AB 2992: What Buyers and Building Owners Need to Know

Due to new regulations under AB 2992, GM Properties is providing the following information to help you understand its implications. This summary is based on insights from the official California State Legislature website AB 2992, a California Business Properties Association (CBPA) Webinar, and an AIR CRE Town Hall. Effective January 1, 2025, AB 2992 introduces standardized requirements for buyer-broker representation agreements in commercial real estate transactions. While the legislation primarily impacts real estate buyers and brokers, it also has implications for building owners when executing transactions.

OVERVIEW OF AB 2992

AB 2992 was introduced to address changes in the real estate industry following the National Association of Realtors (NAR) antitrust settlement. The legislation aims to enhance transparency and professionalism in real estate transactions by requiring written buyer-broker representation agreements for all property sales, including commercial properties such as office, retail, industrial, and multifamily. Leases, rental agreements, state or federal land sales, and loan brokerage services are excluded.

Key Provisions

1. Buyer-Broker Representation Agreement

• Execution Timing: Brokers must secure a signed buyer-broker representation agreement “as soon as practicable” and no later than when the buyer submits an offer to purchase real property.
• Required Agreement Elements:
  • Broker’s compensation terms (percentage, fixed fee, or hourly rate).
  • Specific services the broker will provide.
  • Timing of compensation payment.
  • Termination date of the agreement.
• Agency Relationship Disclosure: Prior to executing the agreement, the buyer’s agent must provide the buyer with the disclosure form required by Section 2079.14 of the Civil Code.

Mandatory Disclosure: For agreements involving the purchase of residential real property with one to four units or a mobilehome, the agreement must contain the following statement in at least 10-point boldface type, immediately preceding any provision related to the licensee’s compensation: “Notice: The amount or rate of real estate compensation is not fixed by law. They are set by each broker individually and may be negotiable between the buyer and broker.”

2. Duration and Renewal Limitations

• Agreement Term: Agreements are limited to a maximum of 90 days, except for agreements with corporations, LLCs, or partnerships, which may extend beyond this term.
• Renewal Conditions: Renewals must be in writing, signed, and cannot exceed an additional 90-day term. Automatic renewals are prohibited.
• Validity: Agreements violating these duration and renewal provisions are void and unenforceable.

3. Compensation and Compliance Terms

• Negotiable Compensation: Compensation is negotiable and must be explicitly defined in the agreement. Brokers can still be paid by sellers or seller brokers, but the buyer-broker representation agreement remains mandatory.
• Enforcement: Agreements that fail to meet the legal requirements are void and unenforceable, and brokers may face disciplinary action from the Department of Real Estate.

Implications for Building Owners

Building owners should understand the practical effects of AB 2992:

• Transparency in Transactions: Buyers now have greater control over their brokerage relationships, including the ability to negotiate compensation terms.
• Increased Administrative Requirements: Brokers must formalize agreements earlier in the process, potentially impacting timelines for closing transactions.
• Potential Risk of Non-Compliance: Failure to adhere to the law could disrupt transaction processes and lead to legal disputes.
• Impacts on Commercial Real Estate Sales: By mandating clear agreements, AB 2992 seeks to reduce misunderstandings, which may streamline negotiations and foster trust among parties.

Moving Forward

As both a property management and brokerage firm, GM Properties is fully committed to complying with AB 2992’s requirements. Our brokerage professionals are equipped to manage these changes seamlessly, ensuring that transactions proceed efficiently while maintaining transparency and compliance. For building owners, partnering with experienced professionals like GM Properties can help navigate the evolving regulatory landscape.