Q: My office just reviewed the CAR Cooperating Broker Compensation Agreement and Escrow Instructions (“CBC” 6/21), and we are confused about some of the terminology. Can you please explain the changes, how to use this revamped form, and when to use it?
A: There are multiple changes to the CBC form; some of those changes were necessitated by changes in the terminology of the Agency Statute and there are some important formatting changes, as well.
See: Sample CAR Form CBC Rev. 06.21
I. WHAT ARE THE SPECIFIC CHANGES TO THE CBC 6/21 FORM?
A. Terminology Changes & Definitions
In 2018, the Agency Statute was revised and the language in the Agency Confirmation portion of the Purchase Agreement was significantly modified. The term “Listing Broker” was replaced with “Seller’s Broker.” The Broker representing the Buyer (the “Selling Broker” or “Cooperating Broker”) is now the Buyer’s Broker. CAR has changed those terms in the CBC to comply with the Agency Statute. However, some of the old terminology is still used at times, but not consistently.
What tends to confuse most people, however, is that the form is intended to be used whether the “Seller’s Broker” is marketing a property for sale or is trying to lease it but there is no reference to an owner or a tenant (old Paragraph 1C was removed). The form does not explain that the term “Seller” has a dual meaning: it describes either a true seller or an owner who is leasing the Property. Similarly, the CBC does not explain that “Buyer” has a dual meaning: it means either a true buyer or a tenant.
Another undefined term is the word “transaction” which, as used in this for, has a dual meaning: either an actual sale or a successful lease of the Property.
B. Formatting Changes
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- Paragraph 3 now exclusively deals with those situations where the Property is listed in the MLS. There are four options in this Section; none of which is a default choice. The Parties must check one of the four boxes if the Property is in the MLS. Those four options are:
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a. The Parties are confirming the amount of compensation shall be what is in the MLS (which is not needed under MLS rules, but is not a bad practice with Buyer’s Agents who are participants in the same MLS or a reciprocal MLS); or
b. The Parties are modifying the amount of compensation in the MLS (either increasing or decreasing it); or
c. The Buyer’s Broker is not a Member of the MLS or a Reciprocal MLS and the Parties are agreeing to a specific amount of compensation; or
d. The transaction is subject to short sale confirmation and the Buyer’s Broker agrees to the reduction in commission by the short sale lender depending upon the MLS rules.
If the Property is not listed in the MLS (e.g., off market listings), then Paragraph 4 is used to specify the agreed-upon compensation the Seller’s Broker pays to the Buyer’s Broker.
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- New Paragraph 5 is an optional paragraph that can be used when the Property is being leased. If the Tenant ends up buying the Property during the term of the lease or an extension of the lease, then the Buyer’s Broker is entitled to a pre-agreed commission.
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Although this is a nice benefit for a Tenant’s Broker, it could be disastrous for the Owner’s Broker. The Party who is responsible for paying compensation in this Agreement is the Seller/Owner’s Broker and if the Seller/Owner’s Broker is not involved in the subsequent sale to the Tenant, that Broker would still be obligated to compensation for the Tenant’s Broker!
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- New Paragraph 6 is an optional paragraph to add “other” terms to two blank lines.
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- Revised Paragraph 8 explains when Management Approval is necessary from either the Seller’s Broker or the Buyer’s Broker depending upon which options are chosen in Paragraphs 3 or 4.
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- The signature section was revamped to allow for the requisite Management Approval from either the Seller’s Broker or the Buyer’s Broker as explained in Paragraph 8.
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II. UNDER WHAT CIRCUMSTANCES MUST THE CBC BE USED?
The CBC must be used if a Buyer’s Broker or a Tenant’s Broker wants the Broker for a Seller or Owner to pay them compensation when any of the following are true:
A. The Property is not listed in the MLS; or
B. The Broker for the Buyer or Tenant is not a participant in the MLS or reciprocal MLS where the Property is listed; or
C. The Broker for the Buyer or Tenant wants to renegotiate the amount of compensation that was published in the MLS (either to increase it or decrease it).
III. WHEN SHOULD THE CBC BE USED? It should be Delivered to the Broker for the Seller or Owner before the offer to buy or lease is presented; once the CBC is signed and an agreement is in place, then the Offer can be presented. If there is no CBC signed, the Buyer will need to decide whether the offer should still be presented.
NOTE: PRDS® has a new Cooperating Broker Compensation Agreement that eliminates many of the problems detailed above in the CAR CBC form.
PRACTICE TIPS:
- The CBC form is not required in all transactions, but it is always a good practice to make sure that there is an agreement regarding how much compensation the “Buyer’s Broker” is to receive either in an MLS offer of compensation or in a written agreement such as the CBC.
- Brokers who are marketing a Property for lease should reject the agreement in Paragraph 5 of the CBC unless in the Other Terms it is specified: “Paragraph 5 shall only apply if the Seller’s Broker receives sufficient compensation in the sale to pay Buyer’s Broker the agreed-upon amount.”
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