BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Pursuant to the NAR settlement, buyers’ agents are now required to have a written agreement with their buyers providing for compensation prior to touring properties. (A CAR “Buyer Representation and Broker Compensation Agreement” (“BRBC”), “Property Showing and Representation Agreement” (“PSRA”), or the Broker Risk Management’s “Buyer Single Transaction Compensation Agreement” (“BSTCA”) can be used.) In most instances, buyers will request that sellers pay their agent on their behalf. Depending on the property or particular situation involving the parties (i.e., desirability of the property, price point, location, market, etc.), a seller may or may not agree to pay the buyer’s agent’s commission. A buyer’s agent is placed in a precarious position if the seller is unwilling to pay the commission and the buyer lacks sufficient funds, or is unwilling, to pay their agent, but the buyer nonetheless wishes to move forward with the transaction. Many BRM clients have been encountering this situation in recent weeks. How should you, as the agent, address this situation?
There are a number of considerations. Buyers’ agents are not required to work without compensation. Therefore, buyers’ agents have the option of declining to continue to represent the buyer when the buyer’s agent is not being compensated (See e.g., BRBC ¶9B(2)(B). Should you be faced with this dilemma, it is recommended that you discuss the matter with your manager. If you are using a BRBC and in the above circumstance choose to terminate the agreement with the buyer, or to simply exclude that particular property from the BRBC, pursuant to the contingency in BRBC ¶9B(2)(B), BRM recommends utilizing an addendum to the BRBC providing for an ability to cancel the BRBC in the event that the buyer is unable to compensate you. BRM has prepared such an addendum, which is attached to this tip.
In certain circumstances agents may be interested in representing the buyer even without compensation. For example, if the agent is receiving the listing on the buyer’s home, the agent may agree to represent the buyer in their purchase without compensation. However, agents should recognize that there are significant risks to moving forward with representing a buyer (or a seller) without compensation. Agents should consult with their managers before agreeing to undertake representation without compensation.
One risk is the liability affiliated with the transaction. Representing a buyer in a transaction carries more liability than representing a seller. A buyer’s agent is required by law to advise a buyer on inspections and disclosures. Listing agents do not have this same obligation. Therefore, it may not make business sense to undertake a transaction with the risk associated with representing a buyer without receiving compensation.
In addition, some errors and omissions insurers are now writing insurance policies excluding coverage if the agent is not compensated in the underlying transaction. Therefore, if an agent is not paid, but is sued, neither the agent nor the brokerage may have insurance coverage for the liability.
PRACTICE TIPS:
- When executing a BRBC, agents are encouraged to use BRM’s addendum regarding a non-paying buyer if the agent has concerns that the buyer cannot pay their commission.
(Note: The BRM “Buyer Single Transaction Compensation Agreement” (“BSTCA”) has a termination provision written in and so the addendum is not necessary for that form.) - If a seller refuses to pay a buyer’s agent’s commission and the buyer has indicated that the buyer is unable or unwilling to pay that commission, it is recommended that agents immediately discuss the situation with their manager to decide whether to move forward with the representation.
- If buyers have signed a BRBC or BSTCA and the buyer claims they cannot pay the agent, an evaluation needs to be made as to whether the buyer’s representation of the inability to pay is legitimate or an improper effort by the buyer to avoid paying their agent a commission. This analysis should be done between the agent and management.
- Agents who wish to cancel the transaction, or exclude a single property from their buyer representation agreement, when they are not getting paid need to invoke the contingency in BRBC ¶9B(2)(B) and/or the options set forth in the attached addendum.
- Do not agree to represent a buyer without compensation unless management has specifically approved this handling. There are significant liability risks and errors and omissions insurance may not be available.
- If an agent writes an offer for a buyer and then elects to terminate the buyer-broker relationship for a particular property, the agent should promptly notify the listing agent (1) of the termination, (2) that the buyer will be unrepresented, and (3) to revise the Agency Confirmation to accurately reflect that the buyer is proceeding unrepresented.
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