Alabama Gov. Kay Ivey has signed legislation reaffirming a state law that conflicts with a major settlement the National Association of Realtors reached last year over the buying and selling of homes.
The NAR settlement requires, among other provisions, that the agents of buyers have written agreements before showing buyers properties. But an Alabama act set to take effect April 18 stipulates that home shoppers don't have to sign binding contracts with agents until the buyers are ready to submit offers, per existing state law.
"This ensures the consumer will have the opportunity to build a relationship with an agent before entering into a buyer's agreement," Jeremey Walker, CEO of the Alabama Association of Realtors, said in an interview.
Homebuyers, the Alabama Realtors trade group and the U.S. Department of Justice argued that the NAR settlement provision raises antitrust issues and forces consumers to act before they have ample time to make appropriate decisions.
For decades, agents of U.S. buyers and sellers have divvied up the standard 5% or 6% commission, and the seller usually paid the entire cost out of the sale proceeds. But the NAR settlement now requires buyers who elect to have representation to sign contracts spelling out how their agent would be compensated before bidding on a property, a major change that could put homeownership financially out of reach for some consumers, industry observers say.
The NAR settlement took effect in August after a 2019 class-action lawsuit accused the NAR and some residential real estate brokerages of unfairly increasing sellers' costs under the old protocol. That led to a series of new rules governing agents and their clients.
Other states may follow suit on homebuyer contracts
More states are likely to step forward with similar legislation, according to Ken Johnson, a finance professor and the Walker Chair of Real Estate at the University of Mississippi.
Johnson, a former Alabama broker, said in an interview that he was part of the committee in the early 1990s that made recommendations for the state law that now governs how real estate agents interact with buyers, sellers, landlords and tenants.
"Alabama is not going to be the only state," he said. "A judge, in a settlement, can't rewrite law."
A NAR spokesperson referred questions to the Alabama association but said in an email that the settlement stipulates that state law takes precedence.
Still, Alabama buyers and agents complained, and some tried to amend the NAR settlement, possibly rendering those side agreements reached under the new rules legally invalid, according to Walker.
The Alabama Realtors group pushed for the legislation to clear up the "confusion and inconsistent guidance" over the use of buyer agreements, he said.