California has recently enacted Assembly Bill 2992 (AB2992) in September, a new law that significantly impacts real estate transactions in the state. This legislation, sponsored by the California Association of Realtors (CAR), now mandates buyer representation agreements, with specific implications for the commercial sector. In November, new amendments have also been made to the bill and here’s what you need to know.

We also made a video explaining this issue.

Key Amendments to AB2992

Mandatory Disclosure: For residential properties with up to four units or mobile homes, agreements must include a notice in 10-point boldface type stating that real estate commissions are not fixed by law and are negotiable.

• Compensation Transparency: The actual amount or rate of compensation must not be printed in these agreements.

• Buyer-Broker Representation Agreement: This must be executed "as soon as practicable," but no later than when the buyer submits an offer to purchase property.

• Time Limit: For individual buyers, these agreements cannot last longer than three months from the date of execution. This limit does not apply to agreements with corporations, LLCs, or partnerships.

• No Automatic Renewals: Renewals must be in writing, dated, and signed by all parties.

• Scope of Agreement: The agreement must include terms related to broker compensation, services to be rendered, when compensation is due, and contract termination.

Impact on Commercial Real Estate Practices

• Standardized Processes: This law will lead to more uniform practices across both residential and commercial real estate sectors.

• Client Relationship Management: Commercial brokers will need to adjust their approach to initiating and developing client relationships, ensuring agreements are in place early in the process.

• Transaction Timeline Adjustments: With the 3-month limit for individual buyers, brokers may need to reassess their long-term client engagement strategies.

• Compliance Challenges: Commercial brokers dealing with complex, long-term deals may face challenges in adhering to the new timing requirements.

• Level Playing Field: The law eliminates any advantage previously held by independent agents who were not bound by NAR settlement requirements.

Benefits for Clients and Brokers

• Clear Expectations: Early agreements help set clear expectations for both parties from the outset.

• Enhanced Protection: Clients benefit from increased transparency and legal protection throughout the transaction process.

• Committed Service: Brokers can provide more focused and dedicated service with a formal agreement in place.

• Improved Negotiation Power: With clear representation, brokers can negotiate more effectively on behalf of their clients.

While AB2992 presents some challenges, particularly for commercial real estate professionals accustomed to more flexible arrangements, it also offers opportunities for more structured and transparent client relationships in the commercial real estate sector. The amendments aim to increase transparency and protect consumers while standardizing practices across the industry.

Have more questions regarding the latest law or regulation amendments? Contact us at 310-943-8530 or info@cbicommercial.com.