Why California’s New 3-Month Rule Will Change Real Estate Forever
As of January 1, 2025, California’s real estate industry will undergo a significant shift: Buyer Representation and Broker Compensation Agreements (BRBC) will be limited to a maximum of three months. While this new rule may seem restrictive, it is designed to protect home buyers and ensure that REALTORS® consistently provides excellent service.
The move to limit BRBC agreements is a direct response to predatory practices that have surfaced in recent years, most notably through cases like the lawsuit filed against MV Realty. The new law aims to prevent bad actors from exploiting potential home buyers, reinforcing the importance of transparency, trust, and fairness in real estate transactions.
The Story Behind the 3-Month Rule: A Response to MV Realty’s Alleged Unethical Practices
The three-month limit wasn’t created out of thin air—it’s rooted in consumer protection. A prime example of why this rule is necessary can be seen in the lawsuit filed against MV Realty, which allegedly took advantage of thousands of homeowners through its Homeowner Benefit Program. Here’s what happened:
MV Realty’s Scheme: The company offered homeowners a few hundred to a few thousand dollars in exchange for exclusive listing rights. However, these homeowners unknowingly signed 40-year listing agreements that legally bound them to use MV Realty as their real estate broker if they ever sold their homes.
The Deceptive Agreement: According to the lawsuit, MV Realty misrepresented key details of the agreement and failed to inform homeowners of the significant downsides. The agreement was recorded as a lien on the property, effectively locking in homeowners and their heirs.
Severe Consequences for Homeowners: Homeowners were forbidden from transferring ownership, obtaining financing, or selling the property without involving MV Realty. If they tried to break the contract, they were hit with a three percent penalty based on the value of their home—essentially trapping them in the deal.
How the 3-Month Limit Protects Buyers from Predatory Practices
In response to such unethical practices, California’s new 3-month limit is designed to prevent similar exploitation in the future. By limiting Buyer Representation and Broker Compensation Agreements to 90 days, the law offers a layer of protection that stops buyers from being locked into long-term contracts that don’t serve their best interests.
Here’s how the 3-month rule benefits home buyers:
Prevents Long-Term Traps: No longer can unscrupulous agents or companies lock buyers into excessively long contracts, like the 40-year agreements offered by MV Realty. Every three months, buyers can reassess their relationship with their agent and, if necessary, walk away with no strings attached.
Promotes Transparency: REALTORS® will be held to a higher standard, ensuring that the terms of any agreement are clearly communicated and understood by both parties. Gone are the days of hidden penalties or fine print that could cost buyers thousands of dollars.
Empowers Buyers: Buyers now have the freedom to switch agents if their needs aren’t being met, ensuring they receive the best possible service. The ability to re-evaluate the relationship every three months keeps REALTORS® accountable and focused on delivering results.
Why Circumventing the 3-Month Rule is a Mistake
Some brokerages have already tried to create their own versions of buyer representation agreements that extend beyond the 3-month limit. This is a mistake for several reasons:
Unenforceable by 2025: Any agreement that tries to bypass the 3-month rule will become unenforceable when the law goes into effect. Buyers will have the legal right to walk away from such contracts, making these efforts futile and potentially damaging the reputation of agents and brokerages.
Breaking Trust with Buyers: The real estate industry thrives on trust and transparency. Attempting to bypass consumer protections erodes that trust, leading to long-term damage for agents who fail to honor the law’s intent.
Missed Opportunity for Great REALTORS®: The best REALTORS® don’t need long-term contracts to keep clients. They excel at providing value, offering superior service, and building strong relationships that naturally lead to renewals. Trying to force buyers into extended agreements only reflects poorly on those agents and brokerages.
How the 3-Month Rule Benefits Top REALTORS®
While some agents may view the 3-month limit as a challenge, it’s actually a huge opportunity for REALTORS® who deliver exceptional service. Here’s why top agents will thrive under this new rule:
Excellence is Rewarded: The 3-month limit encourages REALTORS® to consistently deliver high-quality service. Agents who continuously provide value and keep their clients satisfied will see this as an opportunity to shine. Buyers will want to renew their agreements with agents who go above and beyond.
Opportunities for New Clients: For exceptional REALTORS®, the 3-month limit opens the door to new clients who have had poor experiences with other agents. Once the contract ends, buyers are free to explore other options, allowing high-performing agents to step in and offer a better experience.
Stronger Relationships: The regular reassessment creates more frequent opportunities for open communication, trust-building, and deeper relationships. For REALTORS® who are committed to delivering value, this is a chance to build lasting client relationships based on trust and satisfaction.
A New Era of Accountability and Excellence
California’s new rule is more than just a legal requirement—it’s a much-needed change that puts power back into the hands of home buyers while raising the bar for REALTORS® across the state. By limiting contracts to three months, the rule encourages transparency, accountability, and a higher standard of service.
For buyers, this new law offers protection from bad actors, ensuring they have the freedom to make informed choices about who represents them. For REALTORS®, who are committed to excellence, it’s a chance to thrive and stand out by providing unmatched service.
If you’re a home buyer looking for a REALTOR® who puts your needs first, or if you’re a real estate professional looking to adapt to the upcoming changes, reach out today. Let’s discuss how California’s new 3-month rule will change real estate forever and how you can make the most of it.
