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An Introduction To The Revised C.A.R. Residential Listing Agreement (“RLA”)

By David Hamerslough and Victoria B. Naidorf

November 7, 2024

The C.A.R. Residential Listing Agreement (“RLA”) was revised in July in response to the practice changes required by the NAR settlement. This article highlights some of those changes and discusses some of the issues that should be considered when using this form.

Formatting Change

The RLA now contains a grid in ¶ 2 similar to the grid in the C.A.R. RPA and BRBC. This grid contains some of the contractual terms (“Terms Of Listing Agreement”) with references to other paragraphs in the RLA that provide further explanation. Please remember that the grid in ¶ 2 does not contain all of the terms of the RLA. The rest of these terms are contained in the seven pages of the agreement. Don’t assume that all of the terms outside of the grid are not important and/or do not need to be addressed by anyone filling out the RLA.

Exclusive Right To Sell (¶ 1)

Paragraph 1 authorizes the Broker to exclusively represent the Seller in the sale or exchange of the designated Property. To do so requires that the parties to the RLA be identified, and the names filled in in the blank spaces provided in this paragraph become defined terms (“Seller,” “Broker,” and “Property”). Please remember that agents who are only licensed as salespersons legally cannot enter into any type of commission agreement – only brokers can do so – thus, the RLA needs to be an agreement that is by and between the Broker and Seller and signed by both parties. The space for the Broker’s or authorized manager’s signature is on the last page under the heading “Broker’s Signature(s).”

Paragraph 17, “Management Approval,” states that the Broker or manager has the right to cancel the RLA, in writing, within five (5) days after its execution. The RLA does not contain any definition of the term “days.” One should work under the assumption that this terms refers to calendar days, not business days. The section “Broker Signature(s)” provides for either the Broker or Agent to sign the RLA. While agents may be authorized by the Broker to solicit a listing, enforceability of the RLA may be in question if the Broker does not also sign the RLA on the last page.

Paragraph 1 also creates another defined term, “Listing Period.” The definition of the Listing Period requires that ¶ 2A(1) be filled in with specific information. Paragraph 2, “Terms Of Listing Agreement,” uses the word “Agreement” with the first letter capitalized; it appears that use of this word is intended to create a defined term, but no specific definition is provided. The best interpretation is that the word “Agreement” refers to the RLA in its entirety.

Terms Of Listing Agreement (The Grid/¶ 2A(1)-(2), 2C(1)-(4))

It is important to make sure that all of the necessary information that is to be inserted into the grid/¶ 2 regarding the Terms Of Listing Agreement is provided in full. While this may seem obvious, the significance of doing so is that the grid contains the essential terms of the Seller-Broker representation, including the Listing Period, the listing price, the amount of compensation that will be paid to the Seller’s Broker, the terms of any Continuation Period, whether the seller is obligated to pay a previously broker, etc. As with any contract, the enforceability of the RLA may be impacted if these essential terms, among other things, are not completed in full.

Paragraph 2A(1) of the grid requires that a definite beginning or start date for the RLA be filled in. This starts the Listing Period. The Listing Period ends (absent a cancellation, extension, or completion of a resulting transaction) on the second date that is filled in in ¶ 2A(1). Ambiguous terms such as “to be determined” should not be used.

Preprinted language below the blank lines for the start and end dates of the Listing Period states that the Listing Period cannot exceed 24 months if the Property is 1-4 units and not owned by an entity. This language (required by California statute) states that if the Listing Period exceeds 24 months, the RLA is void unless the seller is a corporation, LLC, or partnership.

While Listing Periods of 24 months or more are not that common, this language raises a number of issues. Under these circumstances, if the RLA is void for exceeding the 24-month period, is it still valid for the first 24 months? Is the RLA void from its inception? Is compensation recoverable if a resulting transaction closes within the 24-month period irrespective of these other issues?

In order to avoid these issues, the better practice is to fill in dates in these blanks so that the Listing Period of the RLA does not exceed 24 months, and, if you are going to continue to work with a seller beyond 24 months, either amend the RLA with respect to the Listing Period or enter into a new RLA. An amendment to the RLA requires an agreement in writing signed by the Seller and Broker.

Paragraph 2A(2) of the grid requires that a listing price be filled in. Once again, the enforceability of the RLA may be impacted by the absence of any essential terms. Avoid using the phrase “to be determined.” If the listing price has not been determined, attach an addendum to the RLA, signed by the Seller and Broker, addressing why the listing price has not yet been determined, when the list price will be determined, what activities, if any, will need to take place prior to the listing price being determined, etc.

Please remember that ¶ 20 contains an integration clause, which means, among other things, that the four corners of the RLA are the complete agreement between the parties and any prior discussions, negotiations, and agreements are superseded by the RLA. In other words, any oral discussions regarding setting the listing price would not be part of the RLA unless they were committed to in writing, preferably in an Addendum, signed by Seller and Broker.

Compensation (The Grid/¶ 2C, 2C(1)(2), 2D(1))

The revised RLA has made a significant change with respect to the issue of offers of compensation. The RLA doesn’t give the seller or the seller’s broker the option of offering compensation to a buyer’s broker. When the revised RLA was introduced on July 24, 2024, C.A.R.’s position appeared to be that any such offers of compensation should be addressed in a separate addendum prepared by the seller’s broker and/or their counsel. Since that time, C.A.R.’s position appears to be that the subject of offers of compensation should not be proposed by the seller and/or the seller’s broker until an offer has been presented. As we understand it, the rationale for this approach is, why would sellers want to tip their hand on whether they’re willing to consider compensating the buyer’s broker until after they have seen the terms of the buyer’s offer?

Contrary to C.A.R.’s rationale is the generally held belief that if a seller or seller’s broker indicates that they may consider offering compensation, preferably stating a particular amount, then more buyers will be incentivized to make an offer in the first place. This belief recognizes that if a seller’s offer of compensation is properly worded to be conditional – that the offer is not enforceable until the parties reach an agreement on all of the other terms and conditions of an actual purchase agreement.  In other words, the offer of compensation in any amount is negotiable.

C.A.R. recognizes that many offers that a seller receives from a buyer will include a request that the seller pay compensation to the buyer’s broker. While the revised RLA does not discuss that situation, including one where the offer from a buyer is made by a dual agent, C.A.R.’s position is that these subjects are adequately discussed in their Broker Compensation Advisory (“BCA”), which is attached to the RLA. C.A.R.’s approach to compensation where there is a dual agency is that the broker and buyer will enter into a representation agreement for those services, while the RLA will address only those services provided by the broker to the seller.

The provisions regarding compensation are covered in ¶ ¶ 2C and 2C(1) of the grid and the cross-referenced paragraphs of the RLA.  Sellers’ brokers need to fill in the blanks in ¶ 2D(1) of the grid to specify the amount of compensation to be paid to the seller’s broker as either a percentage of the purchase price or a flat dollar amount. The grid also identifies that the BCA is attached and confirms in ¶ 2C(1) that the compensation specified in the RLA is only for the seller’s side of the transaction.

C.A.R. also allows for the inclusion of an additional form of compensation to be paid to the seller’s broker. A separate blank space in that portion of the grid (¶ 2C(1)) can be filled to authorize the seller’s broker to receive additional fees and/or costs that are discussed and agreed to between the seller’s broker and the seller.

Paragraph 2C(2) of the grid contains an option (if checked) for additional compensation to the seller’s broker if the buyer is unrepresented. The same blank spaces that need to be completed in ¶ 2C(1) need to be filled in if this box is checked. The preprinted language in the grid specifies that this section does not apply to any dual agency and states that if there is a dual agency, the buyer-side compensation shall be specified in a separate written agreement (such as a BRBC).

The inclusion of an option for additional compensation if the buyer is unrepresented is new to the RLA. It is only to be used when the buyer is representing themselves and not when they are represented by any agent. In other words, if the buyer is represented by the same broker that has the listing (dual agency) or is represented by any other broker (single agency), this option should not be checked. The rationale for offering additional compensation in this circumstance appears to be that working with an unrepresented buyer will require additional time and effort on the part of the seller’s broker.

Some of the issues that exist with respect to this new compensation provision include, but are not limited to (1) whether the specified amount of compensation is reasonable, (2) how the seller’s broker would know at the time of taking the listing how much additional time and effort, if any, will be required by an unrepresented buyer, and (3) to what degree this raises the potential for an undisclosed dual agency relationship to exist among the seller’s broker, the seller, and the buyer if the seller’s broker is determined to be acting on behalf of the buyer.

While C.A.R. has created forms to disclaim agency relationships, such as the Buyer Non-Agency Agreement (“BNA”), whether a dual agency relationship exists will turn on more than just the execution of a form. It is a factual question that will be impacted by the words and actions of the parties, such as the statements and conduct of the seller’s broker and the buyer. If there is a finding by a decision maker that dual agency existed notwithstanding the Confirmation section of the purchase agreement, the legal consequences can be significant.  The seller may face liability to the buyer.  The seller’s broker may (1) lose the right to receive any compensation for the transaction, (2) be liable to the seller and buyer for all legal fees and costs if the transaction is rescinded, and (3) face a claim for license revocation on the basis of any undisclosed dual agency. These potential risks can only be evaluated on a transaction-by-transaction basis. The real question is whether the risks of creating a potential undisclosed dual agency can be better managed and compensation accounted for by the seller’s broker agreeing to act as a dual agent and having all parties sign the necessary transactional documents, including an appropriate agency disclosure, buyer representation agreement, etc.

Continuation Period (The Grid/¶ 2C(3))

Paragraph 2C(3) of the grid contains a section where the seller’s broker can create the continued right to be compensated after the expiration of the Listing Period (this contract term is often referred to as the “safety clause”). It requires that a specific number of calendar days be filled in to specify how long compensation will still be owed after the Listing Period ends (“Continuation Period”). If no number is filled in, there is no Continuation Period.

The conditions for the right to claim compensation during the Continuation Period are identified in ¶ 4D(2) of the agreement itself, and not in the grid. There are two conditions to the recovery of compensation during the Continuation Period: (1) the seller enters into a contract to sell to any prospective buyer who physically entered and was shown the property during the Listing Period by the seller’s broker or any other broker or an offer was submitted to the seller by the seller’s broker or any other broker to acquire the property and (2) prior to the expiration of the RLA or any extension of it, the broker has delivered written notice to the seller of the names of any prospective buyers who meet the preceding criteria (C.A.R. form Notice Of Prospective Buyers (“NPB”)).

The best practice is for sellers’ brokers to create their list of Prospective Buyers during the term of the listing in anticipation of the expiration of the RLA. The RLA does not provide the opportunity for this written notice to be provided within a certain number of calendar days after the expiration of the listing. In addition, this right to compensation exists within the Continuation Period after any cancellation of the RLA. It is unlikely that a seller’s broker is going to have advance notice of a unilateral cancellation and therefore have the opportunity to provide the required written notice. Were that to occur, the seller’s broker could demand compensation on the basis of ¶ 4D(3) of the RLA relating to the seller withdrawing the property from sale or otherwise rendering it unmarketable by their unilateral cancellation. On the other hand, if a cancellation is negotiated between the seller and the seller’s broker, the seller’s broker should be aware of the provisions of ¶ 4D(2) so as to provide the written notice prior to that cancellation.

Seller Concessions (The Grid/¶ 2E(2))

This issue is addressed in ¶ 2E(2) of the grid and ¶ 10 of the revised RLA. C.A.R. notes in ¶ 10 that “concessions are monetary payments that a seller agrees to contribute towards a buyer’s expenses and other costs a buyer is responsible for in the transaction. Concessions may include, but are not limited to, costs of escrow or title, lender’s fees, repairs, inspections and buyer-broker compensation.”

There has been considerable discussion in the real estate industry about whether seller’s concessions, especially those offered through the MLS, may properly include buyer’s broker’s compensation under the terms of the NAR settlement. There has been a discussion in the industry about whether seller’s concessions can include a buyer’s broker’s compensation under the terms of the NAR settlement. Paragraph 10 states that any concessions specified in the MLS must be allowed to be used for any permissible buyer expense or cost but must not specify that the concessions are to be used for broker compensation.  Another way of looking at this is that the NAR settlement specified that offering “seller concessions” in the MLS cannot become a code word for an understanding that compensation will be paid to the buyer’s broker.

Under the revised RLA, a box must be checked in the grid in ¶ 2E(2) if the seller authorizes the broker to state in the MLS that the seller is willing to consider offers asking for concessions. The preprinted language of the grid provides that the amount of any possible concession will not be stated in the MLS unless the seller has notified the broker in writing. C.A.R. has created a new form (Multiple Listing Service Addendum (“MLSA”)) to provide a seller with information on, among other subjects, the MLS, the benefits of using the service, etc. and the subject of seller concessions (much of this information used to be in the old C.A.R. RLA).

Seller Concessions are discussed in ¶ 5A of the MLSA. Paragraph 5B provides the seller with an option to authorize the broker to put into the MLS that the seller is willing to consider offers asking for concessions. If the seller is willing to do so, the box next to ¶ 5B(2) should be checked. Please note that even this paragraph still requires that the seller notify the broker in a separate writing of any specific dollar amount for any concession.

Irrespective of whether seller concessions are offered in the MLS or via some other medium, if the issue of offering concessions is handled correctly, any such offers are not binding on the seller unless and until a purchase agreement has been negotiated and signed by the buyer and seller.

Any agreement reached regarding the payment of credits by the seller may also need to meet the parameters of any limitations set by a buyer’s lender.  The best practice is to investigate and confirm lender limits on credits prior to negotiating for any such credits.

Our understanding is that C.A.R. is going to be revising its RPA in December with respect to, among other things, the issue of the seller covering the payment of the buyer’s expenses and costs. This subject will be addressed in ¶ 3G of the RPA grid and various cross-referenced paragraphs in the RPA. The current revision calls for there to be three categories on this subject. The first will be a seller credit to the buyer for closing costs. The second will be a category entitled “Additional Seller Credit Terms,” which will cover such concessions as buyer costs, expenses, and allowances. This second section will not, however, address the subject of a seller paying the buyer’s broker’s compensation. That subject will be covered in a third section, which will allow the buyer to make any such request in the RPA. At this time, C.A.R. has indicated that using a separate form for making this request, such as the C.A.R. Seller Payment To Buyer Broker (“SPBB”), will no longer be required.

Brokers’ And Sellers’ Duties (¶ 7)

The respective duties of the parties is discussed in ¶ 7 of the revised RLA. Please remember the following with respect to what C.A.R. has specified in that paragraph: (1) the obligations set forth in the RLA cannot and will not limit what duties and responsibilities a broker/agent is legally obligated to perform; (2) do not assume that the outcome of any dispute between various parties will only be evaluated and/or decided pursuant to the contents of the C.A.R. documents; and (3) the outcome of any dispute will depend on the specific facts and circumstances of the transaction, the contents of all documents, the knowledge, training, skill, and experience of all parties, what was discussed and not discussed by the parties, the standard of care, the application of California law, common law, whether the practice changes have been followed, and other legal concepts.

Two subjects covered in ¶ 7 as well as in ¶ 2F(1)-(2) are instructions regarding the timing of presentation of offers and the presentation of supplemental offer letters. If the seller wants to delay the presentation of offers, that subject can be addressed in the grid in ¶ 2F(1). Under ¶ 2F(2), the default position with respect to supplemental offer letters is that they will not be presented by the broker. Alternatively, a box can be checked in ¶ 2F(2) whereby the seller instructs the broker to present such letters.

Attorneys’ Fees And Mediation (¶¶ 16 and 19)

Paragraph 16 of the RLA provides that in the event of any dispute arising out of the RLA, the seller and seller’s broker/agent will each be responsible for paying their own attorneys’ fees and costs except as otherwise specified in ¶ 19A. Paragraph 19A contains a mediation clause requiring that the seller and broker/agent mediate any dispute or claim between them before resorting to arbitration or court action.

Some of the issues raised by these provisions include the possibility that brokers/agents will now be contractually required to mediate any dispute involving any claim that might fall within the contractual obligations set forth in the RLA, which could result in being contractually obligated to participate in mediations that also involve disputes between the buyer and seller regarding disclosures, etc.

Second, ¶ 19A provides that the consequence of failing to mediate under the RLA is the potential payment of attorneys’ fees by the “losing party” to the “prevailing party.” The term “losing party” is not defined in the RLA, and there is no precise legal definition for that term. On the other hand, the term “prevailing party” is discussed in published appellate decisions, but that definition provides a judge with potential latitude to make decisions that may not be consistent with the intent of the drafters of this C.A.R. form. Issues may arise based on the interpretation given to these terms by judges and arbitrators.

Irrespective of how the terminology used by C.A.R. in the RLA is interpreted, there is now a potential for brokers/agents to be responsible for paying the seller’s attorneys’ fees and costs.

What Is Missing?

One issue that the RLA does not address is the modes of communication that the broker/agent and seller agree are acceptable. While there are blank lines for the telephone number and email address of the seller and broker, there is no mechanism in the RLA to confirm how information is to be relayed between the parties. The recommendation is that this subject be documented between the parties in a separate document signed by both sides.

Final Comments

Real estate licensees using the RLA should take the time to familiarize themselves with all aspects of that form and the potential issues discussed in this article. We also encourage you to compare and contrast the C.A.R. RLA with the PRDS EXA. For those who choose to use the C.A.R. RLA but want to have the seller agree to conditionally offer compensation to the buyer’s broker, there is a convenient mechanism to correct C.A.R.’s chosen omission other than having lawyers for the seller and broker prepare an appropriate document.  PRDS has recently released its Listing Agreement Amendment form (“LAA”). This new form will allow the seller and seller’s broker to amend the RLA to specifically deal with conditionally offering compensation to the buyer’s agent.

The articles we have written regarding the C.A.R. RLA do not address all of the issues that might arise as a result of using this form. Any questions or concerns should be discussed with your manager and/or a qualified California real estate attorney.