In July 2024, Governor Phil Murphy signed into law the New Jersey Real Estate Consumer Protection Enhancement Act, a significant step towards increasing transparency and consumer protection in real estate transactions. This law became effective on August 1, 2024.
Ever since the settlement reached after the significant decision against the National Association of Realtors and other real estate companies which were found by a Missouri federal jury in October 2023 to have charged home sellers excessive commission fees, there has been pressure to address the concerns that were the basis for this lawsuit. As such, New Jersey has sought to make the key elements of the settlement codified into law. This new legislation introduces several key provisions designed to benefit both buyers and sellers, ensuring a smoother and more informed real estate process.
Key Provisions of the Act
- Seller’s Property Condition Disclosure Statement
One of the most impactful changes is the requirement for sellers to provide a fully completed property condition disclosure statement before buyers are contractually obligated. This ensures that buyers have all the necessary information about the property’s condition, promoting informed decision-making and reducing the likelihood of disputes later. Our firm engages in multiple types of New Jersey real estate transactions and New Jersey real estate litigation matters and find that the property’s truly represented condition is at the core of a successful transaction or, conversely, a post-closing dispute or litigation.
- Designated Agency
The Act introduces the concept of designated agency, allowing a brokerage to appoint different agents to represent both the seller and the buyer with full fiduciary duties. This means that even if both parties are represented by the same brokerage, they can have separate agents dedicated to their interests, ensuring fair and unbiased representation.
- Brokerage Services Agreements
Real estate licensees are now required to use brokerage agreements that clearly outline the services they will provide to clients throughout the transaction. This formalizes the relationship between agents and clients, setting clear expectations and responsibilities from the outset. Specifically, pursuant to New Jersey’s new law, all licensed real estate brokers are required to use a Buyer Representation Agreement, that outlines the realtor’s compensation and the services that will be provided to clients for sale and rental listing agreements for residential real estate.
The Buyer (or Tenant’s) Representation Agreements are to be signed by buyers and tenants. Potential buyers will not be able to visit a property privately until there is a signed agreement. The Buyer Representation Agreement can be based on a duration of time forming a commitment of potential buyers to use the same agent throughout their house search process or they can be based on an individual showing basis whereby, before each showing, an agreement must be signed. Ultimately, the result of the Buyer Representation Agreement will be that a buyer commits that he or she shall be responsible for paying the real estate agent’s commission if the seller declines, unlike the traditional practice where the seller paid the commission. The commission to be paid by the buyer will be part of the offer and a negotiable issue. It is possible that other pricing structures could become popular. Agents may offer to represent buyers based on a flat fee or hourly service. As such, the time may be now to ensure that you retain a New Jersey real estate attorney early in the process to review the Buyer Representation Agreement that you will be asked to sign and to give you strategies on how to navigate this new era in home buying.
- Signage at Open Houses
To further enhance transparency, listing agents must now explicitly disclose who they represent at open houses. This can be done through signage at the entrance or on a sign-in sheet for all attendees to see, ensuring that potential buyers are aware of the agent’s role and any potential conflicts of interest.
- Compensation Disclosure Changes
The Act also addresses compensation disclosure, prohibiting sellers’ agents from disclosing compensation in Multiple Listing Services (MLS) or notifying MLSs about cooperative compensation if prohibited by MLS policy. This change aims to prevent “steering” which is essentially when agents exert potential bias or conflicts of interest toward a property based on the compensation being offered by a seller.
Impact on Consumers and Agents
The New Jersey Real Estate Consumer Protection Enhancement Act is designed to protect both consumers and real estate professionals by ensuring greater transparency and accountability in real estate transactions. Buyers will benefit from more comprehensive information about properties, while sellers and agents will have clearer guidelines to follow, reducing the potential for disputes. However, in the end, buyers may be asked to pay more in a real estate transaction which does not come as welcome news in an already inflated sellers’ market. The time is now to secure proper representation from a New Jersey real estate lawyer who will only have your interests first and who shall not work on commission. More importantly, a New Jersey real estate attorney should be your first point of contact so that he or she can review the Buyers Representation Agreement for you.
Implementation and Compliance
Since the new law went into effect on August 1, 2024, real estate professionals in New Jersey are becoming acquainted with these new requirements and will be made to comply with these requirements to avoid any legal issues. Training and resources will likely be provided to help agents and brokers adapt to these changes smoothly. At the same time, the public must familiarize themselves with these new guidelines and be keen to read the Buyers Representation Agreement carefully. It is recommended to retain a New Jersey real estate lawyer early in the process to properly educate you on the legal obligations of these new rules and to give you practical advice so that home buyers pay as little as possible.
Conclusion
The New Jersey Real Estate Consumer Protection Enhancement Act represents a significant advancement in consumer protection within the real estate industry. By promoting transparency and accountability, this legislation aims to create a more equitable and informed real estate market for all parties involved. Whether you are a buyer, seller, or real estate professional, understanding and adhering to these new regulations will be crucial in navigating the New Jersey real estate landscape. If uninformed, however, a home buyer particularly may be left paying much more during a real estate deal unless they receive the proper guidance and advice from a New Jersey real estate attorney.
We invite you to contact us at Abdou Law Offices, LLC for any advice related to this topic or any of our other blog topics at (732) 540-8840.
