BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
YOUR ETHICAL DUTIES AND RESPONSIBILITIES SERIES
Duty to Inquire of Buyers Regarding Prior Buyer-Broker Agreements
This series on agents’ Ethical Duties and Responsibilities focuses on the NAR Code of Ethics and California Real Estate Law. Understanding these duties and responsibilities can help agents avoid claims, ethics violations and CalBRE scrutiny.
Q: I am a buyer’s agent in escrow on a home. I met the buyer at an open house and my first question was: “Are you working with another agent?” And, the buyer replied “No.” Now that we are in escrow, another broker called me and stated that he has an exclusive Buyer Representation Agreement (CAR form BRE) with this buyer entitling him to be paid 3% by my buyer on the sale I am about to close.
I asked my buyer about the BRE agreement and he admitted he signed it about four months ago but hadn’t heard from the other broker in the past two months and assumed the agreement with that broker was no longer in effect. I called the other broker who sent me a copy of the BRE, and it is in effect for two more months and covers the type and price of property on which we are now in escrow. What can we do?
A: The other broker may indeed have a claim against your buyer for 3% of the commission based on the BRE. But, you should send your buyer to a qualified California real estate attorney who will be able to assess its enforceability, possibly based on lack of performance by the other broker.
Be aware that Standard of Practice 16-9 of the NAR Code of Ethics states:
“Realtors, prior to entering into a representation agreement, have an affirmative obligation to make reasonable efforts to determine whether the prospect is subject to a current, valid exclusive agreement to provide the same type of real estate service.”
PRACTICE TIPS:
1. With the increasing proliferation of buyer representation agreements, it is essential that you inquire of prospective buyers whether they have entered into any prior written agreement with any other broker to represent them in their purchase. If yes, get a copy and review it with your manager or broker.
2. If the prior buyer representation agreement would allow the prior broker to be paid on a purchase by this buyer through you, and buyer wants to work with you, you should send the buyer to a qualified California real estate attorney to review its enforceability.
3. If it is enforceable, your buyer may have to work with the prior broker, or (if they like you) work with you and pay the prior broker — but they would have to like you a WHOLE LOT to do that.
4. DO NOT ATTEMPT TO HELP THE BUYER CANCEL THE PRIOR BUYER REPRESENTATION AGREEMENT. If you do, you can be accused of tortious interference with that broker’s contractual relationship with the buyer, subjecting you to civil liability for which your E&O insurance carrier will likely deny coverage.
For more information, see the Weekly Practice Tip: “Buyer Representation Agreements.”
DO NOT FORWARD TO CLIENTS. 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.