BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
The following questions were asked during Broker Risk Management’s (“BRM”) recent risk management seminar held on October 7, 2024.
1. QUESTION: Does the NAR settlement require a buyer representation agreement in the sale of commercial buildings?
ANSWER: No. Commercial properties are excluded from the NAR settlement.
2. QUESTION: Consistent with the prior question, is a buyer representation agreement needed on a property which is five or more units?
ANSWER: As indicated above, no. The NAR settlement does not apply to commercial real estate, buildings of five or more residential units nor to lot/land sales. However, a new 2025 state law requires buyer representation agreements on sales of 1-4 residential property, commercial property, 5+ unit residential income property, vacant land, a ground lease with improvements, and manufactured/mobile homes. Details will be covered in a future tip on new laws for 2025.
3. QUESTION: I am a listing agent holding an open house. A buyer requested copies of a disclosure package. Can I provide that disclosure package to the buyer even though the buyer is not represented?
ANSWER: As the listing agent, or an agent in the listing brokerage, you may take actions which are in the best interests of the seller given that you have a fiduciary obligation to the seller. However, you may not cross the line to providing ANY advice to unrepresented buyers. With regard to disclosures, if an unrepresented buyer simply asks for copies of the disclosures, you may provide them. However, you may not provide assistance or give recommendations to the buyer. You may answer a buyer’s questions to the extent that the answers assist the seller, but you may not develop a relationship or any type of representation of that buyer without a buyer representation agreement.
4. QUESTION: I am representing a buyer. The buyer has agreed to pay me 2½ %. The buyer is writing an offer on a property and the seller has only agreed to pay 2%. Can I waive the other 1/2% the buyer owes under the BRBC and if so, how do I document that?
ANSWER: Yes, you may agree to take less than that provided in the BRBC, assuming your broker agrees with that reduction. Assuming your broker agrees, you should prepare an amendment to the BRBC reducing the commission for that property only, consistent with the agreement by the seller to pay you.
5. QUESTION: Should a listing agent request a copy of the BRBC?
ANSWER: Until CAR revises its forms, a listing agent should request copies of relevant portions of the BRBC to verify the information provided by the buyer in the offer. For example, if the seller is offering to pay the buyer 2%, but the BRBC only provides for 1%, it could create liability on the part of the listing agent if the seller pays any additional amounts which the seller is not obligated to do because the listing agent failed to verify that the buyer agent was entitled to receive the amount seller is contributing to buyer’s agent in the BRBC.
6. QUESTION: What form would you use to amend the commission amount if the BRBC shows a lower commission than what has been agreed to by seller in the SPBB?
ANSWER: Unfortunately, pursuant to the NAR settlement, your commission will be no greater than that in the BRBC. Therefore, unless agreed to in writing by the seller, the buyer’s agent cannot unilaterally and retroactively, change the BRBC once a contract is accepted and the SPBB executed. If the seller does not agree, the solution would be for both parties to amend the purchase agreement reducing the buyer agent’s compensation to that specified in the BRBC.
7. QUESTION: As a listing agent, if we provide disclosures and sell the property as is, what exactly does this mean? Are we immune from future liability? If not, how do we protect ourselves?
ANSWER: CAR’s Residential Purchase Agreement (“RPA”) contains an “as is” provision. However, in the State of California, “as is” only protects information of which the buyer is aware or is disclosed to the buyers. Therefore, there is no “immunity,” if disclosures are not made. The best protection is for sellers and their agent to provide buyer with full and complete disclosures. Listing agents are required to disclose everything of which they are aware regarding the property and to perform a reasonable visual inspection and disclose all defects which are observable using the agent’s five senses. It is also recommended that listing agents properly counsel their sellers on the sellers’ obligations to disclose. That obligation includes providing complete and comprehensive answers and information on the Transfer Disclosure Statement and Seller Property Questionnaire, or the Exempt Seller Disclosure, as applicable. It is further recommended that listing agents provide the seller with the Seller’s Advisory, Statewide Buyer and Seller’s Advisory, and Disclosure Information Advisory (“DIA”). It is especially important to go through the DIA with the seller so as to educate the seller regarding their disclosure obligations.
8. QUESTION: What is the definitive source for square footage?
ANSWER: There is no specific or definitive source for square footage. Varying square footage can be identified in the county records by the tax assessor, in appraisals, in plans or other sources. However, none of these sources of information may be entirely accurate. For example, the assessor’s office only reports square footage for which there is approved permitting. Therefore, if improvements were made to expand square footage, which was not permitted, the assessor’s office may be inaccurate. Homes are not always built in accordance with plans. Therefore, plans may also be inaccurate. Likewise, different appraisers may measure square footage differently and therefore, appraisals may not necessarily be accurate. This is the exact reason why agents should be careful in opining on square footage. Best practice is to use the CAR Square Foot and Lot Size Disclosure and Advisory and include all known square footage numbers and their source.
9. QUESTION: What if a seller represents that the seller has permits, how should that be disclosed?
ANSWER: It should be disclosed in three parts, including the following: “Seller has reported that seller obtained permits for seller’s improvements. Agent has not verified the accuracy of the seller’s statement. The buyer should investigate this issue.”
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