Listings Employment by Public - Part 4 - Chapters 15-17 Flashcards
Appreciate the need for a buyer’s broker to enter into a written employment agreement with their buyer
Most brokers realize a signed buyer’s listing agreement produces the maximum financial return for their effort, money and talent an agent invests when representing an individual interested in buying property. Without the buyers written promise to pay a fee, the broker is entitled to nothing when your buyer “goes around” the broker and acquires property on which the broker provided them with information.
All assurances of a broker fee on a real estate transaction are required by contract law to be in writing and signed by the person who agreed a fee will be paid, regardless of whether the fee will be paid by that person or by another party to the transaction.
The Fee Provisions in a buyer’s listing agreement include a safety clause which provides added protection against the lost fee for services rendered in regard to specific properties during the listing period.
Advise a buyer on the benefits of entering into an exclusive right to buy listing agreement with a broker
When you counsel a potential buyer before giving advice or commencing efforts to locate qualifying properties, ask the buyer to enter into a written commitment retaining you to work with them as their exclusive agent. In exchange, you agree to diligently engage yourself to the best of your abilities to do what is necessary to meet their objectives. Agents sometimes persuade potential buyers to retain them by reviewing and itemized list of benefits buyers receive when exclusively represented by a broker and their agents. Without representation, the unlisted buyer is on their own to conduct a random search among all properties listed for sale to locate a suitable property
However, brokers and their agents have access to much data which is not publicly available to buyers like:
- new listings
- database searches for qualifying properties
- property profiles
- comparable sales data and market trends provided to brokers and agents by title companies and other industry providers.
The activities of a buyer’s agent also include directing their buyer to a property lender and advising the buyer on qualifying properties, the socio-economic mix of neighborhoods, schools and their reputations, local bus lines, financial and religious facilities, zoning, and any subdivision or common interest development restrictions on property use.
Further agents attend numerous marketing sessions and trade meetings for sole purposes of sharing information on listed properties and property sought by buyers and they read market studies directed solely to them. Thus, when entering into a buyer’s listing agreement employing a broker and their agents, a buyer bargains for this insider knowledge and information to help make decisions which will make the ownership of real estate more viable.
agency relationhisp
An AGENCY RELATIONSHIP outlines the scope of duties imposed on the broker as a rising out of the representation authorized by the employment. The broker and agent opt to enter into an agency relationship with the buyer. When entering into an exclusive right to buy agreement, they undertake the task to diligently locate, gather and disclose information and data available for properties on the buyer’s behalf.
bilateral employment agreement
When representing a buyer under a written exclusive right to buy employment agreement, the broker (and their agents) has entered into a BILATERAL EMPLOYMENT AGREEMENT which is a written exclusive employment agreement obligating the broker to exercise their due diligence to fulfill the clients real estate objectives in exchange for the promise to pay a fee under various circumstances.
exclusive right to buy listing agreement
An EXCLUSIVE RIGHT TO BUY LISTING AGREEMENT is a written employment agreement by a broker and prospective buyer of real estate employing and entitling the broker to a fee when property is purchased during the listing period.
The exclusive right to buy listing agreement is used by a broker and their agents when counseling with a prospective client who needs to find and buy a property. It is prepared and reviewed as the agents offer to render services on the buyer’s behalf as their exclusive agent for a fixed period of time.
real estate owned (REO) property
REO – Real estate owned property – are properties acquired by a mortgage holder through foreclosure.
safety clause
A SAFETY CLAUSE is a provision in an exclusive listing agreement earning the broker a fee during an agreement safety period. After expiration of the employment for marketing efforts with identified buyers, tenants or property, if the client sells the listed property to an identified buyer or purchases or leases and identified property during the safety period.
unilateral employment agreement
A UNILATERAL EMPLOYMENT AGREEMENT is an oral or written employment agreement obligating the broker to use their BEST EFFORTS to fulfill the clients real estate goals without imposing a due-diligence duty on the broker until a match is located, commonly called an OPEN LISTING.
However, under a buyer’s listing, be it a written-exclusive or oral-open, the act of delivering property information to the buyer they are assisting obligates the broker and agent to use due diligence in their efforts to:
- gather readily available data on the property under review
- assist in the analysis and consequences of the property data gathered
- advised the buyer regarding the property and any proposed transaction in a conscientious effort to act honestly, and to care for and protect the buyers best interest.
Without an exclusive employment with a buyer on whose behalf the agent is locating properties, the agent is reduced to a mere “locator” or “finder.” Worse, the buyer’s agent is burdened with the affirmative agency duties of utmost care and protection owed their buyer when reviewing property listed with other brokers even if they are not acting under a written exclusive right to buy listing agreement with that buyer.
Solicit and enter into a written employment agreement with a prospective buyer for payment of a broker fee when the buyer acquires property
Formal documentation of an obligation to pay a fee – a written agreement signed by the buyer – is the legislated and judicially mandated requisite to the right to enforce collection of a broker fee for a purchase transaction closed by the buyer.
Each section in the buyers listing agreement has a separate purpose and need for enforcement. The sections include:
- Brokerage Services:
* Sections 1 and 2 include the employment period for rendering brokerage services and the brokers due diligence obligations are set forth.
* Section 3: General Provisions for enforcement of the employment agreement and broker fee splitting arrangements. - Broker Fee:
* Section 4 include the buyer’s obligation to either pay a broker fee or assure payment of the broker fee by the seller or a seller’s broker, the amount of the fee and when the fee is due. - Property Sought:
* a general description of the type of property to be located for the buyer is then entered. - Signatures and identification of the parties: on completion of entries on the listing form and any attached addenda, the buyer and the broker or agent sign the document consenting to the employment.
Understand the due diligence promise given to locate and negotiate the purchase of property as the buyers exclusive real estate agent under a right to buy listing agreement.
The exclusive right to buy listing agreement is used by a broker and their agents when counseling with a prospective client who needs to find and buy a property. It is prepared and reviewed as the agents offer to render services on the buyers behalf as their exclusive agent for a fixed period of time.
On signing and exchanging copies, the broker is employed to locate property sought by the buyer. In exchange for the buyers promise to pay a fee to the broker – directly or indirectly through the seller – if the buyer acquires the type of property sought during the listing period, the broker promises to use due diligence in the search for that property.
exclusive agent
An exclusive agent is an agent who is acting exclusively on behalf of only one party in a transaction.
exclusive right to buy listing agreement
An exclusive right to buy listing agreement is a written employment agreement by a broker and prospective buyer of real estate employing and entitling the broker to a fee when property is purchased during the listing period.
Differentiate between a ‘buyer’s agent’ and the misnomer ‘cooperating agent’
Cooperation is often improperly used to describe fee sharing arrangements between brokers or agents. However, a cooperating broker is merely the title for a sub-agent of the seller, having specific affirmative duties of care owed the seller only, not the buyer.
Judicially and based on legislation, COOPERATING AGENT IS USED AS THE TITLE FOR A SUB-AGENT OF THE SELLER, not a buyer’s agent acting exclusively and in the best interest of the buyer. Thus, use of cooperating (selling) broker is a legal reference to a sub-agent acting on behalf of the seller and if they are a dual agent, the buyer as well.
As a sub-agent, a cooperating broker is defined as having specific affirmative duties of care owed the seller, not the buyer. further, a sub-agent is identified by code as the agent in the sales transaction who cooperates with the seller’s agent to sell the property or to locate a buyer on behalf of the seller.
Arrange for fee-sharing between a buyer’s broker and a seller’s broker in a real estate transaction, agreed to by the buyer in a purchase agreement offer
For a buyer’s broker to have equal ability as a seller’s broker to negotiate, contract for and enforce collection of a fee:
- the buyer’s broker needs to enter into an employment agreement with the buyer, a buyers listing
- a fee provision is included in the body of the buyers “purchase agreement offer”
- the fee earned has to be “payable directly to the buyer’s broker” by the seller through escrow, not via the seller’s broker
- the seller agrees to pay the fee earned by the brokers if the seller “wrongfully fails to close” the sale
- the buyer agrees to pay the fee earned by the brokers if the buyer “unjustifiably fails” to close
The buyer’s brokers fee is protected when the buyer’s agent simply includes the fee arrangements as a provision in the purchase agreement offer signed by the buyer.
Abide by rules and regulations to prevent the improper payment of referral fees between providers, duplicate charges and kickbacks
The Real Estate Settlement Procedures Act – RESPA – was enacted to prohibit brokers and lenders from augmenting a buyer’s costs when negotiating a transaction involving the origination of a federally related mortgage on a 1-4 unit residential property. These augmented costs too frequently take the form of illegal referral fees.
Referral fees are unlawfully paid by one service provider to another provider, namely transaction agents, to refer principles to them for their service in a real estate purchase agreement transaction or escrow. The broker receiving a broker fee for negotiating the sale or purchase of a 1-4 unit residential property involving a mortgage origination is not allowed to receive a referral fee in addition to the broker fee on the sale - this activity is unlawful.
REFERRAL FEES ARE ALLOWED - A broker may refer a buyer or seller to a service provider the broker owns or co-owns for-profit, called an Affiliated Business Arrangement - ABA. However, the broker is required to disclose their ownership interest in the provider on or before their referral.
REFERRAL FEES ARE ALLOWED between two brokers if a broker receiving the referral fee is not providing another service in the home sales transaction such as financing, insurance, escrow, etc. Compensation for referrals permitted by or between brokers under RESPA includes:
- payments to the buyer’s broker by the seller’s broker, and referral arrangements between real estate agents and brokers
- payment to any person of a bona fide salary or compensation, or other payments of goods or facilities actually furnished or for services actually performed, such as finders employed by a broker
- an employing broker’s payment to their own employees for any referral activities.
NOTE – agents are prohibited from accepting a fee or other benefit from any person who is not they’re employing broker. Also agents are forbidden from paying a fee to any other broker or agent without first directing the payment through the agents employing broker.
The broker and their agents are entitled to a second fee in a sales transaction – in addition to a broker fee if the broker or agent performs – if they handle the mortgage escrow or process a mortgage application and documentation (numerous mortgage origination activities) - Services significantly more involved than just the act of a mere referral. These are considered significant services on behalf of the lender.
However, duplicate charges, called kickbacks, are improper and make the real estate market less efficient by systematically eliminating more competent and less costly competition. Kickbacks from mortgage banks, title companies and other third-party service providers are a violation of RESPA.
