BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
After the Sitzer/Burnett decision finding NAR and several brokerages liable for damages in excess of $5 billion, the real estate industry is revisiting buyer representation. Many brokerages are now using, and some requiring, buyer representation agreements. One development arising out of this change is the evolution of co-buyer representation. Consider the following situations:
Situation No. 1: A buyer is represented by an agent in one geographical location and another agent in another geographical location. That buyer wants to work with both agents. A solution is to have the agents work together in representing the buyer and share the commission.
Situation No. 2: Two agents from different brokerages both represent a buyer. To avoid a procuring cause claim, the agents have divided the responsibilities for representing the buyer. The recommendation is the use of a co-buyer representation agreement.
While a co-buyer representation situation is similar to that of a co-listing agreement, there are issues which need to be considered, including the following:
- What responsibilities are the agents undertaking with regard to the buyer? For example, is one agent showing the buyer property and another handling the transaction such as the contractual issues and disclosures? Are the agents sharing the showing of property and other responsibilities? This should be articulated in an agreement.
- If agents are licensed with different brokerages, the agents’ brokers should be aware of the transactions to supervise them pursuant to DRE regulation. In addition, both brokers should confirm that their brokerages have proper errors and omissions insurance.
- The agents need to decide on the sharing of the commission and who is getting paid how much. This will avoid a potential procuring cause claim or a potential arbitration before the local board in the future.
- By signing a co-buyer representation agreement, a buyer can sign an acknowledgment of receipt confirming that they understand how much the agents are getting paid and the respective obligations of each agent.
Broker Risk Management has prepared a co-buyer representation agreement, a copy of which is attached. This form can be used when two agents, whether within the same office, or agents from different offices, are representing the same buyer. Co-Buyer Representation Agreement
PRACTICE TIPS:
- Both agents should give the buyer an Agency Disclosure (AD) and, if a CAR purchase agreement is being used, a PRBS form prior to commencing working with the buyer.
- After the AD and, where appropriate, the PRBS forms have been signed, then the agents and buyer sign the co-buyer representation agreement.
- Both co-listing agents, and when applicable, both brokers, should be listed on the listing agreement and so identified in the Agency Confirmation paragraph of the purchase agreement.
- If an agent is representing a buyer with another agent, the ABA form does not properly cover the terms. Agents should use BRM’s co-buyer representation agreement.
- If two agents are representing the same buyer, the agents need to reach an agreement on all material terms and execute that agreement to avoid future disputes.
- If agents are both representing a buyer, it is advisable that each agent keep a transaction file, as required by the California Department of Real Estate.
- If you are representing a buyer with another agent, please ensure that your manager is aware.
ATTORNEY-CLIENT PRIVILEGED COMMUNICATION. Do not forward to sellers, buyers or third parties. 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.