BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Broker Risk Management (“BRM”) has received a number of inquiries from clients as to whether a CAR Single Party Compensation Agreement (“SP”) can be used in lieu of a Buyer Representation Broker Compensation Agreement (“BRBC”). In many locations, agents are adapting to the post-NAR settlement era by using the SP in lieu of a BRBC. Agents are finding it is easier to work with buyers if the buyers do not feel committed to a longer term and more complicated relationship as set forth in the BRBC. Some agents are utilizing the SP first and when they establish a relationship with the buyer, they later work to execute a BRBC.
There are complications and difficulties affiliated with utilizing a SP instead of a BRBC. For example, CAR’s Residential Purchase Agreement does not provide for compensation under the SP. Instead, Paragraph 3G(3) of the RPA incorporates the Seller’s Payment to Buyer’s Broker (“SBPP”) into the Purchase Agreement, as does the SPBB itself. Therefore, unless an agent modifies the offer to incorporate in the SP, the agent risks voiding the seller’s obligation to pay the buyer’s agent’s compensation.
The SP is designed to allow an agent to represent a buyer or a seller in a transaction. Therefore, it may be overly complicated for use with a buyer as many provisions are not applicable (i.e., paragraphs regarding marketing and the Multiple Listing Agreement).
The SP does not address handling the situation where neither the seller nor buyer agree to pay the buyer’s agent. Presumably, with no possibility of compensation the buyer’s agent will want the option of terminating the relationship and receiving a release of liability, at least for that property.
To address clients’ concerns, BRM has created a new “Buyer Single Transaction Compensation Agreement” (“BSTCA”) for buyer’s agents to use with their clients. This form does not replace the BRBC and is not nearly as comprehensive as the BRBC. However, this form can be used in lieu of the SP when representing a buyer.
PRACTICE TIPS
- BRM recommends that if an agent is inclined to use a SP for working with a buyer, the agent use BRM’s BSTCA instead.
- When using BRM’s BSTCA, agents need to include under “Other Terms” in the purchase agreement that, should the buyer request, seller will compensate buyer’s agent in accordance with the BSTCA and attach it to the offer. Proposed language is as follows: “Seller agrees to pay the obligation of Buyer to compensate Buyer’s Broker under the Buyer Single Transaction Compensation Agreement, a copy of which is attached to this offer and incorporated herein by reference.”
- If a seller refuses to pay the buyer’s agent and the buyer is unable to do so, agents are encouraged to consult with their manager about whether to terminate the relationship with the buyer and/or exclude that property from the BSTCA and decline to represent the buyer in the transaction.
- Some insurance companies are declining to insure agents who represent parties in transactions and do not receive compensation. Therefore, it is important not to represent buyers or seller without compensation.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication 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 LLP. 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