News

Introduction

In California real estate transactions, the real estate licensee who represents a buyer often works without the benefit of a written agreement with the buyer.  Buyer’s agents, who typically receive compensation for their services from the seller’s broker pursuant to the Multiple Listing Service agreement, often do not see any need to have a written agreement with the buyer.   Compensation arrangements though are not the only reason to enter into a written agency agreement with a buyer.  As real estate brokerage models change, there is more reason now than ever before for a real estate licensee working with a buyer to document that relationship, including the possibility of payment.  Thus, although in 2022 only a small number of buyer’s agents entered into a contract with buyers, that may change in the near future.

Q1.  Does C.A.R. have a standard form buyer representation agreement?

A1. Yes, in December 2022, C.A.R. released a Buyer Representation and Broker Compensation Agreement (C.A.R. Form BRBC).  The BRBC replaced the previous three forms that documented the buyer/real estate licensee relationship:  the Buyer Representation Agreement — Exclusive (Form BRE); the Buyer Representation Agreement — Non-Exclusive (Form BRNE); and the Buyer Representation Agreement (Non-Exclusive/Not for Compensation) (Form BRNN).

Q2. What are some of the key components of the BRBC?

A2. (1)  The BRBC establishes a contractual agreement between a buyer and a broker whereby: (i) the buyer hires the broker to find properties for the buyer to buy; and (ii) the buyer agrees to compensate the broker for the broker’s efforts. 

(2) The BRBC defaults to “non-exclusive” representation, meaning the buyer is only required to pay if the broker showed the purchased property to the buyer in-person or virtually, or wrote and presented an offer to the seller that the buyer signed.  There is option to create an exclusive relationship, meaning the broker is entitled to compensation if during the term of the BRBC the buyer purchases any property that fits the contract’s parameters, whether or not the broker was involved.

(3) The BRBC is cancellable by either party.  If the BRBC is non-exclusive, the cancellation is effective immediately.  If the BRBC is exclusive, the cancellation only becomes effective 30 days after delivery. 

(4) The broker is obligated to disclose to the buyer compensation that is offered to the broker by the seller’s broker through the MLS.  The buyer receives a credit toward the amount due for any compensation the broker receives from the seller’s broker or others. 

(5) The BRBC defines the scope of the tasks and duties to be performed by buyer and broker and  provides a written consent to dual agency.

Q3. Does the BRBC have an option that allows representation without compensation?

A3. No. A broker who wants to establish a written agreement with the buyer without obligating the buyer pay compensation would have to write “0” into the compensation field or otherwise modify the BRBC. 

Q4. Why would a buyer’s agent sign a buyer representation agreement that does not have a compensation component?

A4. The BRBC establishes in writing the terms of the contractual relationship between the buyer and broker. As such, it prevents misunderstanding about who is responsible for various elements in the real estate transaction. This contract is a convenient way for a broker to make sure that his/her expectations match the buyers. In addition, if buyers know up front what to expect from their agent, and themselves, they can take appropriate steps to protect themselves rather than relying on a broker who may not have the expertise in certain areas.

Brokers also benefit because the terms of the relationship and duties are spelled out instead of being established by verbal representations, conversations and actions. Clarification of responsibilities and limitations works to everyone’s advantage.

Also, if the broker with a signed BRBC becomes involved in a procuring cause dispute with another broker over compensation, having a signed buyer representation agreement is given extra weight by a panel of arbitrators considering various procuring cause factors. 

Q5. Is a buyer able to enter into more than one agreement with different brokers?

A5. Yes, but depending on the agreement there could be consequences.  The default position of the BRBC is that it is both non-exclusive and revocable. Thus, a buyer would not be in breach of the agreement if the buyer also entered into another agreement with a different broker. If a buyer entered into multiple buyer representation agreements, it is likely that the broker would question the sincerity of that buyer and the broker could revoke the agreement.

If the option in the BRBC is checked making the agreement exclusive even if a buyer signs an agreement with another broker, compensation would still be owed to the first broker with a written agreement if, during the term of that agreement, the buyer purchases property defined by that agreement (see answer A2(2).  With the non-exclusive BRBC, a buyer only owes compensation to the broker with the written agreement if during its term the buyer acquires property that was introduced to buyer by that broker or if the broker otherwise acted on the buyer’s behalf.

Q6. Are buyer representation agreements legally enforceable?

A6. Yes. Courts have upheld buyer representation agreements as legally enforceable. (See RC Royal Development and Realty Corp. v. Standard Pacific Corp., 2009, 177 Cal.App.4th 1410 and Schaffter v Creative Capital Leasing Group, LLC, 2008, 166 Cal.App.4th 745)

Q7. Why did C.A.R. revise the buyer representation forms in 2022?

A7. C.A.R. first created an exclusive authorization form for buyers and brokers in 1989 to help those brokers who believed in the practice to document their relationship with buyers. In 1998, in the case of Field v. Century 21 Klowden-Forness, the California Court of Appeal held that the two-year statute of limitations in the §§ 2079 series does not apply to claims of breach of fiduciary duty brought by a buyer against that buyer’s agent. This opinion also raised questions about whether any of the other statutory limits found in Civil Code § 2079 applied to buyer’s agents. Subsequently, California jury instructions adopted language which could be interpreted as expanding the fiduciary duty that an exclusive buyer’s broker owes a buyer.  As a result, buyer’s agents could no longer look to the statute for protection, definition or clarity about the nature of the relationship that the broker had with the buyer.

In the years leading up to 2022, class action lawsuits exposed NAR, MLS’s and brokerage companies to potential liability due to the mandatory offer of compensation from the seller’s broker to the buyer’s broker pursuant to the MLS rules.  A C.A.R. Task Force considered potential responses and decided that updating the existing C.A.R. forms was the most practical solution to address those and other issues. 

Q8. Are there any forms that were released at the same time as the Buyer Representation and Broker Compensation Agreement which work in conjunction with the BRBC?

A8. Yes. (1) The Notice of Broker Involved Properties (C.A.R. Form NBIP) is used by a broker to put the buyer on notice of properties for which the broker acted on buyer’s behalf by, for instance, showing the property to buyer in person or virtually, or by writing and presenting an offer for property signed by buyer.  The NBIP would need to be delivered at the time the BRBC terminates, if there is a completed protection period clause, or within 5 days after a cancellation.

(2) The Cancellation of Buyer Representation (C.A.R. Form COBR) is used by either buyer or broker to cancel a BRBC before the scheduled termination date. 

(3) The Anticipated Broker Compensation Disclosure (C.A.R. Form ABCD) is a three-part form used by a broker: to inform the buyer that the broker expects to be paid for the broker’s efforts; (ii) to identify compensation offered the broker from the seller’s broker through the MLS (Instead of using the ABCD, the broker may use a non-confidential print-out from the MLS to satisfy this step); and (iii) to reveal to the buyer any payments actually received from third parties in the event the buyer closes a transaction  (This step may be satisfied by a closing statement from the escrow holder if it contains the same information). 

(4) The Buyer Transactional Advisory (C.A.R. Form BTA) is attached to the BRBC and informs the buyer of their own duties and responsibilities as well as the services that will and will not be performed by the broker.

(5) The Seller’s Payment to Buyer’s Broker (C.A.R. Form SPBB) is used to identify any payment that the seller will make to the buyer’s broker either directly or through escrow.  The amount cannot exceed the difference, if any, between what the buyer agrees to pay the buyer’s broker and what the seller’s broker agreed to pay the buyer’s broker, most likely through the offer of compensation in the MLS.  The SPBB will only be used if the buyer makes the request of the seller through an optional paragraph in the purchase offer (C.A.R. Form RPA).  Two prerequisites to that request are that the buyer has already signed a buyer representation agreement, and that the offer of compensation through the MLS, which is credited against the buyer’s contractual obligation, will not completely satisfy the buyer’s obligation. 

(6) Optional paragraph 3G(3) was added to the Residential Purchase Agreement (C.A.R. Form RPA) to allow the buyer to ask the seller to pay the buyer’s broker if the amount specified in the MLS by the seller’s broker will not completely satisfy the buyer’s obligation.  A seller does not have to agree to pay the amount the buyer requests, or any amount, and the seller may counter that term.  Whether the buyer asks the seller to pay will depend on many factors such as the market power of buyer and seller, and the position of the buyer’s broker. 

Q9. What other terms are contained in the BRBC and bundled forms such as the Buyer Transactional Advisory (C.A.R. Form BTA) form?

A9. 

1. A paragraph that identifies the parties to the agreement and provides a recognition that the licensee’s duties will be performed either by an individual broker or an associate-licensee in the broker’s office.
2. A paragraph identifying the authority of the broker, including activities such as locating and presenting properties and offers, assisting with loan pre-qualification, providing lists of professional vendors or service providers, and scheduling and attending meetings.
3. A paragraph that identifies the duties of the broker, including providing and reviewing forms, conducting an on-site, visual inspection of the accessible areas of residential one-to-four property, facilitating the escrow process and delivering materials in the licensee’s possession.
4. A paragraph that establishes the limits on the scope of the broker’s services. As an example, the buyer agrees that the broker is not responsible for inspections that should more appropriately be made by other professionals, that the broker does not guarantee the performance of others or the condition of the property, and that the broker will not verify square footage or boundary representations.
5. A paragraph that identifies the responsibilities of the buyer in the transaction. These include hiring professional inspectors and notifying the broker in writing of specific concerns.
6. A paragraph that acknowledges the agency relationship and disclosure duties and also contains consent by the buyer in the event broker becomes a dual agent in a resulting transaction.
7. A place for the buyer and broker (through an associate-licensee) to sign the agreement.

Q10. What are some other clauses in the BRBC?

A10. Yes.

1. There is a definite commencement date.  The length of the representation agreement is based on a number of days from the commencement rather than a specific termination date.  It must be written into the first paragraph.
2. There is a paragraph in which the property the buyer is seeking to acquire is defined in terms of), location of property, price range and other features (i.e., residential or residential income).
3. There is a paragraph in which the buyer is obligated to provide the broker relevant personal and financial information to demonstrate the buyer’s ability to acquire the described property including proof of funds and a pre-approval or pre-authorization letter from a lender. If the buyer does not provide the information or is not qualified to acquire the property, then the broker may cancel the agreement.

4. There is a compensation paragraph that obligates the buyer to pay for the broker’s services. The buyer is given a credit against this obligation if the broker receives compensation from another source, such as the seller’s broker or  seller.
5. The BRBC has a mediation paragraph and an optional arbitration paragraph.
6. The BRBC has an attorney’s fees paragraph that provides in the event of a dispute, each party will pay its own attorney fees.  However, if a party fails to mediate a dispute before litigating or arbitrating and that party loses in court or arbitration, then the non-mediating losing party will pay for the winner’s attorney’s fees.

Q13. Where can I obtain additional information?

A13. This legal article is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.’s legal products and services, please visit car.org/legal.

Readers who require specific advice should consult an attorney. C.A.R. members requiring legal assistance may contact C.A.R.’s Member Legal Hotline at (213) 739-8282, Monday through Friday, 9 a.m. to 6 p.m. and Saturday, 10 a.m. to 2 p.m.