BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Broker Risk Management (“BRM”) continues to spend a majority of its time focusing on issues arising out of the new CAR forms release and post-NAR settlement issues. The following is a discussion of issues brought to the attention of BRM, as well as questions and answers.
1. QUESTION: Listing agent receives an offer from a buyer with a Seller Payment to Buyer Broker (“SPBB”) and requests that the seller pay the buyer’s agent’s compensation. The buyer’s agent does not provide a copy of the Buyer Representation and Broker Compensation (“BRBC”). The offer is accepted and the BRBC is later provided, which is inconsistent with the offer. For example, in one instance the commission being paid to the buyer’s agent was left blank. However, the offer required the seller to pay the buyer’s agent 2%. In another instance, the BRBC stated that the commission paid to the buyer’s agent would be 1%, but in the RPA the seller agreed to pay the buyer’s agent 1.5%. In both cases, the contract was ratified before the listing agent discovered the discrepancy. How should these issues be addressed?
RESPONSE: Under the NAR settlement, the buyer’s agent is not entitled to more than the amount in the BRBC or other buyer representation agreement. Therefore, the buyer’s broker cannot receive the amounts the seller has agreed to pay them in the RPA.
The buyer’s agent may try to argue that the seller agreed to pay the commission and that the buyers and sellers are not bound by the NAR settlement nor by NAR’s code of ethics. However, buyers and sellers are not required to honor agreements which may be illegal or improper. Further, the buyer’s agent could be subjecting themselves to civil liability and ethical violations. Finally, the buyer’s agent may be subject to DRE license sanction for making a misrepresentation since the buyer in the SPBB represented that the BRBC payment to the buyer’s agent was consistent with that in the SPBB request for compensation from the seller.
A recommended solution to this dilemma is for the listing agent to immediately discuss the issue with the buyer’s agent. The listing agent should prepare an addendum correcting the commission to that set forth in the BRBC. In the instance where there is zero commission, the seller should not be paying the buyer’s agent any compensation. In the instance where the BRBC states that the commission is 1%, the addendum should state that the buyer’s agent’s commission is 1%.
2. QUESTION: If I accept a lease listing with compensation just being paid to the listing agent, but I would like to share my commission with the agent for the tenant, what forms do I use?
RESPONSE: You can use the Compensation Agreement (“CA”) for the arrangement with your seller. If an offer is made by a tenant and the tenant’s agent wants to share a portion of your commission with the property owner’s permission, you can use the BRM “Consent for Listing Agent to Pay Buyer’s Broker.”
3. QUESTION: If a buyer’s agent asks you if your seller is willing to pay the buyer’s broker compensation and if so, how much, how should we respond?
RESPONSE: Before responding to a buyer’s agent regarding the payment of a buyer broker commission or buyer concessions, you must first have an authorization from the seller to reveal that information. BRM suggests using the BRM “Seller Authorization For Seller’s Broker to Offer Compensation to A Buyer’s Broker and Concessions to Buyer.” Once you have written authorization from the seller, you may respond to a buyer’s agent as follows: “The seller has indicated that the seller is willing to consider paying a buyer’s broker [and/or buyer concessions] (Optional: “up to __%” or “$____”) depending on the receipt of an acceptable offer, within the seller’s sole discretion.”
4. QUESTION: When exactly to I need to have signed buyer representative agreement with a buyer. Some agents say when you start working with them, such as qualifying your buyer/prospect or sending them new listings. Others say the buyer rep agreement is not needed until the agent actually “tours” a property with the buyer.
RESPONSE: That is confusing but has been clarified by NAR. The NAR settlement agreement requiring written agreements with buyers is triggered by two conditions: it only applies to agents who are “working with” buyers and is triggered by “touring” a residential 1 to 4 unit residential property.
The “working with” language distinguishes agents who provide broker services to the buyer from those agents who simply market their services or just talk to a buyer—such as at an open house or by providing an unrepresented buyer access to their listed property.
“Touring” a home means when the buyer enters the property with their agent, or that agent provides a live, virtual tour to a buyer not physically present.
Bottom Line: an agent “working with” a buyer can enter into the written buyer agreement at any point but must do so by no later than prior to the buyer “touring” a home with the agent.
5. QUESTION: Should we only accept the most recent versions of form documents?
RESPONSE: Yes. You should never use outdated forms. The most current forms were written to comply with the law, NAR Code of Ethics, DRE regulations, the NAR settlement agreement, and any other applicable law. By using outdated forms, you arguably are falling below the standard of care.
6. QUESTION: What if you are working with a seller who does not want to sign a listing agreement but is willing to pay a commission and the buyer has their own representation? What form would we use to get paid by the seller?
RESPONSE: You can use the Single Party compensation agreement (“SP”).
7. QUESTION: Can I use the Property Showing and Representation Agreement (“PSRA”) instead of the BRBC for a short-term new buyer?
RESPONSE: Yes. You may use the PSRA instead of the BRBC. However, the PSRA is only nonexclusive and is to be used with up to 3 properties or at an open house.
8. QUESTION: Can I use the PSRA with the purchase agreement instead of the BRBC?
RESPONSE: Yes. The RPA requires that a buyer’s broker have a compensation agreement with the buyer. It does not specifically require the BRBC.
9. QUESTION: On the BRBC, is it better for a buyer to check that they cannot pay the agent as it might increase the chances a seller will pay? If the seller sees that a buyer can pay, they may be less likely to counter that out and have the buyer pay.
RESPONSE: It is better to be truthful. That portion of the BRBC does not need to be submitted to the listing agent as it could be considered confidential information which could affect buyer’s negotiating position.
WEEKLY PRACTICE TIPS:
- When writing an offer, ensure your offer is consistent with your BRBC.
- Listing agents should request copies the compensation portions of BRBCs before the seller accepts the offer to confirm that the BRBC is consistent with the commission demand being made in the RPA.
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