Let’s Talk Buyer Broker Agreements
With Juana Watkins
TRT:  26m 52s
Video Transcription

Juana directly addresses camera:  Hello, my name is Juana Watkins, and I have the honor of serving as Florida Realtors® Vice President of Law and Policy and General Counsel. Thank you for joining me today. As we talk buyer broker agreements. This is an extremely timely and consequential topic of conversation right now. As you know, on March 15th, 2024, the National Association of Realtors® announced a proposed settlement agreement to end class action litigation of claims brought on behalf of home sellers related to broker commissions.

The settlement covered a number of crucial issues. Two of those issues have received a lot of attention in recent months, as these two issues have driven practice changes within our industry. NAR has set a deadline for members multiple listing services and boards covered by the settlement to incorporate those practice changes into their businesses no later than August 17th, 2024.

The two issues of note are, first, NAR has agreed to prohibit offers of compensation on the Multiple Listing Service. There will continue to be many ways in which buyer brokers can continue to be compensated, including through offers of compensation communicated off the Multiple Listing Service, but using the Multiple Listing Service to communicate offers of compensation is no longer an option, and the settlement provides that multiple Listing Service participants working with buyers must enter into written buyer agreements prior to touring a home.

It is the second issue of written buyer representation agreements that we will discuss today. Now let's talk written agreements. The settlement calls for written buyer agreements. Keep in mind that the language of the settlement is very broad and is designed to apply to all 50 states, but today we will personalize this to Florida. The terms of this buyer agreement are not specifically defined, but the settlement does give the required elements for written buyer agreements.

The written agreement must include, one... A specific and conspicuous disclosure of the amount or rate of compensation the participant will receive, or how this amount will be determined to the extent that the participant will receive compensation from any source. Two, the amount of compensation in a manner that is objectively ascertainable and not open ended. Three, a term that prohibits the participant from receiving compensation for broker services from any source that exceeds the amount or rate agreed to in the written agreement with the buyer, and four, a conspicuous statement that broker fees and commissions are not set by law and are fully negotiable.

For more information on this, take a look at NAR’s Frequently Asked Question (FAQ) number 54. As we talk today, if I can refer you to a particular FAQ posted on the NAR site, I will do so. I find it is very helpful to know exactly where to find the source of this crucial information.

These written agreements must be presented to and signed by buyers prior to touring a property. In the Frequently Asked Questions published by NAR on facts dot realtor, NAR explains that touring means when the buyer and or the MLS participant or other agent at the direction of the MLS participant working with the buyer, enters the house. This includes the MLS participant or other agent at the direction of the MLS participant working with the buyer, entering the home to provide a live virtual tour to a buyer not physically present.

So yes, a virtual tour can count as touring a property, according to NAR’s Frequently Asked Question Number 57.

Okay, but how do I determine if I am working with a buyer?

The working with language is intended to distinguish MLS participants who provide broker services to a buyer, such as identifying potential properties, arranging for the buyer to tour a property, performing or facilitating negotiations on behalf of the buyer, presenting offers by a buyer or other services for the buyer, from the MLS participant who simply markets their services or just talks to a buyer at an open house, or by providing an unrepresented buyer access to a house.

They have listed. If the MLS participant is working only as an agent of the seller, then the participant is not working with the buyer. In that scenario, an agreement is not required because the participant is performing work for the seller and not the buyer.

So now that I've told you what the settlement requires in a written agreement with the buyer, let me tell you what the settlement does not require.

NAR, policy does not dictate the type of relationship the professional has with the potential buyer. And by that I mean agency relationships like transaction brokers or single agents. It does not dictate the term of the agreement. It can be a month, a day. it can be one house or whole zip code. It does not cover the services to be provided.

That's completely up to the parties. It can be a certain number of showings. You can include negotiations or presenting offers. And it does not dictate the compensation charge. Compensation is negotiable. It can be a flat fee, a percentage or whatever rate the parties decide on.

So as a part of complying with the settlement, the legal team at Florida Realtors® worked with a Presidential Advisory Group,various committees, the leadership team, and other members of our association to assist in identifying the preferences of our membership for amending existing forms and creating new forms. There were several forms already in existence that could be used between the buyer and the broker. To comply with this written agreement. Today we will focus on one of those forms the exclusive Buyer Broker Agreement.

This is the form EBBA in the Form Simplicity library. Written buyer representation forms like the Exclusive Buyer Broker Agreement form are not new in Florida. This form has recently been updated to incorporate the settlement changes. But this form had a previous effective date of 2016. It has been around for years and has been used in thousands of transactions by your fellow Realtors® here in Florida.

The requirements of the settlement will undoubtedly cause an increase in the use of this form in coming months. So what should you expect when using the Exclusive Buyer Broker Agreement form? Well, if you choose to use this form, first, you should go to the forms library to select the form. You will notice that the form has a version for each of the approved agency disclosure relationships in Florida.

There is one for single agency, transaction broker, and the no brokerage option. Now, it is important to note that I said when you go to the forms library, it has always been important to use the most current version of the forms that we publish. And now, more than ever, it is critically important that you do so in the past, forms have changed for a variety of legal and practice related reasons.

But remember that the settlement requires certain mandatory disclosures that must be made in order to be covered by this settlement. We talked about those a few minutes ago, and it is critical that you ensure that you are using the most current version of the buyer broker agreement. So for the time being, make sure you go and pull those forms down from the forms library.

Make sure you have the version of the document with the June 2024 revision date. Now on to the document itself. For purposes of our discussion today, we will talk about the EBBA 7tb. That's the form number. That is the transaction broker version of the Exclusive Buyer Broker Agreement form. Now let's start at the top. Paragraph one of the Buyer Broker Agreement.

Paragraph one sets forth the parties to this contract. And keep in mind that this is indeed a contract. The buyer is referred to as the consumer. A more generic term that you will see in most of our broker services agreements moving forward, to describe the person to whom the broker is providing services. Here the consumer is the buyer and potentially the buyer who becomes the lessee.

But we'll talk about that a little later. The consumer and the broker. And by a broker, it includes the agent of the broker assigned to work with the consumer. They state early on in paragraph one that they are creating an exclusive relationship. The consumer has granted the broker this exclusive right to work with and assist them in the purpose of locating and negotiating the acquisition of suitable property.

This acquisition can happen in many ways, and they state that this can happen by the purchase, of course, of a property, but also by option, exchange, or even lease. As I mentioned earlier, in the case where consumer evolves from a buyer to a lessee. Now moving on to paragraph two. The parties here decide how long they will work together by stating the term.

There is a start date and a termination date to be filled in by the parties. For clarity, we specify that the termination ends at 11:59 p.m.. One important issue to note about that term provision, much like the language in our listing agreements. If the parties enter into a sell and purchase contract or other agreement to acquire property, that is the actual language contained in the agreement, the term will extend through the closing of that agreement.

That brings us to paragraph three. The property. This is the place for the parties to specify the type of property the consumer is interested in, or in other words, what is considered a suitable property.

Now, this is the first place where the prior version of the buyer broker agreement and the current version is noticeably different. The criteria have been shortened to only include types of property and location.

Factors such as price have been removed from the new version. If you and the consumer wish to further define what is considered a suitable property, you would do so in paragraph 13, under Other Terms. Now, broker obligations is listed under paragraph four of the agreement. This paragraph has remained very similar to the previous version of this form under Four A, though.

Please note that the last point states that the broker will cooperate with real estate licensees and with the owner to complete the transaction, making it clear that there is cooperation that goes well beyond just money.

Four B also states that the consumer understands that even if the broker is compensated by an owner or a real estate licensee who is working with an owner, such compensation does not compromise the broker's duty to the consumer. The agreement provides the consumer assurances that compensation from the seller or the listing broker will not nullify the obligation broker agrees to provide, in this section. Moving on to paragraph five, this paragraph sets forth consumer obligations. These are fairly straightforward activities performed by consumers during the transaction. Now, paragraph six provides for the parties to agree to an optional retainer. It is a nonrefundable sum for services provided by the broker to the consumer. The agreement specifies that the sum is earned and payable upon execution of the agreement. To help reinforce the nonrefundable nature of the fee.

Moving on to paragraph seven. This takes us to the heart of the settlement and how it impacts the agreement. The goal of this paragraph is to provide the parties with flexibility in how to structure compensation, and to do so in a clear, objectively ascertainable way. We start with how compensation is earned. When, during the term of the agreement, consumer contracts to acquire real property or defaults on a contract, compensation is earned.

The form then states some pretty critical terms of compensation. First, the form clarifies that the compensation here is for services rendered to the consumer. In other words, the compensation outlined here is not for listing services on a property the buyer selects that is also listed by the broker. Those are services to the seller, not the buyer. Another critical issue addressed here is what happens if the seller or the listing broker agrees to pay this broker for services to this consumer.

So, for example, for bringing this buyer to a listing, this agreement states that the amount the seller or listing broker agrees to pay will reduce the amount the buyer agrees to pay. In paragraph seven.

So how do they define the amount to pay? The parties are able to fill in the blanks to the compensation section based on their agreement. It is very important to remember that the parties may elect to fill in multiple options. For instance, the parties may complete the purchase and the lease subsections. If the buyer is not sure, the financing will come through and they may need to lease prior to the purchase of the property.

It is completely up to them. So, let's look at each section. First is the purchase. The form allows for purchase or exchange compensation to be defined. In that section, the parties can fill in a dollar amount or percentage, or they can fill in a dollar amount and a percentage plus a bonus amount. Again, it is completely up to the parties, but note that the fee is defined as payable not later than the date of the closing, but the fee is earned regardless of the closing.

If the consumer defaults on the sales contract and never closes. The fee may still be owed to the broker. The leasing and options sections are very similar. There are multiple options to define compensation, and it is specified that those fees are payable when the consumer enters into a lease purchase or an option to purchase. As you can see, there are many options to structure compensation, and additional space is given for the parties to enter other terms that are unique to their relationship.

Maximum flexibility for compensation structure between the consumer and the broker has always been our goal, and in this post-settlement world, it is more important than ever.

The last few paragraphs of the document covers some very interesting topics. Let's talk about the Protection Period and Conditional Termination. The protection period provides that the consumer will compensate broker if, within a specified number of days after the termination of the agreement, the consumer contracts to acquire any property, which was called to consumer’s attention by broker or any other person, or found by the consumer during the term of this agreement.

However, the consumer's obligation to pay the broker's fee ceases upon the consumer entering into a good faith exclusive buyer broker agreement with another broker after the termination date. The conditional termination language in paragraph nine provides that at the consumer's request, the broker may agree to conditionally terminate this agreement. If the broker agrees to the conditional termination, the consumer must enter a written agreement with the broker terminating the agreement, and setting forth the conditions of that termination, including the payment of a termination fee in the amount set forth in that agreement.

If from the early termination date to the termination date plus any protection period, the consumer contracts to acquire any property, the broker may void the conditional termination and the consumer would then be obligated to pay the fees stated in the compensation paragraph minus any cancellation fee. So what happens when a dispute arises under this agreement? Well, the dispute resolution section should be familiar language to you.

It is substantially the same as the language in our listing agreements in many other forms in the Florida Realtors® Form Simplicity Library. It allows the parties to litigate the matters pursuant to the laws of Florida, but it also allows the parties to initial the agreement and to opt in to arbitration as a way to resolve the disputes in order to avoid litigation.  Much like the dispute process in our listing agreements.

Paragraph 11 allows the brokers to assign this buyer broker agreement and states that the document is binding on heirs, personal representatives, successors and assigns. Paragraph 12 addresses the brokerage relationship set forth in statute. There is so much chatter about the impact of the settlement on the transaction broker relationship. I would encourage you to remember contractual obligations as defined, in a buyer broker agreement are not necessarily the same as fiduciary responsibilities under statute.

I look forward to providing additional resources specific to that topic in the near future. But for now, please remember that the settlement does not prohibit the transaction brokerage relationship. The Other Terms section in paragraph 13 allows the parties to write in any special aspects of their relationship in this section of the agreement. And finally, paragraph 14 contains a number of very important provisions.

Bolded and underlined is language that is required by this settlement. The agreement states that brokerage commissions are not set by law and are fully negotiable. Also spelled out is a requirement to state that the broker may not receive compensation from any source that exceeds the amount or rate agreed with the consumer. The last sentence is very important language, and it states that the consumer agrees that the broker may receive a separate amount of compensation from the owner of the property for services rendered to the owners as listing broker.

This is to make it clear that the consumer may ultimately select a listing that the broker has, and that the broker may be paid a listing fee for working with the seller. This is to ensure the type of transparency and informed decision making that the settlement wants for the consumer. Now, one last thing about the form. The form can be signed by the broker or an authorized agent of the broker.

This may be a really good time for brokerages to give some thought for how agents are authorized to complete and sign forms, maybe as a part of your independent contractor agreement or your policy and procedures manual. Ultimately, the latest version of the buyer broker agreement is not dramatically different from previous versions. The document does serve the purpose of incorporating the elements of the settlement while providing maximum, flexibility for the parties to structure their agreement.

Now, undoubtedly, you have questions. Having the documents that set out the terms of the settlement is one thing. Knowing how and when to use those documents is completely different. Starting today and in the coming weeks, we will work hard to answer those questions for you. Some of those questions we can answer here at Florida Realtors® and some of those questions we must seek answers from NAR.

But we will diligently pursue the information, as well as continue to develop and release forms and other tools that you need to successfully make this pivot. So, let's get started with some of those questions that I know you need answers to.