New Laws 2025 Special Edition: Mandatory Buyer Broker Agreements

Assembly Bill 2992

As we head into 2025 (Happy New Year to you all), there is a significant new law that merits discussion: AB 2992. 2024 will likely be remembered as the year that the buyer-broker and buyer relationship fundamentally changed due to the Sitzer/Burnett settlement (the “Settlement”), and with this new law, far more expansive regulation will continue these changes in California. Let’s take a look at how AB 2992 has changed the law.

Commencing January 1, 2025, AB 2992 has been codified in various amendments to portions of the Business and Professions Code, Civil Code, and Code of Civil Procedure. (See Bus. & Prof. Code, § 10147.5 [requiring a conspicuous notice in compensation agreements that compensation is negotiable and not set by law]; Civ. Code, § 1670.50 [adding the new requirements for buyer-broker representation agreements as a matter of law], §§ 2079.13 [adding a definition of “buyer-broker representations agreement” to the code’s definitions]; 2079.14 [requiring disclosure pursuant to Civil Code, 3079.16 prior to entering into a buyer-broker representation agreement]; 2079.16 [including new language incorporating the buyer-broker representation agreement]; Code Civ. Proc., § 1298 [adding new language incorporating the buyer-broker representation agreement].) These changes to the law are the Legislatures attempt to address the concerns raised by the Sitzer/Burnett Settlement.

Civil Code, section 1670.50 will state: “A buyer-broker representation agreement shall be executed between a buyer's agent and a buyer as soon as practicable, but no later than the execution of the buyer's offer to purchase real property.” (Emphasis added.) All agreements will be required to include the compensation to be paid to the broker, the services that will be provided, the time that compensation will be due, and the timing of the termination of the contract. (Civ. Code, § 1670.50(b)(1)–(4).)

Unlike the Settlement, which only applies to residential 1–4 unit properties, AB 2992 applies to all real property, including 1–4 units, multi-unit residential with more than 4 units; commercial real property; vacant land, manufactured or mobile homes, and a ground lease that includes improvements. (Civil Code, § 2079.13.) Importantly, AB 2992 does not apply to leases or rental agreements, sales of state or federal land, or loan brokerage services.

Further, unlike the Settlement which applies only to MLSs, AB 2992 will apply to anyone who is licensed in California to sell real estate. (Civ. Code, § 1670.50(e).) Whether or not you are covered by the Settlement, if you are licensed in California as a real estate broker or agent, you must comply with the statute. When it comes to time limits under the new law, buyer-broker representation agreements cannot last longer than 90 days unless it is between a broker and a corporation, LLC, or partnership. (Civ. Code, § 1670.50(d)(1).) This time limit also applies to any renewals of existing buyer-broker representation agreements. (Civ. Code, § 1670.50(d)(2).) Moreover, renewals under AB 2992 must be in writing, signed by all parties to the agreement, and cannot exceed the time limit. (Ibid.)

As a consequence of failing to adhere to Civil Code, section 1670.50, any agreements that violate its provisions are void and unenforceable. (Civ. Code, § 1670.50(d)(3).)

A quick aside, while AB 2992 does not technically apply to leases or rentals, the terms of the Settlement have removed all mentions of buyer broker commissions from the MLSs. Practically, this means listing brokers will not be including compensation in MLS lease or rental listings. To memorialize the compensation rate for the tenant-broker, and to enable them to negotiate commission with the listing broker (off the MLS) and with their clients, it will probably be best practice to incorporate using a written agreement between the tenant and the tenant’s broker. There is a California Association of REALTORS® (C.A.R.) form for tenant representation agreements that facilitates this.

Key Takeaways:

• A written agreement between the buyer-broker and buyer explicitly stating the compensation the buyer-broker will receive must be in place “as soon as practicable”  but no later than the time an offer is made on the concerned property.
• This requirement for a written agreement between the buyer-broker and buyer establishing the compensation to be paid to the buyer broker applies to all real property and all licensees with limited exceptions. (See discussion supra, discussing the limited exceptions to AB 2992’s application.) AB 2992 applies to all transactions dealing with residential 1–4 units, multi-unit residential with more than 4 units, commercial real property, vacant land, manufactured or mobile homes, and ground leases that include improvements.
• AB 2992 will apply to all real estate licensees licensed by the State of California.

Happy New Year! And as always, if you have specific questions concerning AB 2992 and how to ensure you and/or your clients comply with the changes, be sure to consult with a licensed attorney with knowledge of the real estate industry and the changes taking place.