AB 2992: What Brokers & Buyers Need to Know

Bryan Mashian, Veteran CRE Attorney, weighs in on the effects of AB 2992.

California Assembly Bill 2992 went into effect on January 1st of this year. Despite being one of the most significant changes to California real estate law in recent memory, many in the industry still lack an understanding of the new regulation.

“A lot of brokers and salespeople are unaware of the changes in the law. This is a huge change which now requires every buyer’s broker to get an agreement signed by every buyer before they submit an offer — and many don’t understand that,” says Bryan Mashian, commercial real estate attorney and founder of the Los Angeles-based Mashian Law Group. “I’ve been doing [commercial real estate] for 40 years, and I still need to keep up. If you don’t, then you’re going to be irrelevant very quickly.”

The law, designed to set clear expectations for both parties from the outset, was passed in response to the Burnett Spitzer antitrust lawsuit against the National Association of Realtors (NAR) and certain brokerages, which led to a substantial settlement over commission-sharing practices. According to AIR CRE, the member-owned platform for Southern Californian Real Estate professionals, the statute changes the prior model by allowing buyers to select and negotiate terms with their broker, moving away from previously fixed compensation structures. AB 2992’s primary goal is to foster transparency and fair competition in real estate transactions, ensuring all parties clearly understand brokerage agreements and compensation terms. The new law applies to sales of all property types, including office, retail, industrial, multifamily, and single-family properties. The new law does not apply to leases, rental agreements, state and federal land, or loan brokerage services.

Key Provisions of AB 2992 (per AIR CRE)

Buyer Broker Representation Agreement

• Brokers representing buyers must secure a signed representation agreement “as soon as practicable,” with a safe harbor deadline no later than when a buyer submits an offer.
• The agreement must authorize the broker to act on the buyer’s behalf, outline the broker’s compensation, list the services provided, state when compensation is due, and specify the agreement’s termination date.

Duration and Renewal Limitations

• The agreement cannot exceed three months (90 days) unless the buyer is a corporation, LLC, or partnership. Agreements with these entities can extend beyond the standard term and include renewal options, but renewals must be documented in writing.

Compensation Terms

• AB 2992 mandates that compensation be clearly defined in the agreement, though it does not require the buyer to directly pay it. The agreement can specify compensation as a percentage, fixed fee, or hourly rate, as agreed upon by the parties.
• The compensation amount and structure are negotiable and should be agreed upon by both parties.

Enforcement and Compliance

• Failure to comply with AB 2992 renders the agreement void and unenforceable, potentially affecting the broker’s ability to collect a commission. Non-compliance may also lead to disciplinary action from the Department of Real Estate.

Mashian points out that many in the CRE industry have historically been slow to adapt to change and emphasizes that brokers must now take proactive steps to secure agreements with buyers before significant progress is made in the deal, ensuring that expectations and obligations are clearly outlined. The timing requirement encourages informed decision-making and ensures buyers understand the nature of the services they receive, the associated costs, and the options available for compensation.

He stresses that, first and foremost, brokers must get a signed agreement as soon as it is practicable, as the law states. “Whatever that means is not clear, but certainly, you have to do it by the bright line test that the law says before you submit an offer. But now you get into ‘What is an offer?’ Is a letter of intent an offer? Is an e-mail with a price and terms an offer? I say you have got to be conservative and assume that it’s an offer to make sure you don’t run afoul of the law,” advises Mashian. He recommends that brokers include the agreement in the initial presentation packet and make the document digitally signable. (AIR CRE has prepared and made available exclusive and non-exclusive versions of the buyer-broker agreement).

Mashian says that brokers who fail to comply run the risk of not being paid for their services, and there is the additional downside of being prosecuted by the Department of Real Estate in violation of their duties as real estate brokers. “I don’t know how aggressively the DRE is going to pursue this, but we’ll see,” adds Mashian.

One aspect of the new law that many brokers fail to comprehend is the benefits it affords them.

“I think it [AB 2992] was a gift to the buyer’s brokers because now the buyer has to commit to them,” asserts Mashian. Before AB 2992, a buyer could start with a broker who would show them a number of properties; then, they would switch brokers, possibly multiple times. “And all these guys would work for nothing. So now a buyer’s broker is going to have the protection, and they’re going to get paid. [Some] brokers don’t realize that this [legislation] protects them more than anyone.”

For Buyers

Mashian says that by requiring early execution of a buyer-broker agreement, the law ensures that buyers are aware of their options, including:

Requesting the Seller to Pay: Buyers can request that the seller cover all or part of the buyer’s broker fees. While sellers may agree to such requests in competitive markets, they are not obligated to do so.

Paying the Broker Directly: If the seller declines, buyers may opt to pay their broker out of pocket, which would be in addition to the purchase price and other transaction-related costs.

Exploring Dual Agency or Proceeding Without Representation: Buyers may also consider dual agency arrangements or forgo representation altogether, although both options carry significant risks for the buyer.

“From the buyer’s perspective, they need to be aware that they can negotiate the commission, and that’s the big takeaway [from this legislation],” says Masian. “That was really the whole intent — to educate the buyers.”

Looking Ahead: Evolving Practices

The impact of AB 2992 will likely vary based on the type of property, the price range, and the sophistication of the parties involved.

Mashian says that as AB 2992 takes effect, its full impact on brokerage practices remains to be seen. Buyers, meanwhile, will benefit from greater clarity and transparency, empowering them to make informed decisions about representation and compensation. For brokers, the written agreement offers a layer of protection, formalizing their relationship with clients and providing a clear basis for compensation.

If you are a buyer in need of guidance in navigating this new regulation, contact a Voit broker in your market.