BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Broker Risk Management (“BRM”) provided a risk management seminar to its clients on October 7, 2024. The seminar was reshown on October 14, 2024. BRM is continuing to receive questions arising from that webinar which we believe would be of interest to all BRM’s clients. The following is an updated tip with these additional questions and answers..
1. QUESTION: I am representing a buyer in a transaction. The seller accepted the buyer’s offer and agreed to pay my commission pursuant to the Seller’s Payment to Buyer’s Broker (“SPBB”) and Buyer Representation Broker Compensation agreement (“BRBC”). After undertaking inspections, the buyer asked for a significant credit. The seller countered the buyer’s request with an offer to provide the credit but reduced my commission. Can the seller do this?
ANSWER: Yes. Prior to the NAR settlement, commissions were negotiated between brokers and it was not permissible for a listing agent to reduce a buyer’s broker’s compensation as part of the contract negotiations. That is because the listing broker’s obligation pay to buyer’s broker occurred through the MLS and not through the purchase agreement; whereas post NAR settlement, sellers are agreeing to pay a buyer’s broker’s commission as part of the contract negotiations. Therefore, because it is within the seller’s discretion to pay that commission, a seller can seek to reduce it as part of further contract negotiations. However, please note that you are still entitled to your full commission pursuant to the BRBC. In this situation, before the buyer accepts the seller’s offer, you should discuss the payment of your commission with your client as your client will need to make up the difference between the amount the seller is paying and the amount in the BRBC.
2. QUESTION: I am a listing agent. The seller has dementia and is in assisted living. The seller executed a power of attorney (“POA”) prior to being diagnosed with dementia and when the seller had capacity. The attorney in fact (i.e., the person who holds the POA (“AIF”)) is selling the property but has very limited knowledge of the property. Is the AIF exempt from the TDS?
ANSWER: No. An AIF is not exempt from the TDS even if they have not occupied or even seen the property. The AIF needs to communicate with the seller or anyone representing the seller, such as children, siblings, friends, or confidants, to discuss the condition of the property. The AIF will need to prepare the disclosures to the best of his or her ability, based on their awareness of those conditions. However, the disclosures should clearly state that the AIF has very limited information regarding the property and therefore the information in the TDS may be unreliable and/or incomplete. It is recommended that buyers be advised to undertake their own independent investigation into the property to satisfy their concerns.
3. QUESTION: I am a listing agent. In the buyer’s offer, the seller wishes to counter the buyer’s request that their agent be compensated. How do I issue that counteroffer? Do I issue a counteroffer and have the client sign the SPBB?
ANSWER: Issue a counteroffer. However, either (1) do not have the seller sign the SPBB or, (2) if the SPBB is signed by seller, seller’s counter offer should state “The payment to Buyer’s Broker in paragraph 1A of the SPBB is reduced to __%.”
4. QUESTION: If a Seller has added a room or converted a garage without obtaining a permit then can I, as a listing agent, represent that the added, unpermitted square footage is part of the property’s “square footage?”
ANSWER: If the space is not permitted, then agents should use extreme caution in representing that square footage in any marketing or advertising. When permits are not obtained for structures, improvements or repairs and the local building department learns of it, it is subject to removal. Therefore, representing space constructed without permits is risky and should be avoided. The best practice is to use the Square Footage and Lot Size Advisory (“SFLS”) form and add all known square footage numbers.
5. QUESTION: Regarding the disclosure of a lawsuit, what if the lawsuit was settled before going to court and or dropped by both parties after it was filed with the court?
ANSWER: The existence of the lawsuit should still be disclosed. The lawsuit arose out of a claim – someone asserted a demand for damage based on a material fact. Whether the lawsuit was dismissed or settled does not change the fact that the plaintiff, one who brought the lawsuit was unhappy with the condition. That claim needs to be disclosed.
6. QUESTION: Will you make the matrix questionnaire for TDS and whether a TDS is required for a trustee available to the owners of our company for agent distribution?
ANSWER: The flow chart is available on BRM’s website and attached hereto.
7. QUESTION: I am a listing agent and asked for advice from a buyer who has a written agreement with another agent. How do I handle that situation?
ANSWER: Under the NAR Code of Ethics, you cannot have substantive discussions with clients of other Realtors regarding properties which are the subject of an exclusive agency relationship with an agent with another broker. Therefore, if a buyer has signed an exclusive BRBC with another broker, you cannot discuss with that buyer properties for which that other agent is representing the buyer.
8. QUESTION: My seller is exempt from the new flipper disclosure law as he has owned the property for more than 18 months. However, he has done a number of improvements and repairs. Should they be disclosed?
ANSWER: Yes, although the seller is exempt from the so-called “flipper” law, seller should be advised to fully disclose all work performed to a property, whether permits were obtained and who performed the work (i.e., licensed contractor, seller or handyman).
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