BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Broker Risk Management provided two webinars in December to address new and revised forms being released by the California Association of Realtors (CAR) this month. The following are questions and answers from those webinars.
1. QUESTION: I am an agent representing a buyer. I have a buyer representation agreement. I am moving from my broker to another broker. Instead of transferring the buyer representation agreement to the new broker, can I just cancel it and have a new one signed with the new broker?
ANSWER: Please be reminded that the buyer representation agreement is between the buyer and the broker, not the agent. Therefore, you cannot unilaterally cancel a buyer representation agreement without your broker’s consent. In addition, by simply canceling the agreement and signing a new one, you are not addressing any potential liability the first broker may have to the buyer regarding any of the properties that were shown. Consider the following example. You show a property to a buyer and provide them disclosures through your first broker. The buyer representation agreement is canceled with Broker 1 and a new one signed with Broker 2. The buyer buys the property and finds a discrepancy in the disclosures. The buyer will likely sue both brokers. In that instance, the first broker needs the opportunity to cancel the buyer representation agreement and obtain a release of liability, particularly if Broker 1 is not receiving any compensation.
2. QUESTION: If an offer expires and a counteroffer is issued after, I assume that if the sellers sign the counteroffer, there would be a binding contract.
ANSWER: That is not correct. If an offer expires and the sellers respond with a counteroffer after the expiration date, the sellers are in essence making a new offer. The buyer would need to countersign the counteroffer adding a clause renewing their original offer.
3. QUESTION: I understand that NAR requires a new buyer representation agreement after three months. Isn’t California law more flexible?
ANSWER: The limitation of a buyer representation agreement to three months is not required by the NAR settlement; it is required under new California law which takes effect January 1, 2025. However, in anticipation of this new law, CAR added this limitation to their buyer representation agreements.
4. QUESTION: If we sign a buyer representation agreement and the buyer signs a purchase contract for new construction and escrow is longer than 90 days, do we need to extend the buyer representation agreement?
ANSWER: No. The buyer representation agreement also covers transactions which are executed while the buyer representation agreement is pending but closes after. This is similar to a listing agreement. In addition, compensation paid by builders in new construction is generally treated in accordance with their guidelines. For example, they generally require that you register your buyer upon the first visit as well as other requirements.
5. QUESTION: When an option and purchase agreement are executed, when are the agents paid?
ANSWER: The agents can be paid in accordance with the contracts, but normal practice is that the agents will be paid based on the agreed-upon percentage of the option consideration and when the escrow closes based on the purchase price.
6. QUESTION: I am representing a buyer who has stated that they cannot pay my commission. The seller has refused to pay any portion of my commission. I have withdrawn from representation. The buyer has now approached the listing agent who has agreed to represent the buyer for a reduced buyer side commission. Is this an ethical problem?
ANSWER: Likely, yes. Under those circumstances, the listing agent should have contacted you and advised that the seller was willing to pay a reduced amount. Under these circumstances, the listing agent is subjecting himself/herself to a grievance complaint before the local Association.
7. QUESTION: When do the balcony inspections go into effect?
ANSWER: For properties in a condominium project, January 1, 2025. For all other owners, the effective date is January 1, 2026.
8. QUESTION: Buyer and seller have executed a residential purchase agreement with the seller paying the buyer’s agent 3%. The buyer later requests a credit for repairs. Can the sellers renegotiate the 3% buyer agent compensation to allow for an additional credit to the buyer?
ANSWER: Yes. However, pursuant to the buyer representation agreement, the buyer should be made aware by their agent that they will still be responsible for paying his/her agent any amounts the seller is not paying.
9. QUESTION: If an offer is submitted to a seller with an addendum and the offer is signed, but not the addendum, is the addendum incorporated into the offer, given that the offer is signed making reference to that addendum?
ANSWER: An argument could be made that there is a binding contract or no binding contract. A contract can only be formed when there is a meeting of the minds between buyer and seller on all terms. Arguably, if an addendum is referenced in a contract but not signed by the parties, there may be an ambiguity in the terms the parties have accepted. On the other hand, if the agreement incorporates the addendum, an argument could be made a contract is binding. Notwithstanding, the best practice is to ensure that all documents have been signed by all parties to avoid a lack of clarity.
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