By: D. Keith Dunnagan, Esq.
January 28, 2025
New Laws Affecting Real Estate Transactions
Two new laws went into effect on January 1, 2025 that could have potential effects on the real estate transaction process.
The first was Assembly Bill 2992, which requires the use of buyer representation agreements. As we all recall, in October 2023 the National Association of Realtors (“NAR”) lost a major class action case. The fallout sparked massive amounts of copy cat litigation across the country that was ultimately settled by NAR in a nationwide settlement. As part of that settlement, the buyer-broker agreement was required without much in the way of law or regulation on the implementation of the contract. The California legislature addressed and passed a bill governing the use of buyer-broker agreements.
Under the law buyer-broker representation agreements must be used in all transactions involving 1-4 unit residential dwellings, multi-unit residential dwellings in excess of 4 units, commercial property, vacant land, manufactured homes and ground leases with improvements. Basically, all transactions except leases and sales of state or federal land now require a buyer representation agreement.
Under the original settlement, one thing that was causing consternation in the real estate industry was the requirement to obtain buyer-broker representation agreements prior to showing any property. Under the law, the representation agreement now must be obtained as soon as practicable but no later than the buyer’s execution of an offer to purchase property. This should provide agents some relief on the impracticality of trying to get representation agreements before showing any properties.
The agreement must include the compensation the broker will receive, services to be rendered by the broker, when compensation is due and contract termination. Under the law, a buyer representation agreement may be for no longer than three months, which may cause some difficulty for agents as many buyers are taking many months to acquire a property. Be aware of the time constraints so that new agreements are obtained and do not be tempted to use automatic renewals as those are specifically prohibited by the statutes.
The requirements spelled out bring some clarity to a situation that previously lacked clarity and that is a good thing. Be mindful of these changes as the law specifies that any agreement that is not compliant with the law is void and unenforceable. More troubling is that the law specifies that any person licensed under the Real Estate laws that violates the terms of this statute is deemed to have violated licensing laws and will likely be subject to licensing discipline.
The second law to be aware of is related to foreclosures and listing agreements. Assembly Bill 2424 went into effect on January 1, 2025 and provides benefits to those individuals who may face foreclosure.
Under this new law a seller facing foreclosure is entitled up to two extensions on the foreclosure for a total of 85 extra days. The first extension of 45 days is automatically authorized if a seller enters into a listing agreement to sell the property and provides that information to the trustee at least 5 business days prior to the foreclosure sale. For the seller to be eligible for the listing extension the trustee must receive the listing agreement at least 5 business days prior to the scheduled sale, the listing agreement must be entered into with a licensed California real estate broker, the property must be placed on a publicly accessible marketing platform, sent by overnight delivery or certified mail, with tracking information to confirm delivery. This extension may only be used one time during the foreclosure process.
After the listing agreement extension, if the seller enters into a contract to sell the property the seller is entitled to a second 45 day extension. For the seller to be eligible for the extension again, the seller must provide the trustee a copy of the purchase agreement at least 5 business days prior to the schedule sale, the purchase agreement must be executed and a bona fide offer and acceptance to complete the transaction, the agreement must include the name of the buyer, sales price, closing date and acceptance by escrow, the purchase price must be greater than the amount of the unpaid balance (this will not work for short sales), and again by overnight delivery or certified mail with tracking information to confirm delivery. Much like the above, this extension is only automatically given one time.
These are good provisions for sellers as we have seen to many times where sales fall apart because the sale is not completed prior to the foreclosure sale.
Additionally, within this statute, the legislature placed an obligation that at the first called trustee sale, the sale price could be no less than 67% of the fair market value. What this means, is that if bid is not equivalent to or greater than 67% of the fair market value then the sale must be continued at least 7 days. The biggest question is how will the fair market value be policed? Under the statute, the value is required to be determined by licensed real estate broker, or a licensed real estate appraiser or a computerized property valuation system, or a commercially utilized automated valuation model. The allowance of lenders to use their own computerized property valuation systems could be ripe for abuse and difficult to police. Time will tell how this will all shake out.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.
