Don't Lose Your Buyers

  BROKER RISK MANAGEMENT

 WEEKLY PRACTICE TIP

 Don’t Lose Your Buyers

Q:  I recently was approached by two buyers to show them property.  I researched the market for properties that met their criteria and spent almost two full days in the car with them looking at many properties.  When we found one particular home that they liked, it happened to be listed by our company, and they were excited.  I asked them if they wanted to write an offer, to which they replied that they would think about it and let me know.

Two days later the property went pending.  When I asked the listing agent, I discovered that it was “my” buyers who were in escrow.  The offer was written by an on-line brokerage which rebates a portion of the commission to the buyer.

Is such a rebate even legal?  And, am I not the procuring cause and entitled to the commission?

 A:  It IS legal in California for a broker to rebate all, or a portion of a commission to a client.  However, this rebate must be disclosed to the other party and, in the case of a buyer, to buyer’s lender.

 PROCURING CAUSE:  The question of whether you are entitled to the selling end of the commission is more difficult.  As you have indicated, the issue is one of Procuring Cause and, under these facts, your prospect for recovery is marginal at best.

 For more information see Weekly Practice Tips:

 “Procuring Cause” 

“Protecting Your Commission When Representing Buyers” 

 Your best protection is to have your buyer sign a Buyer Representation Agreement (“BRA”).  BRA’s are still not in common use in most markets in California, although the frequency of their use is increasing.  There are good reasons for starting to use the BRA forms in your practice with buyers.

 A.  THREE TYPES OF C.A.R. BUYER REPRESENTATION AGREEMENTS:

 1.  Buyer Representation Agreement – Non-Exclusive/Not for Compensation

(Form BRNN)  This form is non-exclusive and cancelable by either party upon notice to the other.  It does not provide for compensation.  But it does formalize the buyer-broker relationship (see below). 

2.  Buyer Representation Agreement – Non-Exclusive Right to Represent –

(Form BRNE)  This form, while non-exclusive, does provide for compensation to the broker if, during the term of the agreement, or any extension, the buyer buys a property of the type described in the agreement, and “if the property was introduced to Buyer by Broker or was one for which Broker acted on Buyer’s behalf”. 

3.  Buyer Representation Agreement – Exclusive Right to Represent

(Form BRE)  This form is the same as the BBNE, except that the broker earns a commission if buyer enters into an agreement to acquire property (of the type described) on any terms acceptable to buyer during the representation period or any extension, regardless of whether the broker showed the property to the buyer.

B.  BENEFITS OF USING A BUYER-BROKER AGREEMENT 

1.  Formalizes Your Relationship With Buyers:  By using a BRA, you are formalizing your relationship up front with your buyers.  The BRA’s set forth the buyer’s, as well as the broker’s, obligations and responsibilities.  For example, all three of the BRA’s available from CAR set forth the potential agency relationships; states that buyer will notify his/her broker of any material issues that will go into the decision to buy; provides an indemnification for any incorrect information provided to the broker; and limits, in certain circumstances, the time within which a lawsuit may be brought against the broker. 

2.  Commission Agreement in Writing:  In addition, the BRNE and BRE (2 and 3 above) provide for a commission in the event buyer acquires property of the type described.  In the case of the BRNE, the broker must have introduced the property to buyer or acted on behalf of buyer with respect to that property.  With the BRE, the broker earns a commission if the buyer acquires a property of the type described whether or not the broker introduced the property to buyer.  With these BRA’s you can show your buyers FSBO’s and off-market properties, confident of receiving compensation should a sale take place.  Also, these agreements are very useful in any commission arbitration at the Association of Realtors, since the arbitration panel can look to these agreements in weighing “procuring cause.” 

3.  Buyer Loyalty:  Buyers who sign a BRA are more likely to tell another agent (say at an open house) that they are working with a broker.  Buyers understand that they are working with you, and you have committed to them. 

4.  Protect Your Buyers:  The Code of Ethics requires Realtors to inquire of a prospect if they are obligated on an exclusive agreement with another broker for the same type of service.  This inquiry would lead to the discovery of your exclusive arrangement with the buyer (if you are using the BRE).  Failure of another agent to inquire of a prospect whether the prospect is subject to such an agreement, when you have had your buyer sign a BRE, could lead to an allegation of a Code violation against that agent. 

5.  It’s Professional:  You are going to give the only thing you have to give, your time and talent, to a prospect/buyer.  A formalized relationship lets the buyer know you are a professional, your time is valuable and you will commit that time and talent only to those buyers who commit to work with you.

 C.  GETTING STARTED:  If you are not comfortable with the BRA’s, start with the easiest, the BRNN, since it is cancelable.  Then work your way to the BRE, which provides the most protection.

 D.  ADDITIONAL INFORMATION:  See CAR's Q&A entitled “Buyer Broker Agreements” at  http://www.car.org/index.php?id=MTI5NA

 There is also a great Q&A from CAR entitled “The C.A.R. Buyer Broker Representation Agreements: Q&A For Consumers” at http://www.car.org/index.php?id=MTI5NQ 

             This Q&A from CAR can be re-printed and handed to your buyer-prospects to help buyers understand the buyer broker agreements.

 This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents.  It may not be reproduced or distributed without the express written consent of Broker Risk Management.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.

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