BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Q: I have been working with a Buyer who told me that she was interested in a new home subdivision, which happens to be in the area where we have focused our search. We visited the onsite sales office, and I was asked to sign a document registering the Buyer so that my brokerage and I would be paid upon closing of the sale. After I signed the document, I read it and it said that my broker would be paid a 3% “Referral Fee.” The onsite sales manager then made it clear that I was not expected to participate at all. “We’ll take it from here,” he said. Can they do that? Isn’t the Buyer still my client? My manager said that she wanted me to create a file. I’m confused. How can I best handle this situation?
A: Your situation is quite common when it comes to new home subdivisions where the onsite sales staff wants to pay the selling brokerage a “referral fee” and then take control of the entire transaction.
In this situation, if you are simply being paid a referral fee, generally, there is no requirement that you actually assist your client in the transaction, as you would in a traditional sales purchase. In new home subdivisions, the Developer has obtained approval of the subdivision through the Department of Real Estate (“DRE”). That means the DRE has reviewed and approved the contract and disclosure documents. These documents are usually prepared by the builder’s attorneys, so they are custom and not form contracts, such as the forms used by CAR, SFAR or PRDS.
Occasionally, a Developer’s sales team may state in their documents that the Buyer’s Agent is being paid a commission and representing a Buyer on a property that the Buyer wants to buy. In that case, treat the Buyer as you would any other Buyer and create a full broker file; however, note the differences identified below for this type of transaction from a usual residential sale.
The so-called New Construction Defect Law (aka SB 800 or Title 7) provides for a statutory limited one-year warranty. (See the attached “Advisory Regarding California’s New Construction Defect Law”). In addition, builders often issue additional warranties for any construction defects or issues with the homes. Further, most Developers take advantage of this law, which provides for dispute resolution with Buyers, such as the builder having the right to repair before any claims are asserted.
New construction is generally an area of low liability for agents and brokerages because any claims of non-disclosure or defects are asserted against the builder, not the agents.
Regarding maintaining a transaction file, you should ensure you have copies of the contract, disclosures the builder provides, any warranty information, and a copy of the approval provided by the DRE, known as the Final Public Report, sometimes called the “white slip.”
PUBLIC REPORTS: There are three types of Public Reports, which expire after 5 years:
- A Preliminary Public Report (the “Pink Slip”) permits a Seller to quote price ranges and take reservations, but not enter into a sales contract.
- A Conditional Public Report or a Final Public Report (the “White Slip”) is required before a Seller can enter into a sales contract; and,
- A Final Public Report (the “White Slip”) is required in order to close escrow.
If a Buyer asks for assistance in reviewing the documents provided by the Developer, they should be referred to a qualified California real estate attorney. Agents can advise on CAR or PRDS forms that they have been trained on and understand; but agents are not familiar with custom forms prepared by attorneys. Therefore, agents should not attempt to review and interpret these documents.
Please note that a Transfer Disclosure Statement and AVID are not required on new subdivisions with a Public Report.
PRACTICE TIPS
- If a prospective Buyer is interested in purchasing a home in a subdivision with an onsite sales staff, be sure to accompany the Buyer to the first visit and register the Buyer. This is often a condition precedent to the Developer’s obligation to pay compensation to a Buyer’s Broker.
- Read the Buyer registration form carefully before signing it. Check to see if there is any requirement to re-register the Buyer if, after the passage of time, the Buyer has yet to make an offer, and remember to re-register that Buyer.
- Be certain to ask the Developer’s sales staff if you will be allowed to continue to work with the Buyer. If the sales staff indicates you can represent the Buyer, then treat this Buyer as you would any other Buyer subject to the changes identified above.
- If the Developer’s sales staff states, or has you sign, anything which indicates that you will not be representing or interacting with the Buyer, then advise your manager/broker and follow the procedures above to document the referral fee arrangement. Be sure to have all parties sign the attached letter stating that you and your brokerage will not be representing any party in the purchase of a home in that subdivision.
- Try to obtain the purchase and sale agreement, disclosures, warranties, and the “white slip.” Ensure the “white slip” has not expired. It is a DRE violation to be involved in a transaction with an expired “white slip.”
- If your Buyer has questions about the documents, do not try to interpret them for your Buyer. You should refer your Buyer to a qualified California real estate attorney.
This Weekly Practice Tip is an attorney-client privileged document 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.