor-run listing database. Such offers still could be publicized by other means, and seller-paid commissions could continue. Home shoppers must sign contracts with agents before visiting any homes. 

One Realtor-group official estimated that four out of five buyers close on a home without such a contract.

In late June, the California Association of Realtors said it would delay the release of 19 forms after receiving the Department of Justice inquiry, saying it needed additional time to consider the department’s concerns, according to the Register.

Association officials declined to reveal details of the inquiry or to say what the DoJ’s concerns were. Justice Department officials also declined to respond to a reporter’s request for details of the probe.

While the government has looked into “potentially anticompetitive conduct” by NAR and has monitored the commission settlement, this is the first public report that a federal agency has launched an investigation of the state Realtor group.

The Consumer Federation issued 19-page critiques of two new California Association of Realtors contracts — the “Buyer Representation and Broker Compensation Agreement” and the “Residential Listing Agreement.”

In a June report, University at Buffalo law professor Tanya Monestier called the buyer representation agreement “virtually unreadable” because of its formatting, numbering and lettering scheme, extensive cross-referencing and “complicated and inconsistent language.”

“No layperson will be able to understand and appreciate the terms they are agreeing to,” Monestier wrote.

She added that pay provisions “are drafted in a way that disguises the obligation of the buyer to pay his agent” and “telegraph how Realtors plan to circumvent the NAR settlement.”

In a separate report, Monestier wrote that only 20 percent of CAR’s listing agreement, a “monster of a document” that sets out terms for a home sale, would be understandable to the average seller. In addition, she wrote, CAR’s draft listing agreement contained “provisions that are substantively unfair to a seller.”

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The Realtor association argued in online posts that Monestier’s critiques contained flaws. It said it was “absurd” to suggest that offers of compensation outside the MLS bypasses the NAR settlement.

“The (Consumer Federation) report contains wild speculations that brokers using CAR forms will try to get around the NAR settlement,” the association said. “CAR supports the goals of the settlement.”

— Dana Bartholomew