1. For Sale by Owner: If you are dealing with a FSBO, then you must have some written agreement with the seller to get paid. Perhaps the best form for this is the “Single Party Compensation Agreement” (zipForms form SP).
2. Cooperating broker compensation from a listing broker: In order for a buyer broker to be entitled to compensation from a listing broker, there must be an offer of compensation from the listing broker. There are three ways to get paid as a buyer’s broker from a listing broker.
A. Offer of compensation through MLS. This offer of compensation extends to member brokers of the MLS, and to members of any MLS who have a reciprocal agreement with the listing broker’s MLS. However, if the property was not in the MLS when the offer was presented, this doesn’t help.
(NOTE: If you are representing a buyer outside of your normal MLS area, check with your MLS to see if they have a reciprocal agreement with the MLS in which you see the listing. If not, then utilize option B, below.)
B. Separate written agreement to pay a commission. If the property is not in the MLS, a buyer’s agent should be sure to get a written agreement from the listing agent to pay you compensation. (See zipForms “Cooperating Broker Compensation Agreement” form CBC.)
C. Verbal agreement by listing agent to pay (NOT RECOMMENDED). While a verbal agreement to pay a co-op buyer’s broker is technically legally enforceable, it is not recommended since you must PROVE the verbal agreement. If the listing agent later denies that any such promise of payment was made, you are in the classic “he said – she said” dispute with no clear way to win.
3. Buyer Representation Agreement. Have your buyer sign one of the two Buyer Representation Agreements found in zipForms (Buyer Representation Exclusive or Buyer-Representation Non-Exclusive). This way you get paid by your buyer if seller or seller’s agent is not offering compensation, or offers minimal compensation for which you choose not to work.
See Weekly Practice Tip “Buyer Representation Agreements”
4. Protecting your right to the commission: There are a number of steps buyers’ agents can take to protect their commission, and increase their likelihood of prevailing in a “procuring cause” arbitration over a commission at the local Association of REALTORS®.
A. Ask if the prospective buyer is currently working with another agent. Not only is this a good idea, the NAR Code of Ethics requires that REALTORS® ask prospects whether they are a party to any exclusive representation agreement for the same type of service prior to providing “substantive services” such as writing an offer. (Standard of Practice 16-13) Failure to do so is an ethics violation.
B. If the prospect has signed a representation agreement with another broker, ask to see it. Some of these agreements are only representation agreements with no exclusivity and no commission obligation (such as CAR form BRNN). Others are non-exclusive requiring the broker to introduce the buyer to the property in order for that prior broker to earn the right to a commission (CAR form BRNE, for example). Still other buyer representation agreements are exclusive, earning the right to a commission if the buyer buys the described property during the pendency of the agreement (CAR form BRE).
Review any such buyer representation agreement signed by the prospect for: (a) exclusivity, (b) termination date and (c) the type of property covered. Any questions should be discussed with your manager prior to proceeding.
C. Give prospective buyers an Agency Disclosure (“AD”) document to sign as soon as you start working with them. Failure to do so could be a factor against you in a Procuring Cause arbitration. These AD forms do not create agency relationships, but can be used as evidence that one was created. Because they are state-mandated, and merely disclose to buyers the nature of available agency relationships, buyers should have little concern in signing these early in your relationship.
D. Start using Buyer Representation agreements. Use of these agreements is growing in many areas. They can protect your relationship with your client from other brokers; and can be a determining factor in a commission dispute. Many agents use Buyer Representation agreements to cement the relationship with the buyer. Others use these forms as a threshold test of a prospect’s commitment and whether the agent is willing to spend time with them.
E. Stay in close contact with your buyer prospects. Be responsive during the property search, and during escrow. Communicate regularly. Accompany your buyers on showings. If you must send your buyers on open house tours, arm them with your business cards and tell them to state that they are working with you. Be sure to explain, perhaps even in writing, how open houses work, how commissions are paid, that they will be solicited by the open house agent, and to hand out your business cards.
Advise your buyers that they may encounter an aggressive listing agent who may try to get the buyer to work with them to write an offer. Tell your buyers that the listing agent may even tell them that they have to write the offer with the listing agent to get the property. Impress on your buyers that they should immediately call you if they encounter such an aggressive listing agent. This way you are “inoculating” your buyers against such tactics.
F. If you start working with prospective buyers who have been working with another agent:
(i) Try to determine why they left, or are leaving, the other agent. Document in a transaction log or communication log the prospects’ reasons for leaving.
(ii) Determine if the other agent introduced this buyer to a property they are now interested in, or even wrote an offer for this buyer on the same property. In such a situation, be aware that you may have a commission dispute brewing. If appropriate, try to resolve the issue early, either directly with the other agent, or manager to manager.
(iii) Review the CAR Procuring Cause Guidelines: These guidelines can be found on the CAR website. Look at those factors that will benefit you as the Closing Broker, and try to get as many of those factors in your favor.
(iv) You have a better chance of prevailing if:
a. You show the property again to the buyer prior to writing an offer.
b. You spend time with the prospect showing her/him other properties and educating her/him about the market, buying process, etc.
c. Your offer is substantially different than the prior offer, and
d. Time has elapsed since the prior offer with the prior agent.
5. Ask the buyers if they are willing to write a letter or email outlining why they want to work with you and why they do not want to work with the prior broker. But buyers must be careful what they say about the prior broker because this letter/email may likely be used in a procuring cause arbitration – no slander, defamation or name-calling.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. DO NOT FORWARD TO CLIENTS OR THIRD PARTIES. This Weekly Practice Tip is attorney-client-privileged and for the exclusive use of Broker Risk Management’s clients 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.