California’s recent legislation, AB 2992, has made significant changes to the relationship between real estate brokers and “buyers” (including some tenants / lessees). It went into effect on January 1, 2025. AB 2992 includes the following changes:
AB 2992 makes other changes to the “broker-buyer” relationship including required disclosures for buyers’ agents, sellers’ agents, and dual agents. Clients should talk to their real estate brokers to learn all the details. Brokers need to stay current on changes in the law to give their clients the best possible advice and service.
For the full text of AB 2992, follow this link
AB 2992 is California’s response to the settlement of a federal class-action lawsuit, Burnett v. National Association of Realtors. In the Burnett case, the plaintiffs were home sellers who alleged that the National Association of Realtors (NAR) colluded with major brokerages to inflate commissions. They claimed that the NAR, through the Multiple Listing Service (MLS), discouraged brokers from showing listings when sellers offered lower commissions to the buyer’s agents.
The settlement provides, among other things, that the NAR will no longer require a broker advertising a home on the MLS to offer “upfront” compensation to the buyer’s agents. In addition, MLS listings can no longer display broker compensation. Finally, real estate brokers and agents can no longer be required to join the MLS to do business or receive fees.
This summary is adapted from the California Legislative Analyst’s report on AB 2992. For the full analysis, follow this link
The Burnett v. NAR case. The Burnett v. NAR case came from the residential real estate industry and the MLS. Brokers and agents were required to join the MLS, and the MLS effectively forced sellers to pay buyers’ broker commissions. Real estate commission should be negotiable, but the MLS made it a requirement. That was the crux of the lawsuit.
The Ivy Group only specialize in commercial real estate, so we rarely use the MLS except to conduct research on certain kinds of data. For commercial listings we use premium commercial real estate platforms such as CoStar, LoopNet and CREXI.
Before the settlement, the MLS required us to join and to buy memberships for each of our licensed agents, even though we hardly need the MLS to conduct our business. We might go years without using the MLS, but that’s the way the MLS business model operates. It can cost each agent about $800 per year to be a MLS member.
Dropping the MLS requirements is a part of the settlement that doesn’t get as much attention as other parts of the settlement, but it’s important for both brokers and clients.
Broker commissions and having “the talk.” Another important point the NAR settlement brings up is to discuss commissions. The old days of a “standard commission” of 5% or 6% are over. Brokers need to talk to their clients and offer them choices. It’s like a parent having to talk to their kids about “the birds and the bees”, discussions are better when it starts earlier. Some parents dread discussing the “birds and the bees”, but if they neglect or delay, the kids may get into trouble or hear things from their friends.
At the Ivy Group, we are truly transparent about commissions. We disclose how commissions work before signing a listing agreement, so our clients can make the best decisions whether they are sellers or buyers, landlords or tenants.
Traditionally, sellers and landlords paid commissions for both sides, but that’s just moving numbers around. For example, if the broker represented the seller of a $2 million property, the broker might recommend setting aside 5.0% of the sales price for commissions to compensate both the seller and buyer brokers. However, if the seller wishes to compensate the seller’s broker only, then the listing price could be reduced by 2.5%. The key is to allow the seller to have the option to compensate both the seller and buyer brokers, and not make it a strict requirement.
It’s the same with landlords and tenants. Most of the time the landlord will cover the commissions for both the landlord and tenant brokers, but that’s optional. And the landlord may adjust (increase) the rental rate to cover commissions, so it really can be a case of moving numbers around. Clients need to be aware of these details.
When the Ivy Group makes a listing proposal to represent a client, we lay out all the options. If the client has specific questions we can dig deeper into the issues. Most of our clients aren’t so focused on commissions. They’re really more interested in getting the best possible results and customized experience.
News reports may say that the commercial real estate sector is saturated with properties, and the oversupply could drive down demand and broker commissions. But sophisticated clients are willing to pay higher commissions to generate more activities, and possibly multiple offers for better results and leverage. It’s a question of finding the right property, in the right location, with the right amenities. Sellers and landlords don’t want to let their property sit on the market for too long. Buyers and tenants want to get their businesses started. You get what you paid for.
You may be wondering how the NAR lawsuit settlement and AB 2992 affect my business? For the Ivy Group, AB 2992 hasn’t brought major changes to the way we operate. We’ve always been transparent, and we always try to get a written listing agreement before starting to work with a client. Complying with the new requirements set by AB 2992 has always been normal business for us, and we stay current on the latest legal changes for everyone’s protection.
The industry as a whole will have to tighten up a bit. For example, we’ve seen open house signs that say, “We pay buyers’ brokers.” Those marketing practices need to change. There are more nuances as to what brokers are legally permissible to advertise.
For example, written agreements with individuals can only be for 90 days without automatic renewals. On the other hand, when a broker represents an entity, such as a corporation or an LLC, that restriction doesn’t apply. There are also disclosures required for buyers’ agents, sellers’ agents, and dual agents. Brokers need to be aware of all the detailed requirements or risk consequences.
We don’t expect major changes ahead to AB 2992, although there may be “tweaks” or small changes over time. The NAR settlement has been approved by the court, so changes to it should not be a concern going forward. Brokers will need to stay informed about future changes and make sure they are using up-to-date legal forms and following other best practices.
It is more important than ever for brokers to discuss the details of the representation with their clients. That includes commissions but also finding out exactly the client’s wants and needs. Healthy discussion and better relationships will bring better results for everyone, both brokers and clients.
When you need to sell, buy, or lease, the Ivy Group is ready to help you reach your goals with more than 100 years of combined experience and expertise in real estate, investment, technology and engineering. Contact us with your next real estate needs.
Copyright ©️ 2025 by Tim Vi Tran, SIOR, CCIM. All rights reserved.
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