BEWARE OF Buyer/Broker Representation Agreements

By Michael Repka, Esq.

In an ideal world, real estate agents would provide so much expertise and knowledge, and be so attentive and responsive, that their clients would want to work with them. However, recently there has been a push by some agents to get their clients to sign a legally binding agreement that mandates the buyer work with them if they buy any home in a particular area, or an otherwise identified property over an extended period of time. In other words, by signing this type of form the potential buyer relinquishes, or materially limits, their ability to switch buyer’s agents even if they are not satisfied with the agent’s performance.

Buyers that sign these agreements may be required to pay the agent their full commission, even if the buyer is unsatisfied with the agent’s services or responsiveness and they purchase a home through another agent.

Similarly, these buyers may be obligated to pay the agent their full commission if the transaction does not close due to a buyer’s default, which would be in addition to any amount the buyer would owe to the seller, such as liquidated damages.

Further, the potential buyer could be obligated to pay their agent directly if the amount that the seller is paying to the agent is not satisfactory to the agent and is less than the amount indicated in the buyer/broker representation agreement.

An additional downside to signing this type of agreement stems from the fact that many of that agent’s clients may have declined to sign the same agreement; therefore, the agent may have an incentive to prioritize the clients that did not sign the agreement because those clients would be free to switch agents if they are not satisfied. Whereas, by the agreement’s terms, the potential buyers that did sign the agreement would not have that option.

What makes the situation worse is that many buyers may not even realize what they are signing or that this agreement is entirely voluntary.

If this type of agreement is used, the agent should present this document at the first meeting, explain exactly what it means, and that it is voluntary. However, many agents know that most clients would not sign this agreement if they fully understood what they were signing, especially if the buyer has spoken with an attorney.

There is also material risk that some unscrupulous agents could mix in this type of agreement when the client is signing other papers, such as when putting in an offer or when signing more innocuous documents such as the “Disclosure Regarding Real Estate Agency Relationship.” Despite an agent’s duty under Standards of Practice 9-2* to explain all documents sent for electronic signature, some agents might be tempted to mix this agreement into a number of documents sent via DocuSign.

In this area, there are two main types of forms used: the California Association of Realtors® (“C.A.R.) forms and the Peninsula Regional Data Service (“PRDS”) forms. Both organizations offer similar forms that bind the buyer to pay commission to the agent and possibly add to the commission paid by the seller; however, there are material differences between the two forms. For example, the C.A.R. form offers the option of nonexclusive representation and provides the buyer with the right to cancel the agreement with 30 days’ notice, although the buyer may be obligated to pay commission for a significant period of time even after the 30-day period expires. The PRDS form is, by its terms, exclusive and irrevocable.

Without question, there are a lot of very good real estate agents that look out for their clients and truly put the clients’ best interest first. Unfortunately, there are others that use tactics that seem to go against these principles. Some of these tactics include: (1) long listing agreements (often 3 months or longer); (2) “pocket listings” that permit the agent a period of exclusivity to show their clients or their office’s clients with limited exposure or competition; and, of course, (3) buyer/ broker representation agreements.

In practice, I have found that stronger agents who offer more services tend to have the shortest listing agreements and elect not to make their buyers contractually bind themselves into working with them.

It is in the client’s best interest to speak with an attorney before signing any buyer/broker agreement or listing agreement.

At DeLeon Realty, we will reimburse our sellers up to $1,500 out of our commission for a consultation with an attorney of their choosing to go over the contents of our listing agreement, which is only 39 days long (beginning on the day the property is placed on the MLS). For the reasons mentioned above, Ken DeLeon and his team of buyer’s agent do not ask their clients to sign buyer/ broker representation agreements. We believe that we have to earn our clients’ loyalty.