presents

The Relationship Between You and the Buyer in a Residential Real Estate Transaction

Includes Guidance on C.A.R.’s Buyer Representation Agreements

California Department of Real Estate Disclaimer Statement:

This course is approved for Continuing Education credit by the California Department of Real Estate. However, this approval does not constitute an endorsement of the views or opinions which are expressed by the course sponsor, instructor, authors or lecturers.

Introduction

You’re hosting an open house one pleasant Saturday afternoon. You meet a nice couple. They say the house isn’t right for them. You offer to show them some other homes for sale in the neighborhood, and they cheerfully agree. Sound pretty simple and straightforward? Think again. An entire body of agency law just came crashing down on you, and if you want to stay out of trouble, you better know and follow all these laws. Just a quick look at your interrelations as a buyer’s agent in a typical real estate transaction demonstrates the complexity of your role. As a buyer’s agent, you represent the buyer, yet you also represent the real estate broker under whom you’re licensed. As for compensation, however, you don’t expect payment from either your buyer or broker. Instead, you generally expect the listing brokerage to pay you according to the rules and regulations of the Multiple Listing Service (MLS). This listing broker represents the seller of the property being sold. However, whatever dealings you have with the listing broker or seller are conducted through yet another person altogether -- the listing agent. On top of all this are a slew of third-party service providers, such as lenders, inspectors, and escrow officers. Each relationship that you have with someone adds another layer of complexity to your legal rights and duties. The purpose of this course is to help you, as a buyer’s agent, understand the legal aspects of your relationship with the buyer in a real estate sales transaction. This booklet explains the legal rights and duties of a buyer’s agent, and provides risk management tips and strategies so you’ll know how to conduct yourself in your day-

to-day practice. This booklet also provides a detailed guide to the three standard-form buyer representation agreements available through the CALIFORNIA ASSOCIATION OF REALTORS®. The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) is one of the largest state trade organizations in the United States, with over 200,000 members dedicated to the advancement of professionalism in real estate. C.A.R. provides many legal services to assist its members. Some of the legal services that may help you in your real estate practice as a buyer’s agent are as follows:

• The Legal section of C.A.R. Online at www.car.org has legal articles and other publications covering many topics of interest for the real estate practitioner. These publications are available for your own reference, and some of them are also appropriate for you to print out to give to your clients.

• Realegal® is an electronic legal information service that notifies you by e-mail about new legal developments in real estate. Realegal® is free for members who have their e-mail address on file with C.A.R.

• For any particular legal concern, call Member Legal Hotline at (213) 739-8282, Mondays to Fridays (9 a.m. to 6 p.m.), to consult with a C.A.R. attorney.

Understanding Agency Relationship

Establishing an Agency Relationship

An agent is someone who represents another in dealings with third persons (Cal. Civ. Code Section 2295). In your day-to-day practice, creating an agency relationship with a buyer simply means you are going to start helping your client find a house to buy. From a legal perspective, however, creating an agency relationship takes on a much more serious meaning. It means you now owe a fiduciary duty to do what is in your client’s best interest. A fiduciary duty is highest standard of care recognized under the law. It is a duty of utmost care, integrity, honesty and loyalty in dealings with your client. If your conduct falls below this high standard of care, you may be held liable for whatever damages you cause your client to suffer. An agency relationship is created by agreement. If a buyer wants to appoint someone as his or her real estate agent, and that agent accepts the appointment, then an agency relationship is established. This agreement does not require any special formalities. It may be made verbally or in writing. It may even be implied from the conduct of the parties.

PRACTICE TIP

Even though a written agency agreement is not required, it is highly recommended as further discussed below.

Factors that courts have considered in determining whether an agency has been created include the following:

• The intent of the parties: The primary test for determining the existence of an agency relationship is the intention of the principal to employ the agent to act on behalf of the principal as the principal’s representative, and the agent’s intention to accept that employment.

• The principal’s degree of control over the activities of the agent. • The agent’s right to exercise some discretion in the agent’s dealings with third

persons on behalf of the principal. • The agent’s participation in bringing the seller and buyer to a meeting of the

minds. • The agent’s receipt of confidential information. • The payment of compensation: Although the payment of compensation is a

relevant factor, it is not a determinative factor. An agent acting without the expectation of any compensation can nevertheless be held liable as a fiduciary.

Although there are many factors for determining agency, they may not be very meaningful in the final analysis. In an agency liability case, the California Supreme Court observed: “whenever the acts or omissions of a [Realtor] causes injury in a real estate transaction, there is a compelling reason to find him an agent.” Skopp v. Weaver (1976) 16 Cal. 3d 432, 440 (citations omitted). So if you’ve agreed to be someone’s agent, then conduct yourself accordingly. But if you have not agreed to be someone’s agent, you should arguably be even more careful in the way you conduct yourself. Protect yourself from potential liability by ensuring that the lack of an agency agreement is clearly established.

PRACTICE TIP

Let’s say, for example, you found a home for your client to buy that is for sale by the owner (a FSBO). The seller refuses to enter into a listing agreement with you, yet asks for your help preparing the proper forms and disclosures, and doing other things. On one hand, you want to oblige the seller because doing so will facilitate the completion of the transaction on behalf of your buyer. On the other hand, you don’t want your conduct in helping the seller be construed as creating an agency relationship with the seller. What do you do? The law does not require a seller to be represented by a real estate agent even though the buyer is represented by an agent. You may ask the seller to sign C.A.R.’s standard-form Seller Non-Agency Agreement (Form SNA) to clarify in writing that you are not that seller’s agent and conduct yourself accordingly. For other types of situations, C.A.R. also publishes a Buyer Non-Agency Agreement (Form BNA) to establish the lack of an agency relationship with a particular buyer.

Providing the Agency Disclosure Statement

When establishing an agency relationship, a buyer’s agent should provide the buyer with a Disclosure Regarding Real Estate Agency Relationships. This disclosure form sets forth the different types of agency relationships.

PRACTICE TIP

You may use C.A.R.’s standard-form Disclosure Regarding Real Estate Agency Relationships (Form AD) to satisfy this disclosure requirement.

The legislative intent for enacting the agency disclosure law was to cut through the confusion surrounding agency relationships in real estate transactions. It is therefore ironic that, among real estate practitioners, so much confusion surrounds the Agency Disclosure Statement. Moreover, understanding the intricacies surrounding the Agency Disclosure Statement is merely half the battle. The other half is being able to stand your ground when other agents claim you are not doing things correctly. Here’s the lowdown on the Agency Disclosure Statement.

Applicable Transactions

The Disclosure Regarding Real Estate Agency Relationships is a required disclosure form for the following transactions:

• Sale of residential properties with one-to-four units; • Lease for over one year of residential properties with one-to-four

units; and • Sale of mobile homes.

For purposes of this requirement, “sales” include exchanges, sales by installment sales contract as defined under California Civil Code Section 2985, leases with an option to purchase, and ground leases of land on which one-to-four dwelling units have been constructed. California Civil Code Sections 2079.1 and 2079.13.

Exceptions

The Disclosure Regarding Real Estate Agency Relationships is not required for the following transactions:

• Subdivisions sale subject to a public report • Subdivisions sale exempt from the public report requirement • Sale of residential property with 5 or more units • Sale of commercial property • Sale of industrial property • Sale of vacant land

California Civil Code Sections 2079.6 and 2079.13.

PRACTICE TIP

Even though a transaction is exempt from the agency disclosure requirement, it may still be prudent to voluntarily provide the Agency Disclosure Statement to your clients to inform them of the different types of agency relationships.

Agency Disclosure Requirements

For applicable transactions, the listing agent and the buyer’s agent must provide the Agency Disclosure Statement to the seller and buyer as follows:

• The listing agent must give the Agency Disclosure Statement to the seller before entering into a listing agreement, so this first document should be signed by the seller and the listing agent.

• The buyer’s agent must give the Agency Disclosure Statement to the buyer as soon as practicable before writing an offer, so this second document should be signed by the buyer and the buyer’s agent. If the buyer enters into a written buyer representation agreement (as discussed below), that would be a good time for the buyer’s agent to give the Agency Disclosure Statement to the buyer.

• The buyer’s agent must also give the Agency Disclosure Statement to the seller as soon as practicable before presenting an offer, so this third document should be signed by the seller and the buyer’s agent. This third document is not required if your real estate office is a dual agent representing both the seller and buyer.

California Civil Code Section 2079.14. The requirements for the first and second documents are straight-forward. It’s the third document signed by the seller and the buyer’s agent that seems peculiar, and thus, causes a lot of confusion among agents. Here’s the typical step-by-step procedure for this third document that you, as the buyer’s agent, should follow:

1. Sign a blank Agency Disclosure Statement.

2. Give the signed statement to the listing agent along with the buyer’s offer.

3. Instruct the listing agent to give the disclosure statement to the seller along with the buyer’s offer.

4. The seller should sign the disclosure statement right above your signature, and return the document to you along with the seller’s acceptance of, or counteroffer to, the buyer’s offer.

Again, the third document is to be signed by the seller and the buyer’s agent. The law does not intend for the buyer’s agent to give the seller a copy of the second document signed by the buyer and the buyer’s agent, although that is what many agents mistakenly do. Nor does the law intend for the listing agent to give the buyer a copy of the first document signed by the seller and the listing agent, although that is also what many agents mistakenly do.

PRACTICE TIP

If other agents are confused about the agency disclosure requirements, you may direct their attention to the instruction box at the bottom of C.A.R.’s Disclosure Regarding Real Estate Agency Relationships (Form AD).

Despite popular belief to the contrary, this third document does not create an agency relationship between the seller and the buyer’s agent because, as a disclosure, it is merely an information sheet of the different types of agency relationships. The actual selection of an agency relationship is set forth not on the Agency Disclosure Statement, but elsewhere as a Confirmation of Agency (see discussion below).

PRACTICE TIP

For C.A.R.’s standard-form contracts, such as the California Residential Purchase Agreement and Joint Escrow Instructions (Form RPA-CA), the confirmation of agency is set forth in the paragraph entitled Agency.

The law addresses what agents should do in two special situations. First, although the Agency Disclosure Statement must be given to the buyer before writing the offer, in the event that a buyer prepares his or her own offer, the buyer’s agent must give the disclosure within one business day after receiving the offer from the buyer (Cal. Civ. Code Section 2079.14(d)). Second, in the event a seller or buyer refuses to sign and return an Agency Disclosure Statement, the agent should set forth the facts of the refusal in a written declaration (Cal. Civ. Code Section 2079.15). The agent should then sign and date the written declaration, and keep it in the broker’s file for that transaction.

Confirming the Agency Relationship

In addition to providing the Agency Disclosure Statement, the law requires a real estate agent to, as soon as practicable, disclose to the buyer and seller whether that agent is acting:

• Exclusively as the buyer’s agent; • Exclusively as the seller’s agent; or • As a dual agent representing both the buyer and seller.

This relationship must be confirmed in the sales contract or in a separate agreement signed before or coincident with the sales contract. Cal. Civ. Code Section 2079.17. Obtaining your buyer’s acknowledgment of receipt to the Agency Disclosure Statement is not a confirmation of agency.

PRACTICE TIP

C.A.R.’s standard-form sales contracts, such as the California Residential Purchase Agreement and Joint Escrow Instructions (Form RPA-CA) provide a confirmation of agency in the paragraph entitled "Agency." You may also use C.A.R.’s stand-alone Confirmation: Real Estate Agency Relationships (Form AC-6).

Self-Check Questions

1. An agency relationship with a buyer can be created in which of the following

ways?

a. By written agreement

b. By oral agreement

c. By implication from the conduct of the parties

d. All of the above

2. If a buyer wants to buy a property that is for sale by the owner (FSBO), the

buyer's agent must create an agency relationship with the seller as well as with the buyer.

a. True

b. False

3. For which of the following type(s) of transactions is a buyer's agent required to

provide the buyer with a Disclosure Regarding Real Estate Agency Relationships?

a. Sale of residential properties containing one-to-four units

b. Lease for one year of residential properties containing one-to-four units

c. Sale of subdivision properties subject to a public report

d. Both a and b

4. Which of the following three documents (X, Y, and Z) should a buyer's agent

have at the end of a residential sales transaction? X = Agency Disclosure Statement signed by the buyer and buyer's agent Y = Agency Disclosure Statement signed by the seller and seller's agent Z = Agency Disclosure Statement signed by the seller and buyer's agent

a. X only

b. Both X and Y

c. Both X and Z

d. X, Y, and Z

5. A signed Disclosure Regarding Real Estate Agency Relationships form is not a

confirmation of agency between the real estate agent and the seller or buyer.

a. True

b. False

6. At what point in an agency relationship does the law require a buyer's agent to

present the buyer with the Disclosure Regarding Real Estate Agency Relationships?

a. Before entering into a listing agreement

b. Before entering into a buyer representation agreement

c. Before showing properties to the buyer

d. Before writing an offer

7. What should a buyer's agent do if, upon presenting a Disclosure Regarding Real

Estate Agency Relationships form to the seller to sign, the seller refuses to sign?

a. Send a second request

b. Set forth the facts of the refusal in a signed and dated declaration to keep in the broker's transaction file

c. Contact the listing broker

d. Nothing, because the buyer's agent should not have presented this form to the seller

8. Before presenting an offer, the buyer's agent must provide the seller with a copy

of the Disclosure Regarding Real Estate Agency Relationships signed by the buyer's agent and the buyer.

a. True

b. False

9. An agency relationship may be confirmed in a sales contract or in a separate

agreement.

a. True

b. False

Defining Agency Duties

The law sets forth various duties for a buyer’s agent. You should know what the law requires of you as a buyer’s agent to ensure that you do a good job for your clients as well as stay out of trouble.

Duty to Conduct Visual Inspection

For residential properties with one-to-four units, a buyer’s agent has a duty to conduct a reasonably competent and diligent visual inspection of the property offered for sale, and to disclose to the buyer all facts materially affecting the value or desirability of the property that an investigation would reveal (Cal. Civ. Code Section 2079). This duty to inspect also applies to leases with an option to purchase, ground leases of land on which one-to-four dwelling units have been constructed, and installment sales contracts as defined in California Civil Code Section 2985 (Cal. Civ. Code Section 2079.1). The only transactions exempt from this visual inspection requirement are new subdivision sales that fall under the public report requirement or one of its exemptions, unless the property has been previously occupied (Cal. Civ. Code Section 2079.6). Other transactions exempt from the Transfer Disclosure Statement (TDS) requirement (for example, probate sales, foreclosure sales, or trust sales) are not exempt from the agent’s visual inspection requirement.

PRACTICE TIP

From a risk management perspective, as important as it is to conduct a visual inspection, it is equally important to have documentation proving you conducted the visual inspection. For transactions subject to the TDS requirement, you may use the agent’s section on page three of C.A.R.’s standard-form TDS to show that you have conducted a visual inspection, and to write down the results of that inspection. For a more detailed approach, you may also complete and attach C.A.R.’s 3-page Agent’s Visual Inspection Disclosure (AVID) (release date April 2007). Certain transactions are exempt from the TDS requirement, but the agent is not exempt from the visual inspection requirement (e.g., probate and lenders’ REO or real estate owned). For transactions exempt from the TDS requirement, you may use Form AVID to document your visual inspection.

In conducting the visual inspection, an agent must demonstrate the same degree of care as that of a reasonably prudent real estate licensee with the education, experience, and examination required to obtain a license (Cal. Civ. Code Section 2079.2). However, a buyer also has a “duty to exercise reasonable care to protect himself or herself, including those facts which are known to or within the diligent attention and observation of the buyer” (Cal. Civ. Code Section 2079.5). Any legal action for breach of the duty to conduct a visual inspection must be commenced within two years from the date of possession (which is defined by statute as the close of escrow or the date of occupancy, whichever occurs first) (Cal. Civ. Code Section 2079.4).

Exceptions to Visual Inspection

The following exceptions apply to the visual inspection requirement for agents of residential properties with one-to-four units:

• Areas reasonably and normally inaccessible

• Areas off the site of the subject property

• Public records or permits concerning the title or use of the property

• For properties in common interest developments, areas other than the unit offered for sale (as long as the CC&Rs and other required documents are given to the buyer)

Cal. Civ. Code Section 2079.3.

Other Agency Duties

In addition to the duty to visually inspect, a buyer’s agent also owes other duties to the buyer and seller. According to the Agency Disclosure Statement, as an agent, you owe to your own client a fiduciary duty of utmost care, integrity, honesty, and loyalty in your dealings. It also states that you owe the following duties to both the seller and buyer:

• Diligent exercise of reasonable skill and care in performances of the agent’s duties;

• A duty of honest and fair dealing and good faith; and

• A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties.

Cal. Civ. Code Section 2079.16.

CASE EXAMPLE

After Robert and Betty Field bought a rural residential property, they sued their agent, Shirley Hays, and her broker. The Fields alleged that the scope of the Otay Water District’s easement on their property was far more extensive than what had been represented to them. In addition, they claimed that the house violated setback requirements, the septic system was inadequate, and the house suffered from various physical defects. They further claimed that their agent neither checked into these issues nor advised the buyers to do so. The Fields sued their agent and broker for, among other things, breach of fiduciary duty. In their defense, the agent and broker argued that the Fields’s lawsuit was time-barred. As the agent and broker pointed out, the statute of limitations for failing to properly conduct a visual inspection was two years under California Civil Code Section 2079.4. Yet, the Fields’s lawsuit was brought over

two years after the buyers took possession of the property. The court, however, disagreed. The court stated that, regardless of section 2079’s two-year statute of limitations beginning from the date of possession, the statute of limitations for breach of fiduciary duty generally commenced when the buyer reasonably discovered the wrongdoing. In other words, aside from a duty to visually inspect, the buyer’s agent owed other duties to the buyer. More specifically, the buyer’s agent owed a fiduciary duty to the buyer which was broader in scope than the non-fiduciary duty to conduct a visual inspection. Field v. Century 21 Klowden-Forness Realty (1998) 63 Cal. App. 4th 18.

Self-Check Questions

1. A buyer's agent must conduct a visual inspection for what type of transaction?

a. Sale of residential properties consisting of one-to-four units, except certain new subdivision sales

b. Sale of residential properties consisting of one-to-four units, except transactions exempt from the Transfer Disclosure Statement requirement

c. Sale of all residential properties consisting of one-to-four units

d. Sale of all real properties

2. What standard of care does the law require for an agent's visual inspection of

property?

a. That which is reasonably competent and diligent

b. That which a reasonably prudent real estate licensee would provide

c. That which is within the diligent observation of the buyer

d. Both a and b

3. Which of the following are exceptions to a buyer's agent's duty to conduct a visual

inspection of residential properties?

a. Areas reasonably and normally inaccessible

b. Public records or permits concerning the title or use of the property

c. Both a and b

d. None of the above

4. An agent's duty to conduct a visual inspection does not include the common area

in a condominium complex.

a. True

b. False

5. What duty (or duties) does a buyer's agent owe to the buyer?

a. Duty of utmost care, integrity, honesty, and loyalty

b. Duty of honest and fair dealing

c. Duty to exercise reasonable skill and care

d. All of the above

Special Agency Arrangements

At times, a buyer’s agent represents not only the buyer, but another client as well. These special agency arrangements should be handled carefully to ensure your transactions proceed smoothly.

Dual Agency

You can act as a dual agent for both the seller and buyer, but only with the knowledge and consent of both of them. You are a dual agent as long as both the seller and buyer are represented by you or another agent in your real estate brokerage. As a dual agent, you owe a fiduciary duty to both the seller and buyer, as well as the other general agency duties set forth above. You may not, without the express permission of your client, disclose to your other client that the seller will accept a price below the listing price or that the buyer will pay a price greater than the price offered. Cal. Civ. Code Section 2079.16.

Representing More Than One Buyer

At times, a real estate office will represent more than one buyer at the same time. If Buyer A and Buyer B are clients of the same broker or agent, problems may arise if both clients are interested in buying the same piece of property. For example, Buyer A may demand to know what Buyer B intends to offer for the property, or Buyer B may get upset with the broker if the seller accepts Buyer A’s offer. You can avoid these sticky situations by discussing the possibility of multiple representations with your clients up front. You should discuss not only the possibility of competing buyers, but also establish some ground rules for handling these situations.

PRACTICE TIP

C.A.R.’s standard-form sales contracts, such as the California Residential Purchase Agreement and Joint Escrow Instructions (Form RPA-CA), inform the buyer in the paragraph entitled Agency, the possibility that the buyer’s agent may also represent other buyers. For a more detailed discussion of multiple representations, you may also use C.A.R.’s standard-

form Disclosure and Consent for Representation of More Than One Buyer or Seller (Form DA). A good time to present this form to the buyer is when you provide the Agency Disclosure Statement (C.A.R. Form AD).

Getting Your Agency Agreement in Writing

Although an agency relationship can be created without anything in writing, obtaining a written agreement is a very good idea for many reasons. Here are some of the advantages of having a written buyer representation agreement:

• Defines the scope of your rights and obligations as a buyer’s agent.

• Sets forth the buyer’s rights and obligations.

• Authorizes you to act on behalf of the buyer.

• Addresses issues that are likely to arise during the course of the agency relationship.

• Can be customized to address special issues, if any.

• Sets forth your entitlement to compensation (optional).

• Forges loyalty and trust between agent and client.

• Demonstrates to your client the breadth of tasks you will perform.

• Enhances your professional image.

• Eliminates any need to resort to memory.

• Gives you opportunity to sit down with your client to discuss agency issues up front and avoid misunderstandings.

•

PRACTICE TIP

Some buyers like using their written buyer representation agreement to ward off unwanted solicitations. For example, a buyer enters into C.A.R.’s standard-form Buyer Representation Agreement - Exclusive (Form BRE) with Broker A. One weekend, the buyer goes unaccompanied by Broker A to Broker B’s open house. At the open house, Broker B strongly urges the buyer to accept an agency relationship. To quickly and effectively reject Broker B’s offer of agency, the buyer may show Broker B that she already has a written agreement with Broker A.

PRACTICE TIP

C.A.R. publishes three different types of buyer representation agreements. They are: (1) the Buyer Representation Agreement - Exclusive (Form BRE); (2) the Buyer Representation Agreement - Non-Exclusive (Form BRNE); and (3) the Buyer Representation Agreement (Non-Exclusive/Not for Compensation) (Form BRNN). These three agreements are discussed in detail below.

From a risk management perspective, the most important aspect of a buyer representation agreement is the ability to define, and thereby restrict, the scope of your agency duties. With a written buyer representation agreement, you can clearly establish when your agency relationship begins and ends to cut off any potential liability beyond that agency period. The written agreement also allows you to clearly establish what tasks you will perform, and those you will not perform.

CASE EXAMPLE

Ernest Carleton, an experienced real estate investor, hired Mary Tortosa as his real estate agent for the sale of two rental properties and the purchase of two other rental properties. After the transactions closed escrow, Ernest discovered that he had a tax liability of $34,000 because he didn’t properly structure the transactions to qualify as 1031 tax-deferred exchanges. Ernest sued Mary for professional negligence in failing to warn him that his transactions could have adverse tax consequences. If this case went to trial, it would have been up to the judge or jury to decide whether giving tax advice fell within Mary’s agency duties. On one hand, Mary was a real estate agent, not a tax consultant, but on the other hand, tax consequences are an integral part of a client’s decision to buy real estate. Luckily for Mary, her case never went to trial. She won instead by summary judgment as a matter of law, because she had a written agency agreement explicitly excluding tax advice from the scope of her agency duties. Carleton v. Tortosa (1993) 14 Cal. App. 4th 745.

Overcoming Common Objections

Despite the marketing and legal advantages of buyer representation agreements, getting them in writing is often the exception rather than the norm among real estate practitioners in California. Over the years, real estate agents raise many objections to entering into written agreements with their buyers. These objections are easy to overcome. Here are some examples:

• “That’s not the way we’ve been doing things!” We’re all creatures of habit to some extent. Frankly, however, that’s not a good enough reason to resist the practice of using written buyer representation agreements. Furthermore, the real estate business has changed dramatically over the years which make written buyer representation agreements more meaningful today than ever before.

HISTORICAL PERSPECTIVE

Traditionally, the listing broker in a typical real estate transaction would enter into a listing agreement with the seller, and then place that property into the Multiple Listing Service (MLS). Because placing the property into the MLS was an offer of compensation to the cooperating broker who procured a buyer for that property, it was also construed as an offer for the cooperating broker to be the seller’s subagent. Thus, the role of a cooperating broker in each transaction was ambiguous at best. The cooperating broker could have been considered a subagent for the seller, an agent for the buyer, or a dual agent. This awkward and complex paradigm was vastly simplified in the late 1980s when the offer of subagency was removed from the model MLS rules. Nowadays, if the listing broker and cooperating broker are different offices, the listing broker is generally the seller’s agent exclusively, whereas the cooperating broker is the buyer’s agent exclusively, even though the cooperating broker is paid by the listing broker in accordance with the MLS rules. Without the traditional concept of subagency, the listing agreement now only delineates the scope of the listing agent’s rights and obligations to the seller, and not the cooperating broker’s rights and duties. Hence, the buyer’s agent should enter into a written buyer representation agreement to clearly define the scope of his or her agency relationship with the buyer.

• “I’ll get paid through the MLS anyway.” Many agents mistakenly believe that a written buyer representation agreement for compensation is unnecessary because, upon procuring a buyer for a listed property, the buyer’s agent will be compensated by the listing agent through the MLS. Yet, a buyer representation agreement serves many purposes other than merely protecting an agent’s commission. Furthermore, not all properties for sale are listed in the cooperating broker’s MLS, such as a FSBO (for sale by owner), a lender’s REO (real estate owned), a pocket listing or office- exclusive, or properties listed in MLSs to which the cooperating broker does not belong. If you introduce your buyer to a property that is not in your MLS, you may not get paid any compensation if you have no written agreement for compensation.

PRACTICE TIP

Beware of the “double whammy” for real estate agents! Although an agency relationship can be created without anything in writing, you must have something in writing to enforce an agreement for compensation against your client (Cal. Civ. Code Section 1624(a)(4)). So, believe it or not, if you don’t have a written buyer representation agreement, you can be held liable as a buyer’s agent, and yet not be legally entitled to any compensation from the buyer. From that perspective, if you request a written buyer representation compensation agreement and the buyer refuses, you may want to reconsider whether you are willing to take on the liability of being a fiduciary agent without any entitlement whatsoever to compensation from your client.

• “My buyer would never stab me in the back as long as I keep doing a good job.” Of course a written buyer representation agreement is unnecessary if everything turns out right. But you don’t have a crystal ball. Sometimes things go wrong for reasons beyond your contemplation or control, and if something does go wrong, it’s usually too late by then for you to convince your buyer to sign a written buyer representation agreement.

• “The buyer is already inundated with other paperwork to sign!” The fallacy of this argument is somewhat obvious. A buyer’s agent typically enters into a written agreement with a buyer when they begin looking for properties to buy. At that stage of the home-buying process, the buyer typically has not been asked to sign anything at all. The buyer representation agreement is usually one of the very first documents that a buyer may be asked to sign, so the buyer is unlikely to complain there’s too much paperwork.

• “The buyer won’t sign it!” Again, the fallacy of this argument is somewhat obvious. You don’t know that a buyer won’t sign unless you ask. From a buyer’s perspective, signing a written buyer representation agreement gives the buyer the assurance that his or her agent will work hard to find a suitable property for the buyer to purchase.

PRACTICE TIP

Here’s a good strategy for buyers’ agents. Of course, to take full advantage of a written buyer representation agreement, you should enter into this contract as soon as possible, preferably at your first meeting with your client. If the buyer refuses to sign, however, don’t give up. Try asking again and again as your relationship with that buyer develops. It’s a good idea to ask, even if your buyer says “no.” Your buyer’s refusal to enter into a written buyer representation agreement, especially after you’ve exerted considerable effort servicing that buyer’s needs, gives you an opportunity to reassess whether working for that buyer is the best use of your valuable time.

C.A.R.'s Buyer Representation Agreements

In 1998, as a result of the decision in Field v. Century 21 Klowden-Forness Realty (63 Cal. App. 4th 18) discussed above, the C.A.R. Standard Forms Committee decided that the real estate industry and the public would be better served by a written agreement clearly establishing the parameters of the buyer representation relationship. To give REALTORS® and their clients as many options as possible, C.A.R. created three different buyer representation agreements summarized as follows:

• Buyer Representation Agreement - Exclusive (Form BRE): This form creates an exclusive and irrevocable agreement, and includes an entitlement to compensation for the buyer’s broker. Of the three agreements, the BRE is the most protective of the rights of the buyer’s broker.

• Buyer Representation Agreement - Non-Exclusive (Form BRNE): This form creates a non-exclusive but irrevocable agreement, and also includes an entitlement to compensation for the buyer’s broker.

• Buyer Representation Agreement (Non-Exclusive/Not for Compensation) (Form BRNN): This form creates a non-exclusive and revocable agreement, and it does not obligate the buyer to pay compensation.

A detailed description of these Buyer Representation Agreements is provided below. For easy reference, sample copies of the agreements are set forth at the end of this course.

PRACTICE TIP

C.A.R. offers many other publications to help both real estate practitioners and their clients understand real estate transactions, including the following:

• Buyer’s Inspection Advisory (Form BIA): This form is attached to the three buyer representation agreements. The BIA form encourages the buyer to conduct thorough investigations of the property, such as the property’s general condition, square footage, wood-destroying pests, roof, and environmental hazards. This form also sets forth, among other things, a list of items that the buyer’s agent cannot or will not do, such as guarantee the condition of the property, inspect public records, identify boundary lines, or verify square footage.

• Property Transaction Booklet.

• The Residential Real Estate Transaction Guide.

• Consumer Guide to Disclosures for Sellers.

• Consumer Guide to Disclosures for Buyers.

Self-Check Questions

1. With the seller's permission, a dual agent may disclose to the buyer that the seller

will accept a price below the listing price.

a. True

b. False

2. The law prohibits a buyer's agent from representing two buyers who are

competing to buy the same piece of property.

a. True

b. False

3. A buyer's agent should obtain a written buyer representation agreement for all of

the following reasons, except:

a. The agreement defines the scope of the agent's rights and obligations

b. The agreement satisfies the writing requirement to legally enforce an agency relationship

c. The agreement authorizes the agent to act on behalf of the buyer

d. The agreement can set forth the agent's entitlement to compensation

4. From a risk management perspective, an important aspect of a buyer

representation agreement is the ability to define, and thereby restrict, the scope of an agent's duties.

a. True

b. False

5. Under the model rules for Multiple Listing Services, a buyer's broker is deemed

to be:

a. A subagent representing the seller exclusively

b. A subagent representing both the seller and buyer

c. A dual agent representing both the seller and buyer

d. A cooperating broker representing the buyer exclusively

6. Under California law, an exclusive and irrevocable buyer representation

agreement is void as against public policy.

a. True

b. False

Buyer Representation Agreement - Exclusive Right to Represent, Page One

The Buyer Representation Agreement - Exclusive (Form BRE) is becoming increasingly more popular among real estate agents as a tool of their trade. Although a written agreement between an agent and a buyer is not required by law, it makes very good sense to use a written agreement to define and solidify your agency relationship. Of the three buyer representation agreements offered by C.A.R., the BRE is the most advantageous for the agent. It not only creates an irrevocable and exclusive agreement, but it also entitles the agent to receive

compensation. Here is a paragraph-by-paragraph explanation of both the legal and practical implications of the BRE.

PARAGRAPH ONE: EXCLUSIVE RIGHT TO REPRESENT

This paragraph sets forth the major aspects of the Agreement as follows:

• THE PARTIES: The first two lines of this paragraph identify the parties to the Agreement: Buyer and Broker . “Buyer” is the client. “Broker ” is the name of the brokerage, not salesperson. Although the salesperson is not the named party, the Agreement states that Broker may perform its obligations through the individual salesperson or broker-associate who signs the Agreement.

PRACTICE TIP

When filling in the blank for “Buyer,” ask your client whether there will be anyone else involved in the home-buying process. Sometimes an agent will spend a lot of time and effort working with a client, only to discover that someone else altogether is the true decision-maker (e.g., spouse or parents). If there’s more than one decision-making buyer, insert all their names in the first line of the Agreement, and they will collectively be defined as “Buyer” in the Agreement. Of course, make sure they all sign the Agreement too.

• REPRESENTATION PERIOD: This clause sets forth the duration of the

Agreement. Insert the beginning date and an anticipated ending date. The actual ending date, however, is the anticipated ending date or the close of escrow, whichever occurs first. This works to cut off any potential liability before and after that time period. Furthermore, the law requires agents claiming compensation under an exclusive agreement to have a specified date of final and complete termination of that agreement (Cal. Bus. & Prof. Code Section 10176(f)).

• AGENCY RELATIONSHIP: This Agreement establishes an exclusive and irrevocable agency relationship between the parties. An “exclusive” agreement means that Buyer is obligated to pay Broker, even if someone other than Broker finds the property that Buyer ultimately acquires. “Irrevocable” means that if Buyer cancels the Agreement, Buyer remains obligated to compensate Broker.

PRACTICE TIP

If you and your client do not want an exclusive arrangement, you may use C.A.R.’s Buyer Representation Agreement - Non-Exclusive (Form BRNE) or the Buyer Representation Agreement (Non-Exclusive/Not for Compensation) (Form BRNN) as discussed below. If you don’t want an irrevocable arrangement, you may use Form BRNN.

• PERFORMANCE OF DUTIES: Broker agrees to exercise due diligence and reasonable efforts in performing its duties, which Buyer agrees will be limited by this Agreement. Broker’s duties will be performed by Broker individually or the salesperson or broker-associate who signs the Agreement on Broker’s behalf.

PARAGRAPH TWO: AGENCY RELATIONSHIPS

This paragraph contains important agency provisions.

SUBPARAGRAPH A: DISCLOSURE

For residential properties of one-to-four units, this provision reminds Broker to provide, and requires Buyer to acknowledge receipt of, the Disclosure Regarding Real Estate Agency Relationships as discussed above.

PRACTICE TIP

You may use C.A.R.’s standard-form Disclosure Regarding Real Estate Agency Relationships (Form AD) for this purpose.

SUBPARAGRAPH B: BUYER REPRESENTATION

Buyer agrees that, after finding a suitable property to buy, Broker will represent Buyer in any resulting purchase transaction.

SUBPARAGRAPH C: POSSIBLE DUAL AGENCY WITH SELLER

This provision sets forth a few options. First, the parties must decide between “Possible Dual Agency with Seller” or “Single Agency Only.” If the parties do not check a box, the Agreement automatically defaults to “Possible Dual Agency.” Second, if the parties do not want the possibility of dual agency, there are two types of “Single Agency” as discussed below. What is Possible Dual Agency with Seller? When a broker and buyer enter into a buyer representation agreement, the broker generally has not shown the buyer any properties yet. The buyer may want to buy one of the properties listed for sale by the broker’s own office. If so, the broker would become a dual agent representing both the buyer and seller. This provision in the Agreement alerts Buyer up front to the possibility of dual agency. However, dual agency could get awkward without some ground rules. Hence, this provision also states that, without proper consent, Broker will not tell the seller how high over the offer price Buyer is willing to go, or tell Buyer how low under the listing price the seller is willing to accept (Cal. Civ. Code Section 2079.21). What is Single Agency? There are two types of Single Agency. The first type is if Broker’s firm has its own listings of properties for sale. If this type of Single Agency

is checked (subparagraph 2C(2)(i)), Broker agrees to represent Buyer only, and not the seller, with the exception of properties listed by Broker. For Broker’s own listings, Buyer agrees Broker will not show them to Buyer, and will not represent Buyer in connection with those properties, but Broker is entitled to compensation. Broker, in turn, agrees that, for a transaction in which the seller’s property is not listed with Broker’s firm, Broker will represent Buyer only, not the seller. The second type of Single Agency (subparagraph 2C(2)(ii)), if checked, applies to buyer-broker-buyer representation firms that do not list properties for sale. Brokerages pursuing this market niche should check this box. Under this option, Broker agrees to represent Buyer only, not the seller.

SUBPARAGRAPH D: OTHER POTENTIAL BUYERS

This provision advises Buyer that, through the course of Broker’s representation, Broker could represent other buyers with similar interests to Buyer’s interests.

SUBPARAGRAPH E: NON CONFIDENTIALITY OF OFFERS

In this provision, Buyer is advised that, absent a written confidentiality agreement, the seller or listing agent may disclose to other people the existence, terms, or conditions of Buyer’s offer. This provision satisfies the ethical duty of a buyer’s agent, when entering into a buyer agreement, to disclose to the buyer that the seller and listing agent may not treat an offer as confidential. This ethical duty is set forth at Standard of Practice 1-13 of the Code of Ethics of the NATIONAL ASSOCIATION OF REALTORS®.

PRACTICE TIP

Although sellers and listing agents often refuse to disclose to one prospective buyer what another prospective buyer has offered, treating offers as confidential is a matter of practice, not law. A seller and listing agent may believe that treating offers as confidential is the best approach for their multiple-offer situation and choose to act accordingly. However, absent a confidentiality agreement, the seller and listing agent owe no legal duty to a buyer to treat his or her offer as confidential.

SUBPARAGRAPH F: CONFIRMATION

This last subparagraph informs Buyer, and reminds Broker that, for residential properties of one-to-four units, the agency relationship must ultimately be confirmed before or coincident with Buyer’s execution of a purchase contract.

PRACTICE TIP

C.A.R.’s standard-form sales contracts, such as California Residential Purchase Agreement and Joint Escrow Instructions (Form RPA-CA), allows for the confirmation of agency relationships under the paragraph entitled "Agency." Alternatively, you may use C.A.R.’s stand-alone form entitled

Confirmation: Real Estate Agency Relationships (AC-6).

PARAGRAPH THREE: COMPENSATION TO BROKER

NOTICE. The opening caption of this paragraph contains a legally-required notice that commissions are not fixed by law, and may be negotiable between Buyer and Broker (Cal. Bus. & Prof. Code Section 10147.5). This law requires the notice to immediately precede the compensation provision for pre-printed agency agreements involving one-to-four residential units.

PRACTICE TIP

This statutory notice must be in at least 10-point boldface type, so if your client has not yet signed, do not reduce the size of this form’s font by photocopy, fax, or electronic transmission.

SUBPARAGRAPH A: AMOUNT OF COMPENSATION

The compensation can be set forth in one of three ways: (1) As a percentage of the acquisition price plus, if desired, a transaction fee; (2) As a specific dollar amount; or (3) Any other way as stated in a separate addendum.

SUBPARAGRAPH B: BROKER RIGHT TO COMPENSATION

This subparagraph provides that Broker is entitled to be paid if Buyer acquires the type of property specified in the Agreement. This subparagraph also contains a safe harbor period protecting Broker’s compensation for a particular period of time after expiration of the Agreement if Buyer acquires a property that Broker introduced to Buyer or acted on Buyer’s behalf. The safe harbor period only applies if you insert the number of days. You must also give written notice of the properties protected under the safe harbor within three calendar days of expiration of the Agreement (unless the parties agree to a shorter or longer period of time).

PRACTICE TIP

Make sure you insert the number of days to invoke a safe harbor period. A safe harbor period protects a broker’s compensation when a buyer wants to buy the property that the broker introduced, but intentionally waits until the buyer representation agreement expires to avoid paying the compensation. Also make sure you calendar the expiration date of a buyer representation agreement to remind yourself to act in a timely manner to get an extension or provide your safe harbor list to Buyer.

Buyer Representation Agreement - Exclusive Right to Represent, Page Two

PARAGRAPH THREE: COMPENSATION TO BROKER continued

SUBPARAGRAPH C: PAYMENT OF COMPENSATION

This subparagraph sets forth three instances where Broker’s compensation becomes payable. First, in the instance covering most transactions, compensation is payable at close of escrow. Second, compensation is also payable if acquisition is prevented by Buyer’s default. Third, compensation is payable if someone other than Buyer defaults and Buyer collects monetary damages. However, the amount of Broker’s compensation in this instance shall be one-half of the damages Buyer recovers, not to exceed the compensation provided for in subparagraph 3A (after first deducting unreimbursed expenses of collection if any).

SUBPARAGRAPH D: BUYER OBLIGATION TO PAY COMPENSATION

This subparagraph clarifies that Buyer has the primary responsibility of paying Broker’s compensation, but the amount owed will be offset by any compensation Broker receives from someone else, such as the seller or listing broker. Compensation from someone else which exceeds Buyer’s obligation will be paid to Broker, unless the parties agree otherwise.

PRACTICE TIP

Buyers may object to entering into a buyer representation agreement because they feel that the seller, not buyer, should pay the agent’s commission. To overcome this objection, agents may point out the boldface-type language in this subparagraph confirming that Buyer will not be obligated to pay the commission if the seller pays it.

SUBPARAGRAPH E

Buyer agrees to irrevocably assign the compensation from Buyer’s funds in escrow. Buyer also agrees that Broker can, if desired, submit this Agreement to an escrow involving Buyer as instructions to compensate Broker.

SUBPARAGRAPH F

This subparagraph defines “Buyer” to include anyone related to Buyer or who acts on Buyer’s behalf in acquiring the property described in this Agreement.

PRACTICE TIP

The purpose of subparagraph F is to protect Broker if, in an attempt to avoid paying Broker’s compensation, Buyer uses a straw buyer to acquire the property Broker introduced.

SUBPARAGRAPH G

In this subparagraph, Buyer warrants that Buyer has no obligation to pay compensation to any other broker, except as specified. This warranty helps Broker satisfy an affirmative ethical duty to, prior to entering into a representation agreement, make reasonable efforts to determine whether Buyer is subject to a current, valid exclusive agreement to provide the same type of real estate service. This ethical duty is set forth in Standard of Practice 16-9 of the Code of Ethics of the NATIONAL ASSOCIATION OF REALTORS®. Also in this subparagraph, Broker and Buyer may list any properties for sale that Buyer may be obligated to another brokerage for compensation, and thereby exclude these properties from Broker’s right to compensation.

PRACTICE TIP

Here’s an example of how subparagraph G works. Let’s say Buyer’s Agreement with Broker A has expired, but there’s still a 60-day safe harbor period for the property located at 123 Elm Street. If Buyer now wants to be represented by Broker B, then 123 Elm Street should be excluded by inserting it in paragraph 3G(2) of the Agreement with Broker B. Otherwise, if Buyer acquires 123 Elm Street within 60 days, Buyer may be obligated to pay both Broker A and Broker B.

PARAGRAPH FOUR: PROPERTY TO BE ACQUIRED

This paragraph describes the type of property Buyer wishes to acquire, including the price range if desired. Providing this description establishes the parameters under which Broker will be entitled to compensation. The description could be very specific, such as the street address of a particular piece of property. However, what is more appropriate in most instances is to use general terms, such as the desired property’s location, features, and amenities. The broader the parameters used for describing the property, and the wider the price range, the more opportunities there generally will be for Broker to earn a commission.

PARAGRAPH FIVE: INTERNET ADVERTISING

This paragraph discloses to Buyer that properties prospective buyers are interested in acquiring may be marketed through “virtual tours” over the Internet. This paragraph alerts Buyer that acquiring a property advertised on the Internet may compromise his or her interests in home privacy and safety

PARAGRAPH SIX: BROKER AUTHORIZATIONS AND OBLIGATIONS

This paragraph identifies specific activities that Broker is authorized to do on Buyer’s behalf. This paragraph also sets forth Broker’s obligations.

SUBPARAGRAPH A: BROKER AUTHORIZATIONS

Broker is authorized to engage in the following activities:

1. Locate and present selected properties to Buyer: Although this Agreement authorizes Broker to help Buyer locate a property, it does not specify the manner in which Broker will do so. The manner that Broker locates properties will likely depend on various factors, such as local custom and practice, market conditions, and the type of property Buyer wants to acquire. Under this provision, not all properties need to be brought to buyer’s attention, only those selected by Broker using his or her own discretion and good judgment.

PRACTICE TIP

In most situations, agents will use the Multiple Listing Service (MLS) to locate properties for Buyer. Other sources are in-house listings, pocket listings, newspapers and magazines, the Internet, for-sale-by-owner (FSBO) properties, lenders’ real estate owned (REO) listings, foreclosures, tax sales, and word-of-mouth.

2. Present offers and assist in negotiations: Again, although Broker will assist

Buyer in the presentation of offers, the circumstances surrounding each transaction, and not the Agreement itself, will dictate how things are handled, such as how many offers are written, how offers are presented, and how the negotiations are conducted.

PRACTICE TIP

In most areas in California, agents submit offers simply by faxing or electronically transmitting it to the listing agent. However, under certain market conditions (e.g., multiple offer situations), many agents attempt to do more, such as present the offer in person or provide supporting documentation, such as cover letters, pre-approval letters from lenders, and bank statements. Different situations will be handled differently.

3. Other items which Broker has permission to do include:

o Help Buyer with the financing process, including loan pre-qualification. o Provide, at Buyer’s request, referrals to third-party professionals or

vendors. o Order reports, including Buyer’s credit report. o Schedule and attend meetings and appointments. o Provide general guidance.

SUBPARAGRAPH B: BROKER OBLIGATIONS

This subparagraph lists duties that Broker will perform as part of the agency relationship.

1. Provide and review forms for purchasing a specific property, such as offers, counter-offers, disclosures, and other documents.

PRACTICE TIP

Reviewing documents does not mean that Broker is authorized to render legal advice regarding those documents. The unauthorized practice of law without an attorney’s license will expose you to both civil and criminal sanctions (Cal. Bus. & Prof. Code Section 6126). Non-legal tasks that may be performed in connection with reviewing documents include, but are not limited to, ensuring that the proper forms are used, ensuring that the forms are completed, identifying inconsistencies between documents, and recommending that Buyer seeks professional advice from an attorney, accountant, lender, insurer, title officer, or other professional, if appropriate.

2. Conduct visual inspection: When Buyer enters into a purchase contract for a

particular property, Broker will conduct a visual inspection of that property. This duty only pertains to accessible areas of residential properties of one-to-four units (Cal. Civ. Code Sections 2079 et seq.). Upon inspection, Broker will disclose any material facts affecting the value or desirability of the property revealed by that inspection.

PRACTICE TIP

Agents may complete the Agent’s section in the third page of C.A.R.’s standard-form Real Estate Transfer Disclosure Statement (Form TDS) to show they have conducted a visual inspection, and to write down the results of that inspection. For a more detailed approach, you may also complete and attach C.A.R.’s 3-page Agent’s Visual Inspection Disclosure (AVID) (release date April 2007). Form AVID may also be used to properly document your visual inspection for transactions exempt from the TDS requirement (e.g., probate sales, foreclosure sales, and certain trust sales). If, for example, you notice a crack in the driveway or stain on the ceiling, you should write that information down on the TDS or AVID. You may also add a recommendation for Buyer to conduct further inspections with the assistance of appropriate professionals.

3. Provide Buyer with any relevant information or documentation in Broker’s

knowledge or possession. The Agreement also clarifies that Broker will not verify the accuracy of that information, unless otherwise specified in writing.

4. Facilitate the escrow process, including assisting Buyer in negotiating with the seller.

5. Comply with anti-discrimination laws.

PARAGRAPH SEVEN: SCOPE OF BROKER DUTY

This paragraph generally sets forth activities Broker will not perform as an agent, including the following:

SUBPARAGRAPH A

This subparagraph advises Buyer to select professionals, other than Broker, to conduct inspections and other investigations of the property. In this provision, Buyer agrees that Broker is not responsible for providing information that would be revealed by one of these inspections.

PRACTICE TIP

Agents should provide their clients with C.A.R.’s Buyer Inspection Advisory (Form BIA) which informs buyers of the importance of conducting inspections and investigations of all aspects of the property, such as the foundation, square footage, termites, and soil stability.

SUBPARAGRAPH B

Other tasks Broker will not perform are as follows:

1. Broker does not make decisions about price.

2. Broker does not guarantee the condition of the property.

3. Broker does not guarantee the performance or accuracy of inspections, services, products, or repairs made by others.

4. Broker will not identify certain defects or deficiencies, such as those that are visually undetectable, those that are inaccessible, or those in common areas or offsite areas.

5. Broker will not inspect public records or permits.

6. Broker will not identify boundary lines or other items affecting title.

7. Broker will not verify square footage or representations made in inspection reports, MLS, or advertisements.

8. Broker will not provide legal advice, tax advice, or any other advice beyond the knowledge, education, and experience required for performing real estate licensed activities. Buyer agrees to seek legal, tax, insurance, title, and other desired assistance from appropriate professionals.

Buyer Representation Agreement - Exclusive Right to Represent, Page Three

PARAGRAPH SEVEN: SCOPE OF BROKER DUTY continued

SUBPARAGRAPH C

1. Broker owes no duty to inspect for environmental hazards, earthquake weaknesses, or geological and seismic hazards.

2. Buyer agrees that receipt of the environment hazards or earthquake safety booklets will be deemed to be adequate to inform Buyer about the information in the booklets. This clause reiterates the legal protection for agents set forth at California Civil Code Sections 2079.7, 2079.8 and 2079.9.

PARAGRAPH EIGHT: BUYER OBLIGATIONS

Just as it is a good idea to establish Broker’s responsibilities, it is equally important to set out what responsibilities Buyer has arising out of this Agreement. This paragraph establishes Buyer’s responsibilities as follows:

SUBPARAGRAPH A

Buyer agrees to do the following:

1. Timely view and consider properties for sale.

2. Negotiate in good faith to acquire a property.

3. Act in good faith to complete any purchase contract entered into.

4. Provide relevant personal and financial information for prequalification. These documents must be provided within five calendar days after entering into this Agreement, unless another time frame is inserted. Broker may cancel this Agreement in writing if Buyer does not qualify financially or if Buyer fails to provide the necessary information.

PRACTICE TIP

It can be frustrating for an agent to spend a lot of time and effort finding Buyer the property described, only to discover Buyer doesn’t have the financial ability to acquire that property. If Buyer sets his or her goals too high (or too low), this opportunity to pre-qualify within five days allows the parties to modify the Agreement as needed. If the parties cannot agree on a modification, Broker has the right to cancel.

5. Take affirmative steps to protect himself or herself, including the duty to discover legal, practical, and technical implications of discovered or disclosed facts, and the duty to investigate information and facts known to Buyer or within the diligent attention and observation of Buyer (Cal. Civ. Code Section 2079.5).

6. Review all documents provided.

7. Select and seek assistance from appropriate professionals.

SUBPARAGRAPH B

Buyer agrees to notify Broker in writing of any material issues or considerations, such as Buyer’s requests for important information. The parties may use C.A.R.’s standard-form Buyer Material Issues (Form BMI) for this purpose.

PRACTICE TIP

Sometimes buyers have special needs or concerns, such as those of a cultural, religious, or other personal nature. If a buyer’s purchasing decision is going to be based, in whole or part, on any of these material considerations, then the agent must be notified in writing of these concerns. This written requirement reduces the possibility of error or misunderstanding, or even worse, illegality. So, like other provisions in this Agreement, the purpose of this subparagraph B is to create mutual expectations to help ensure a successful working relationship between the agent and client.

SUBPARAGRAPH C

Buyer agrees to:

1. Indemnify, defend, and hold Broker harmless from all claims arising from any incorrect information supplied by Buyer, or from any material consideration Buyer fails to disclose in writing.

2. Pay for reports, inspections, and meetings arranged by Broker on Buyer’s behalf.

SUBPARAGRAPH D

Buyer is advised to read the attached Buyer’s Inspection Advisory (Form BIA) for a list of items of concern that may warrant inspection by Buyer or a professional. For many of the items of concern, the appropriate type of professional to be contacted is listed on the Buyer’s Inspection Advisory.

PARAGRAPH NINE: DISPUTE RESOLUTION

SUBPARAGRAPH A: MEDIATION

With certain exceptions discussed below, the parties agree to mediate any dispute arising between them before resorting to arbitration or court action. A party who fails to attempt mediation before commencing an action or refuses to mediate in response to a request shall not be entitled to recover attorneys’ fees that he or she would otherwise have been entitled to under the Attorney Fees paragraph (see below). The mediation clause applies regardless of whether the parties initial the arbitration clause.

SUBPARAGRAPH B: ARBITRATION

Again, subject to certain exceptions, the parties agree to arbitrate any commission dispute which is not settled by mediation. This means that the parties give up their right to have their dispute resolved in a court of law, and agree to submit their matter to binding arbitration instead. The arbitration clause is valid only if both parties initial it.

EXCLUSIONS FROM MEDIATION AND ARBITRATION

Certain matters are exempt from mediation and arbitration, such as those that are within the jurisdiction of small claims, probate, or bankruptcy court.

PRACTICE TIP

To help your clients understand the mediation and arbitration clauses, C.A.R. provides members with legal articles entitled "Mediation for the Consumer" and "Arbitration for the Consumer." These publications are available in English, Spanish, Chinese, Korean, Tagalog, and Vietnamese. C.A.R. members may access these publications at http://qa.car.org.

Buyer Representation Agreement - Exclusive Right to Represent, Page Four

PARAGRAPH TEN: TIME TO BRING LEGAL ACTION

The parties agree that any legal action arising from this Agreement must be brought within two years from the expiration of the Representation Period or when the cause of action arises, whichever occurs first. This 2-year period is consistent with the two-year statute of limitations for claiming breach of the agent’s duty to conduct a reasonably competent and diligent visual inspection (Cal. Civ. Code Section 2079.4).

PARAGRAPH ELEVEN: OTHER TERMS AND CONDITIONS

This paragraph allows for the parties to insert any additional terms or, if more space is needed, to reference that an addendum is attached and incorporated into the Agreement. The Buyer Inspection Advisory (Form BIA) is intended as an attachment. The Statewide Buyer and Seller Advisory (Form SBSA) is a recommended attachment. You are highly encouraged to attach both documents, but neither one is legally required.

PARAGRAPH TWELVE: ATTORNEY FEES

The parties agree that, in the event of a legal proceeding regarding compensation, the party who loses must pay the prevailing party’s attorneys’ fees and costs. The prevailing party, however, is not entitled to such fees if he or she fails to mediate under the "Mediation" paragraph discussed above.

PARAGRAPH THIRTEEN: ENTIRE AGREEMENT

This paragraph states that whatever is contained within the four corners of this Agreement is the entire agreement between the parties. There are no side agreements or contradicting verbal promises. Any future changes to the Agreement must be made in writing, signed by Buyer and Broker. The Agreement, including any copy, may be signed in counterparts.

PRACTICE TIP

You don’t need your client’s original signature. The Agreement is valid even if your client’s signature is a photocopy, fax, NCR, or electronic transmission. It’s also valid if the different signatures are on different copies of the same Agreement.

ACKNOWLEDGMENT

Buyer acknowledges that, upon reading, understanding, and receiving a copy, he or she agrees to the terms of the Agreement.

SIGNATURES

This Agreement allows for two buyers to sign and provide their contact information. The Agreement also allows for either the Broker to sign or an associate-licensee to sign on Broker’s behalf.

Buyer Representation Agreement - Non-Exclusive Right to Represent

The Buyer Representation Agreement - Non-Exclusive (Form BRNE) and previously-discussed Buyer Representation Agreement – Exclusive (Form BRE) are virtually identical forms. The difference between the BRE and BRNE is, as indicated by their names, the BRE is an exclusive agreement and the BRNE is not. “Non-exclusive” means that, under the BRNE, Broker is only entitled to compensation if Buyer enters into an agreement to acquire property described in paragraph 4 which “was introduced to Buyer by Broker or was one for which Broker acted on Buyer’s behalf” (paragraph 3B). Hence, if Buyer ultimately acquires a property without Broker’s assistance (e.g., through another broker or Buyer’s own efforts), Buyer will not be obligated to pay any compensation to Broker.

PRACTICE TIP

If you use the BRNE, be sure to maintain good records of the properties you introduce to Buyer or otherwise transact on Buyer’s behalf, so you can demonstrate, if necessary, your entitlement to compensation.

Buyer Representation Agreement - Non-Exclusive/Not for Compensation

Here’s a common scenario. An agent grabs the Buyer Representation Agreement (Non-Exclusive/Not for Compensation) (Form BRNN) for his client to sign. The client eventually cancels the Agreement, and buys a property through another brokerage. It’s only then that the agent actually reads the Agreement, and realizes it has no compensation clause and can be cancelled at any time. That’s when the disappointed agent exclaims, “What good are these agreements anyway?!” Let’s address that scenario. Without belaboring the fact that agents should review documents before asking their clients to sign them, the BRNN serves a distinct purpose. Of course an exclusive buyer representation agreement has more legal protection for the agent. But different relationships call for different agreements. Some relationships are more casual than others. Some clients looking for properties may not, for one reason or another, want to commit themselves to an exclusive agreement with a compensation clause. Some agents may not. Yet, even for these casual buyer representation relationships, it’s a good idea to define the scope of the agency relationship using a written agreement.

PRACTICE TIP

The Buyer Representation Agreement (Non- Exclusive/Not for Compensation) (Form BRNN) is a great marketing tool. Some agents are uncomfortable asking clients they just met to sign a Buyer Representation Agreement - Exclusive (Form BRE). Here’s a possible strategy for that situation. Start by asking the client to sign the BRNN which should be relatively easy, given that it’s a simple two-page form, it can be cancelled at any time, and Broker has no entitlement to compensation. Then, after you have spent more time and effort showing properties to that client, and developing your relationship with that client, you may feel more comfortable asking him or her to sign the BRE.

The differences between the BRNN and the BRE are as follows: • TITLE: Right from the start, the BRNN differentiates itself from the BRE in

that it’s a non-exclusive agreement and not for compensation.

• REPRESENTATION PERIOD (Paragraph 1): The representation period of the BRE ends on a certain date or the close of escrow, whichever occurs first. In contrast, given that the BRNN is a revocable agreement, the representation period ends when someone cancels, when escrow closes, or one year from the beginning date, whichever occurs first. If the one-year time frame is too long or too short, it can be changed by inserting another time period.

• AGENCY RELATIONSHIP (Paragraph 1): This Agreement establishes a non-exclusive and revocable agency relationship between the parties. “Non- exclusive” means that Buyer may enter into one or more similar agreements with other real estate agents, if Buyer so chooses. “Revocable” means either Buyer or Broker may cancel the Agreement at any time by giving written notice. Even though this Agreement is non-exclusive and revocable, and does not require the payment of compensation to Broker, it is an enforceable agreement to the extent that “consideration is not necessary to make an authority, whether precedent or subsequent, binding upon the principal” (Cal. Civ. Code Section 2308).

• COMPENSATION TO BROKER: Unlike the BRE, the BRNN does not contain a compensation provision.

• PROPERTY TO BE ACQUIRED: Whereas the BRE contains a provision for describing the property to be acquired, the BRNN does not.

• INTERNET ADVERTISING: Unlike the BRE, the BRNN does not contain a provision regarding Internet advertising.

• DISPUTE RESOLUTION: Whereas the BRE contains provisions for mediation and arbitration, the BRNN does not.

• ATTORNEY FEES: The BRE entitles the prevailing party to attorneys’ fees and costs for an action regarding compensation. The BRNN does not.

Self-Check Questions

1. A buyer's agent claiming compensation under an exclusive agreement must have

a specified date of final and complete termination of that agreement.

a. True

b. False

2. What type of buyer representation agreement obligates a buyer to pay

compensation to a buyer's agent, even if someone other than that agent finds the property that the buyer ultimately acquires?

a. An exclusive agreement

b. An irrevocable agreement

c. An exclusive and irrevocable agreement

d. A non-exclusive and revocable agreement

3. What type of buyer representation agreement obligates a buyer to pay

compensation even if the buyer cancels the agreement?

a. An exclusive agreement

b. An irrevocable agreement

c. An exclusive and irrevocable agreement

d. A non-exclusive and revocable agreement

4. The law prohibits a seller or listing agent from disclosing to other people the

existence, terms, or conditions of a buyer's offer to purchase.

a. True

b. False

5. A buyer's agent may prepare legal contracts and instruments without a license to

practice law as long as the buyer has been informed to seek legal advice.

a. True

b. False

Appendix

Downloadable Files

Forms

You can download the following forms related to this course:

AD_sample(4.06).pdf RPA-CA_sample(1.06).pdf AC-6_sample(1987).pdf AVID_sample(11.07).pdf DA_sample(11.06).pdf BIA_sample(10.02).pdf BRE_sample(4.07).pdf BRNE_sample(4.07).pdf BRNN_sample(4.07).pdf

Forms BRE, BRNE, and BRNN have replaced the following, effective April 24, 2007:

Buyer Broker Agreement Exclusive (Right to Represent) (BBE) Buyer Broker Agreement Non-Exclusive (BBNE) Buyer Broker Agreement (Non-Exclusive/Not for Compensation) (BBNN)