BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
On May 6, 2024, Broker Risk Management held a webinar for its clients. The following were questions and answers for which there was no time to answer and were of interest:
QUESTION: When listing a single-family home going through probate where the owner committed suicide, how does an agent disclose that fact on the AVID?
RESPONSE: In a probate sale, a Transfer Disclosure Statement is not generally required. However, the seller is still required to disclose any material defects of which the seller is aware affecting the property. In this instance, the seller would complete an Exempt Seller Disclosure (“ESD”) and on that form disclose that the occupant or prior owner committed suicide at the property. With regard to your AVID, you disclose the information of which you are aware and the source. For example, if you learned of the suicide from the seller, you would disclose it as follows: “Seller reports that prior owner of the property committed suicide at the property. Agent does not have personal knowledge and has not verified that information. Buyer should investigate it to buyer’s satisfaction.”
QUESTION: I am representing a buyer. The buyer has removed all contingencies, but the escrow company will not close the escrow because there are liens recorded against the property. How do we proceed?
RESPONSE: The purchase contract requires the seller to deliver clear title to the property free of any monetary liens (except those which seller has agreed to remove or buyer has agreed to assume). Therefore, despite the fact that your clients removed their contingencies, the seller is still obligated to arrange for the payment of the liens and delivery of marketable title.
QUESTION: If the listing agreement states that the listing broker is authorized to offer _% to a buyer agent, is that offer in the listing agreement binding on the seller?
RESPONSE: Currently, if the listing agreement offer of buyer agent compensation is placed in an MLS that offer becomes binding when the buyer submits an offer to the listing agent. However, upon the effective date of the NAR Settlement Agreement, that seller offer of compensation is not binding on the seller until there is a binding agreement between buyer’s agent and either seller or their agent. The types of such written agreements are discussed in paragraph 3 of the CAR Broker Compensation Advisory (“BCA”) which was released on May 9, 2024.
QUESTION: Can the listing agent reference in the MLS Confidential Remarks that seller is willing to offer a “concession” or credit to or for the use of buyer’s agent?
RESPONSE: No. There can be no reference to a concession, credit, or payment to a buyer’s agent anywhere in the MLS listing.
QUESTION: Under the Settlement Agreement can the listing broker add a document, or link a document (e.g., disclosure.IO), to the MLS listing which states an amount that seller is offering to a buyer’s broker?
RESPONSE: No. that will not be permitted once the MLS goes live with the new rules.
QUESTION: The Broker Compensation Advisory (“BCA”) has a signature line for both the buyer and the seller. Do we give the forms to both the buyer and the seller?
RESPONSE: Agents should provide the BCA to their client for their signature. It is not necessary to obtain the signature of the other party on the BCA as that would be the responsibility of the other agent. It is not even necessary to deliver the BCA signed by your client to the other agent as this is simply an advisory and does not affect contractual obligations.
QUESTION: Does the NAR-Sitzer/Burnett Settlement Agreement apply only to residential one to four units or to all real estate transactions?
RESPONSE: NAR has made clear that the Settlement Agreement applies to “1-4 residential dwelling units.” Regarding commercial transactions, they generally fall outside of the Settlement Agreement; so, there is no requirement for a buyer representation agreement prior to showing commercial properties. However, if listed on an MLS, like all residential listings on the MLS, there will be no seller offer of compensation to the buyer broker.
What is not clear is the effect of the Settlement Agreement on 4+ residential income properties. It seems that they should be excluded from the Settlement Agreement, but CAR is seeking advice from NAR on that.
QUESTION: How does the buyer-broker agreement work with new development purchases? If the buyers decide to purchase a new home, will this hold up for companies who will not work with buyers’ agents?
RESPONSE: If a buyer signs a buyer representation agreement (“BRBC”) and agrees to pay the agent a percentage of the sales price, but chooses to purchase a new home where a commission or referral fee is not paid, or a lesser amount than is called for in the BRBC is paid to the buyer agent, the buyer is still responsible for paying their agent the amount due per the terms of the BRBC net of any amount paid by seller or their agent.
QUESTION: For “touring the home,” what if the listing agent is not holding the home open? Do you still need an agreement to show the buyer the house?
RESPONSE: If the agent holding the home open is also an agent of the Listing Broker, no BRBC is required to “show” the property to a prospective buyer, because that agent is doing so on behalf of the seller. However, if the agent begins representing the buyer on that property, or any other property, a buyer representation agreement would be needed (as well as an AD and PRBS form signed by buyer). CAR is currently working on a form agents can use in this latter scenario (i.e., showing the buyer the open property once the agent is focusing on that buyer as their client for that property). The BRBC form would be required once that agent starts touring or showing the buyer on other properties.
QUESTION: An agent asks a buyer if they have a buyer representation agreement with another agent. The buyer responds, “No.” The agent proceeds and learns the buyer’s answer is wrong. How do I prevent this from occurring?
RESPONSE: While the buyer’s representation regarding properties to be excluded from a BRBC Agreement (by virtue of a prior signed BRBC with another agent) is documented in the BRBC paragraphs 2B(2) and 7, it is recommended that agents also confirm in writing with a buyer that they are not represented by another party and do not have a buyer representation agreement with another agent. After asking the questions orally, a written confirmation by email should be sent.
QUESTION: How do we handle listing agreements signed prior to the effective date of the NAR settlement?
RESPONSE: CAR is currently drafting an addendum to listing agreements which will be signed when the NAR settlement becomes effective on all listings signed prior to the effective date which used an older listing agreement form which references MLS offers of compensation.
QUESTION: What if a buyer signs multiple BRBC agreements with more than one agent knowingly or unknowingly?
RESPONSE: A buyer can sign more than one NON-EXCLUSIVE buyer representation agreement. The buyer is responsible for being aware of the documents that they sign. However, the buyer can be liable to more than one agent for multiple commissions if there are multiple EXCLUSIVE BRBCs signed.
QUESTION: Are there risks to the buyer of closing escrow without the buyer’s agent being paid the amount owed in the BRBC?
RESPONSE: Yes, the buyer risks the buyer’s agent filing an arbitration claim with the local association or CAR, or even suing the buyer in court.
QUESTION: Do we wait until the new buyer representation form is released or have buyers sign the current form?
RESPONSE: Use the current versions of all forms until the new forms are released.
QUESTION: Can you point a buyer to the City Permit Department website?
RESPONSE: Yes, but it is recommended that you refrain from checking the website yourself.
QUESTION: What if a seller wishes to advertise that they performed all work with permits? How do I disclose or represent that?
RESPONSE: You represent it by identifying that the information came from the seller and not from you. For example, you would advertise or disclose it as follows: “Seller reports that all work performed at the property was performed with permits. Agent has not verified that fact. Buyer should investigate it.”
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