BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Broker Risk Management (“BRM”) has been asked the following question involving handling inconsistencies between the compensation set forth in the buyer representation agreement and that which is requested by the buyer in the purchase agreement.
Question: I am a listing agent. A buyer submitted an offer to purchase my listing. The seller accepted the offer and pursuant to the buyer’s request, the seller agreed to pay the buyer’s agent 2.5%. After acceptance of the agreement, we received a copy of the buyer representation agreement and learned that the buyer compensation in that agreement was only for 2%. How do I handle this situation?
Answer: The seller has two options for moving forward, including the following: (1) the seller can advise the buyer that the seller is only paying the amount set forth in the buyer representation agreement; or (2) the seller can agree to pay the amount set forth in the purchase agreement.
If the seller chooses to move forward with the first option, the listing agent will need to advise the buyer’s agent that pursuant to the NAR settlement the buyer’s agent cannot accept more than the commission set forth in the buyer representation agreement; and therefore, the purchase agreement will need to be amended to reduce the commission amount.
If the parties choose the second alternative, the buyer representation agreement should be modified to reflect 2-1/2% compensation, at least for this particular transaction. While such a modification would, generally be prohibited, a modification where the seller has agreed to pay the increased commission is permissible.
Buyers’ agents should be aware that if such a situation arises, a buyer’s agent and buyer may not modify the buyer representation agreement after acceptance of the offer without the knowledge and approval of the seller as that would constitute a fraud on the seller and violate the NAR settlement agreement. The NAR settlement specifically states that a buyer’s agent may not receive from any source more than the amount in the buyer representation agreement. Also, if the purchase agreement specifies an amount paid from seller exceeding that identified in the buyer representation agreement, the seller is not legally required to pay that higher amount to the buyer.
If the the buyer representation agreement is amended after acceptance of the offer without seller’s approval, it is defrauding the seller into paying a higher commission than the seller would legally be required to pay. However, if the seller is made aware of the situation and chooses to pay the additional commission, it is with full disclosure and agreement by the seller.
BRM has created the attached advisory for listing agents to provide to a seller in the event that a seller accepts an offer and the commission in the buyer representation agreement is lower than the seller has agreed to include in the purchase agreement.
PRACTICE TIPS:
- It is advisable that, before a seller accepts an offer which includes a request for the payment of buyer’s agent’s compensation, listing agent obtain and review relevant pages from the buyer representation agreement. Those pages should include Pages 1 and 5 of the BRBC. If a different agreement is used, the listing agent should request the pages including the effective dates of the agreement, amount of commission the buyer has agreed to pay their agent, the geographic area covered by the agreement and any properties excluded from that agreement.
- If a seller accepts an offer without receipt of the buyer representation agreement, that agreement should be obtained and reviewed as soon as practicable and, if necessary, the purchase agreement should be amended to reduce the commission to that set forth in the buyer representation agreement.
- Buyers’ agents should never modify a buyer representation agreement to increase their commission after acceptance of an offer without the seller’s written permission.
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.