C.A.R. Updated and New Forms Coming in 2025

December 17, 2024, marks the release of the new forms from the California Association of REALTORS® (“C.A.R.”). In total, C.A.R. is releasing/modifying more than 50 forms. Given the amount of changes in the industry this year, especially related to the broker compensation structure, the large volume of changes and new forms is not a surprise. This article will summarize some of the important changes being made to existing forms that are used frequently in transactions or, in the case of new forms, those that are likely to be used frequently moving forward.

REVISED FORMS

Residential Purchase Agreement and Joint Escrow Instructions (RPA)

Perhaps the best form to start our discussion with is the RPA. Its use is ubiquitous among REALTORS® in California and many modifications being made to already existing forms flow from the changes being made here. Critically, the RPA now has a new Paragraph, 3G(3), whereby the amount of compensation the seller is to pay the buyer’s broker is made explicit and the buyer makes an affirmative representation that a written agreement between the buyer and the buyer’s agent exists related to the property (complying with AB 2992’s requirement that a buyer representation written agreement exists no later than the time an offer is made on a property). Moreover, the buyer is making a representation that compensation to the buyer’s broker in the buyer’s broker’s representation agreement is not for less than what is noted in Paragraph 3G(3).

Further, and important for any buyer’s brokers who are party to an agreement where the seller agrees to compensate the buyer’s broker under this paragraph, new section 18A(3), makes explicit that the buyer’s broker is a third-party beneficiary to the agreement where the seller agrees to compensate the buyer’s broker. From a legal perspective, this is critical, because the RPA now makes explicit the buyer’s broker is an intended beneficiary of the agreement to purchase the property where the seller agreed to make payments to them under Paragraph 3G(3). This means in the event the seller fails to pay the buyer’s broker under Paragraph 3G(3), the buyer’s broker can directly pursue the seller for breaching the contract.

Additionally, and in line with the principles underlying the Sitzer/Burnett Settlement (“Settlement”) and the new legislation (California AB 2992) that seek to ensure broker compensation is open and honest, the RPA also added Paragraph 19D(2) which requires escrow holders to provide closing statements to the buyer and seller respectively detailing the compensation their respective brokers received. Further, the RPA also identifies how much in credits the buyer’s broker received from the seller in the event where the seller provides credits to the buyer’s broker.

Some minor changes to the RPA include adding language providing more identifying language for entity sellers and buyers and their agents. As noted above, various forms received changes to account for these modifications to the RPA with the same language being added. These forms include the: Already-Built Subdivision Purchase Agreement and Joint Escrow Instruction (ABSPA); the Condominium Conversion Subdivision Purchase Agreement and Joint Escrow Instructions (CCSPA); the Commercial and Residential Income Listing Agreement (CLA); Commercial Purchase Agreement and Joint Escrow Instructions (CPA); the New Construction Purchase Agreement and Joint Escrow Instructions (NCPA); the Notice of Default Purchase Agreement (NODPA); the Residential Listing Agreement – Exclusive (RLA); Residential Listing Agreement – “Open” (RLAN); and the Vacant Land Purchase Agreement and Joint Escrow Instructions (VLPA) forms.

Buyer Representation and Broker Compensation (BRBC)

Despite the significant changes that were incorporated into the BRBC in the July 2024 modifications that accounted for the new rules under the Settlement and the anticipated changes coming with AB 2992 in January, an additional adjustment was made. Specifically, Paragraph 9B(2) was added to clarify a buyer’s broker’s obligations to the buyer in the event the buyer does not have sufficient funds to pay the buyer’s broker at the time the BRBC is executed. Language was added to clarify that the obligations to represent the buyer are contingent upon entering into an agreement whereby the seller agrees to compensate the buyer’s broker for the amount agreed to in the BRBC. Accordingly, Paragraph 2G(2) was added to incorporate new Paragraph 9B(2) into the grid identifying the terms of representation.

Cancellation of Buyer Representation (COBR)

Piggybacking on the changes made to the BRBC regarding representation being contingent on the seller agreeing to compensate the buyer’s broker, here, the COBR added specific language for when the broker is terminating the representation agreement citing specifically to the BRBC in Paragraphs 2(G)2 and 9B(2); e.g., representation is being terminated because the seller would not agree to compensating the buyer’s broker. The COBR provides for unilateral or mutual cancellation of the representation.

Option (To Buy) Agreement (OA)

The OA was adjusted to use the new grid formatting that was also added to the RPA earlier this year. Here, Paragraph 1 now contains a grid describing all the negotiable terms within the OA. Additionally, all the terms were reviewed to ensure compliance with existing and new law.

Open House Visitor Non-Agency Disclosure and Sign-In (OHNA-SI)

Here, admittedly the change is very minor. Notably, the only change to the OHNA-SI is a parenthetical being added to the title of the form that notes the scope for using the form which includes individual private showing as well as open houses. It is worth mentioning OHNA-SI, however, because the use of this form took on new importance in light of changes to the broker compensation model post-Settlement. Under the Settlement, buyer’s brokers must have a written agreement for compensation in place prior to “touring” a property. Under AB 2992, buyer’s brokers must have a written agreement for compensation in place as soon as “reasonably practicable” but at no point later than making an offer. Many listing agents have expressed concerns about potential liability for letting prospective buyers tour a property when those buyers do not have an existing BRBC agreement in place with another broker. Here, the use of this form makes explicit to the prospective buyer that when they tour the property, the seller’s agent is not representing them. Using this form has the benefit of giving the prospective buyer notice that the seller’s agent works exclusively to the benefit of the seller while also protecting the seller’s agent within the new post-Settlement rules requiring buyer’s broker representation agreements with the buyer before touring a property with the buyer.

Residential Listing Agreement – Exclusive (RLA) and Residential Listing Agreement – “Open” (RLAN)

Since these forms are nearly identical, with the exception of the exclusive nature of the RLA and non-exclusive nature of the RLAN, they can be discussed together given the changes to the forms are identical.

Both the RLA and RLAN have been modified to authorize the broker to advertise the seller’s willingness to consider offers that ask for concessions from the seller. Additionally, Paragraph 10 in the RLA and the RLAN were added to clarify what concessions can (but are not required) to include. Among other things that can be concessions, the forms note that sellers can make concessions to pay the buyer’s costs of title and escrow, lender fees, repairs, inspections, and buyer’s broker compensation.

Critically, keep in mind the rules of the Settlement now ban mentioning buyer’s broker compensation on the MLS. This does not change the fact, however, that a seller agreeing to pay the buyer’s broker compensation, is itself a form of a concession. To incorporate the new rule that prohibits advertising buyer’s broker compensation on the MLS, while at the same time acknowledging sellers can agree to pay buyers’ brokers compensation as a part of a negotiated transaction, the new language states that concessions that are specified in the MLS “must not specify they are to be used for broker compensation,” i.e., brokers cannot use “concession” as a euphemism to advertise buyer’s broker compensation on the MLS. (RLA, Paragraph 10; RLAN Paragraph 10.).

Both forms then go on to clarify that concessions for the seller to pay a portion (or all) of the buyer’s broker’s compensation can be a term of a buyer’s offer. (Ibid.) This is the RLA’s and RLAN’s way of preventing bad faith agents trying to work around the new rules prohibiting mention of a buyer’s broker compensation on the MLS by identifying it is a “concession” that must be applied towards the buyer’s broker’s compensation.

NEW FORMS

Transfer of Buyer Representation Agreement (TOBR)

Here, we have an entirely new form that will help address situations where a buyer’s agent moves from one brokerage to another but continues to work on an existing buyer representation agreement or escrow originating under the original brokerage. A whole slew of issues potentially arise in this situation, especially if the transfer is not properly documented.

Under Paragraph 1 of the TOBR, the buyer agrees to transfer the existing representation agreement to the new brokerage. Under Paragraph 2, either the buyer or the new brokerage agrees to compensate the original brokerage for releasing the representation to the new brokerage. It is also an option under Paragraph 2 for the listing to transfer to the new brokerage without compensation being paid to the original brokerage.

Paragraph 3 makes explicit that along with the transfer of the listing, the agency relationship with the original brokerage and the principal no longer exists. Here, the TOBR also requires the buyer, new brokerage, and original brokerage to execute a Cancellation of Agency Confirmation (CAC) to document the termination of the agency relationship.

Paragraph 4 of the TOBR addresses situations where escrow is already open on a property prior to the transfer and requires the new brokerage to execute an Agency Confirmation (“AC” Form) and provide it to the buyer and the seller. Further, this Paragraph requires the new brokerage to execute all necessary documents to facilitate the escrow.

Note: The TOBR is valid regardless of whether the agent working the transaction executes the form. For a valid TOBR to be enforceable, the necessary signatories are: the new brokerage, the original brokerage, and the principal (usually the buyer). There is a signature block for the agent to sign (as well as terms related to the agent in Paragraph 6), however, the agent is not a necessary party to the TOBR. In most situations, though, it is probably best practice to have the agent sign the TOBR as a matter of accurate record keeping for the applicable file.

Cancellation of Agency Confirmation; Amendment to Purchase Agreement (CAC)

The CAC is a dual-purpose form and is related to the new TOBR and the modified BRBC. Here, the first section of the form applies where the broker withdraws representation and terminates the agency relationship prior to the purchase agreement being accepted. Such a situation could occur where, as discussed under the new changes to the BRBC, the seller refuses to pay a portion or all the buyer’s broker’s compensation, and representation of the buyer in the transaction was made contingent on the seller agreeing to pay the buyer’s broker’s compensation under Paragraphs 2G(2) and 9B(2).

The bottom half of the CAC, referenced as a necessary document to execute in the TOBR discussed supra, applies where the principal (buyer or seller) is moving from one brokerage to another. Here, the CAC acts as an amendment to the purchase agreement it modifies. It provides a reference to the original brokerage in the purchase agreement working on behalf of the buyer or seller, and then explicitly modifies the existing purchase agreement with the information of the new brokerage taking over the relationship with the principal. Signatories include: the buyer, seller, seller’s brokerage, and the buyer’s brokerage.

Estimated Compensation Costs for Buyer (ECC-B) and the Estimated Compensation Costs for Seller (ECC-S)

Once again, we have two forms with nearly identical purposes, to inform the seller and the buyer how the broker compensation model agreed to in the transaction will affect the bottom line for the respective parties. The main difference between the ECC-B and ECC-S forms is that they are utilized on opposite sides of the transaction, and therefore drafted accordingly to fit the proper perspective.

Among the new forms being released, these may be some of the more commonly used in the near future. This is because with the changes to buyer broker compensation under the Settlement and AB 2992, the ECC-B and ECC-S forms are inherently practical ways to help the buyer and seller agents walk their respective clients through how the bottom line of the transaction is affected based on the manner the buyer’s agent is being compensated in. Both forms walk through the three possible iterations of how the buyer’s broker will be compensated: 1) fully by the seller through a negotiated agreement with the buyer; 2) partially by the seller through a negotiated agreement with the buyer; or, 3) the seller pays no buyer’s broker compensation. A grid is used for both forms to provide a worksheet to show the various iterations of the compensation models that can be agreed to.

Offer of Tenant Positive Rental Payment Reporting (TRPR)

Switching modes into the landlord-tenant realm, the TRPR accommodates the changes being initiated by AB 2747 (which will come into effect in April 2025). Under AB 2747, landlords will be required to offer tenants the option of reporting positive rental payments to credit bureaus. The TRPR allows tenants to either opt in or out of the reporting and incorporates the statutory cap on fees the landlord can charge for doing the reporting where the tenant opts in (the lesser of the actual cost to the landlord to do the reporting or a set monthly service fee of $10.00). Given landlords must provide the option for positive rental payment information to their tenants now as a matter of law, use of this form will likely be desirable for the purposes of documenting compliance with the law.

Author’s Note: This article was drafted utilizing materials provided by C.A.R.  For guidance on how, when, or if a certain form should be used in a specific transaction, the reader should consult with licensed counsel who has experience with the forms and relevant laws and legal issues at play.