Consumer Advisory:  A Licensee May Ask You to Sign a Contract to Tour A Home beginning in August; Read It and Understand It

The Arizona Department of Real Estate reminds consumers to read and fully understand any written agreement they sign with a real estate licensee.   

Over the last several months, the national news media has covered several antitrust lawsuits filed against the National Association of REALTORS® (NAR), the largest real estate trade organization in the United States, and a proposed settlement agreement offered by that organization.  

Among other concessions, NAR’s proposed settlement agreement places requirements on its members and licensees who choose to use certain services.

Beginning in mid-August, NAR’s proposed settlement agreement requires members to sign written agreements with potential buyers prior to touring a home.  This requirement extends to licensees who use the Multiple Listing Service, which is the majority of licensees operating in residential real estate in Arizona.

Not all licensees are REALTOR® Members using the Multiple Listing Service however so not all licensees may require consumers sign such written agreements.

If a licensee is asking you, as the buyer, to sign a written agreement prior to looking at a house, the Arizona Department of Real Estate encourages you to:

• Engage in a discussion about what type of representation the licensee is offering to provide to you:
  • Will the licensee be acting solely on your behalf or will the licensee potentially engage in limited representation, and what does limited representation mean for you?
  • If you elect to allow a licensee to represent you in a limited capacity what will those limitations be?
• Is the written agreement exclusive? Exclusivity, in the agreements reviewed by the Department of Real Estate, applies to you as the buyer being exclusive to one licensee. 
• What is the length of the written agreement? Is that term a negotiable item between you and the licensee?  
• Who can cancel the written agreement and under what circumstances? 
  • Can you be released from the agreement in the event that a licensee must enter into limited representation?
  • Can you cancel the agreement for abandonment, estrangement or breach of fiduciary duty?
• What is the process to cancel the agreement?
• What services must the licensee provide in order to earn compensation?
  • How much does the licensee charge for those services?

Ensure you read, understand and are accepting of the contractual terms you have discussed and agreed to with the licensee.

Also, if you’ve already signed a written agreement for representation as a Buyer, know that it is likely related to compensation.  If you were to sign another agreement with another licensee, that original agreement may still be in place and you may be contractually on the hook for paying multiple licensees.

Nothing in these written agreements reduces the fiduciary duties owed to you by a licensee nor prohibits you from filing a complaint with the Arizona Department of Real Estate should you feel you have been harmed by a real estate licensee.

Starting August 1: Arizona’s Buyer Broker Employment Contract (Buyer Broker Agreement)

The Department of Real Estate understands the largest multiple listing service in Arizona is going to begin requiring use of written agreements between buyers and licensees on August 1, 2024. Most of the agreements reviewed by the  Department of Real Estate are designed to define and ensure the compensation owed to the licensee.  

The Department believes the discussion of licensee compensation is common sense and should be upfront; right after the discussion of “agency,” which is a term indicating the duties and legal obligations owed to, in this case, the buyer.

ADRE previously expressed concern with several drafts of Buyer Broker Employment Contracts that it has seen.  

Of concern, some of these draft and sample agreements may represent one-sided contracts that favor the broker, known as “contracts of adhesion” which are sometimes:

• Difficult to read and be understood by members of the public;
• Use contract terms highly favorable to one side of the agreement, usually the individual on the drafting side of the contract;
• May need to be signed when there is pressure being placed on the non-drafting party, usually a consumer, at the time of signing, and;
• May not provide the non-drafting party with the opportunity to actually read the document - either by limiting time or by electronically skipping around a document requiring electronic signatures but not providing an easily readable version of the agreement to the non-drafting party.

Signing an agreement to see or tour a home is not a state requirement in Arizona.

The Department of Real Estate remains extremely concerned by the changes impacting the industry and consumers.  The Department reminds consumers to again read, understand, and accept only the terms they are willing to be bound to, negotiating and modifying as necessary prior to signing.  

The use of these written agreements will represent an activity requiring broker supervision. All written agreements must be reviewed by a Designated Broker within 10 days of signing and also will need to be a document stored in the broker’s files for five years.

While written agreements prior to seeing a home will become the practice for most licensees in Arizona, there remains no state law requiring this practice.