BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
A new development in the post-NAR settlement is the necessity to handle the transfer of a buyer representation agreement if an agent moves from one brokerage to another brokerage. In addition to specifying which broker will be paid what portion of the buyer broker’s compensation, one issue to consider is the handling of potential liability relating to any properties the buyer viewed with the agent. This is particularly important if the buyer received disclosures regarding that property or undertook any investigation into the property while the agent was with the first Broker.
Consider a situation where a buyer sees a property with the agent licensed with Broker No. 1. The buyer is interested in the property and receives and reviews disclosures provided by the seller. Before writing an offer, the agent moves to Broker No. 2 and the buyer representation agreement is transferred to Broker No. 2. The buyer then writes an offer on the property and closes escrow through Broker No. 2. The buyer subsequently discovers non-disclosures by the seller and an alleged failure to recommend inspections by the agent. It is most likely that under this scenario, the buyer will sue both brokerages.
Another situation involves the transfer of a buyer representation agreement mid-way through escrow. If a buyer later asserts a claim, it is likely that both brokers will be sued irrespective of whether both brokers were compensated.
The California Association of Realtors will be releasing a Transfer of Buyer Representation Agreement in December 2024. However, that document contains a release that is limited to the Buyer Representation Agreement. That release likely will not cover the potential claims described above.
Broker Risk Management (“BRM”) has created an alternative Transfer of Buyer Representation Agreement, which is attached to this article. BRM’s form contains the option of including a broader release of the first broker.
Please also be reminded that buyer representation agreements can extend no more than three months at a time by law. They also must be renewed in writing and may not automatically renew.
PRACTICE TIPS:
- If an agent is moving from one broker to another and has executed buyer representation agreements, the agent and broker must consider and address the handling of those buyer representation agreements.
- Agents should consult with their managers before executing the transfer of a buyer representation agreement to evaluate how the broker wishes to proceed regarding the disposition of the buyer broker compensation between the two brokers.
- When evaluating the transfer of a Buyer Representation Agreement, managers need to evaluate whether to use BRM’s form containing a broader release of liability.
- If a broker allows a transfer of a buyer representation agreement to another broker, that first broker needs to evaluate whether to demand a release of liability. (See Paragraph 5 on the Transfer of Buyer Representation Agreement.)
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.