PRDS Forms Update

By David Hamerslough

August 9th, 2023

The PRDS Forms Committee is in the process of revising its Buyer Representation And Broker Compensation Agreement, introducing a new Buyer’s Needs And Wants Assessment form (BNW) that can be used with or without the representation agreement, and updating its Market Conditions Advisory (MCA).

Exclusive Buyer Representation And Broker Compensation Agreement (EBR)

One of the significant changes to the existing Buyer Representation Agreement is that the new agreement only provides for exclusive representation. There is no option for non-exclusive representation since most brokers are not willing to enter into that type of relationship.

Other significant revisions to the EBR include the following:

1. The EBR can be used for any purchase, lease, option, or exchange of property. The defined term (“Acquire/Acquiring/Acquisition”) is used throughout the document to include any or all of these types of transactions. However, ¶ 9, which addresses compensation, has separate subparagraphs for the compensation payable in each of these different types of transactions.

2. Broker’s exclusive authorization extends to locating real property specified in Paragraph 2 of the agreement and/or such other real property as may be acceptable to Buyer and to negotiate terms and conditions acceptable to Buyer for the Acquisition of the Property. The term “Property” is a defined term in the introductory paragraph and includes both the Property specified in Paragraph 2 and any other Property that is acceptable to Buyer.

3. Paragraph 2 allows for the identification of “the Property” by type (residential, commercial, etc.) and/or by location (county, city, or a specific address). There is no need to include price parameters, room counts, or other potential needs and wants. That information should be provided by Buyer to Broker in the BNW or some other writing.

4. Paragraph 4 defines the Broker’s obligations. Rather than creating a lengthy list of those obligations, the Committee chose to state that the Broker’s obligation is to “exercise reasonable effort and due diligence” in performing the terms and conditions of the Agreement. The revised form also states that the Agreement is not intended to change any common-law, ethical, or statutory duties that the Broker owes to the Buyer.

5. Buyer represents and warrants in ¶ 5 that they have not entered into any other type of representation agreement and that they will not do so during the term of the EBR. The consequence for a Buyer’s breach of this provision is that the Broker shall be entitled to the compensation specified in ¶ 9.

6. Paragraph 6 identifies the Buyer’s obligations, including the following:

(a) providing significant information (including Buyer’s needs and wants, issues, and concerns) throughout the transaction and updating that information once a specific Property is identified and/or after Buyer has received additional information or documentation, such as disclosures, advisories, reports, etc. The Buyer’s information can be provided in the BNW or in any other type of document chosen by Buyer, but it needs to be in writing;

(b) providing relevant personal and financial information and documents to assure Broker that the Buyer is qualified to purchase, but the form clarifies that Broker will not be responsible for obtaining or arranging any financing unless Broker agrees to do so in writing;

(c) reading all of the documents provided to Buyer throughout the transaction;

(d) investigating their needs, wants, issues, and concerns as well as those subject matters covered in the PRDS Market Conditions Advisory and San Mateo And Santa Clara County’s Advisory;

(e) retaining qualified, appropriate professionals as needed to assist Buyer in inspecting and/or investigating their needs, wants, issues, and concerns and any other subject matters otherwise indicated in the MCA and the two-County Advisory;

(f) paying for any reports, inspections, and services obtained on behalf of Buyer;

(g) acting in good faith; and

(h) requesting confidentiality if that is an issue for Buyer and requiring Buyer to provide instructions if a confidentiality agreement cannot be secured from Seller and/or the Listing Agent.

7. Compensation is addressed in ¶ 9. For a purchase, compensation is paid at close of escrow of the “Property” as that term is defined in the introductory paragraph and/or in ¶ 2. If Broker receives compensation from another source, then Buyer receives a credit for that amount against the amount due to Broker. Finally, ¶ 9 contains a safety clause for the payment of compensation provided that certain terms and conditions are met.

8. In Paragraph 12, Buyer represents and warrants that all individuals who must sign on behalf of Buyer have done so and have the authority to bind Buyer to the terms of the Agreement. If Buyer is an entity, then obtaining and providing Broker with all legally required documentation to prove Buyer’s authority to act is a Buyer responsibility.

9. Paragraph 13 addresses what means of communications are authorized by the parties. They include those indicated on the blank lines below each party’s signature (telephone, email, text messages). Buyer can also agree to accept documents by means of a link embedded in an email unless Buyer checks a box indicating links are not acceptable.

10. Broker has the right to cancel the Agreement if Buyer does not provide all of the information required under ¶ 6 (needs and wants, issues, and concerns) and under ¶ 12 regarding Buyer’s authority to act. Buyer’s right to cancel is not specifically addressed because Buyer would be entitled to do so for specific failings of Broker under California law.

11. The EBR provides that in the event of any action or claim in any forum between Buyer and Broker, each side shall be responsible for its own attorneys’ fees and costs. There is no mediation clause nor an arbitration provision; these intentional omissions avoid the potential risk of a broker being contractually required to mediate or arbitrate disputes involving a buyer and seller.

12. Finally, there is no indemnity provision; instead, there is an express assumption of the risk provision. This provision applies in the event that Buyer fails to perform any or all of Buyer’s obligations to Broker (¶ 6). The Buyer is advised to consult with a qualified California real estate attorney regarding the legal significance of this provision. There is an acknowledgement just above the Buyer’s signature line that they have, among other things, had the opportunity to consult with a qualified California real estate attorney before executing the EBR.

For anyone interested in comparing a PRDS EBR with C.A.R.’s Buyer Representation And Broker Compensation Agreement, please review my last two articles, which contain a discussion of some of the significant issues with the C.A.R. form.

Buyer’s Needs And Wants Assessment (BNW)

The National Association of REALTORS® is on record in its Buyer Representation program that Brokers should secure written information from Buyers regarding their needs, wants, issues and concerns at the outset of the agency relationship so as to enable Brokers to better represent Buyer. PRDS is in the process of creating this new BNW to facilitate the NAR recommendation.

1. This is a separate assessment that can be used in conjunction with the EBR or when working with a buyer without an EBR.

2. The BNW provides a buyer with the opportunity to identify, among other things, their needs and wants, any preferences they may have, what they can afford, any issues and concerns regarding the purchase of property in general or a specific property once one is identified, any time or financial constraints, who they might receive assistance from in the financing or investigation of a property, etc. This Buyer assessment has prompts detailing possible topics to better enable Buyers to think about what they need or want beyond just the location, number of rooms and cost.

3. The BNW is intended to be updated by the Buyer in keeping with ¶ 6 of the EBR but it would be a good idea to get updated Buyer information whether or not there is an EBR. EBR specifies the timing of when the information needs to be updated; after a specific Property is identified and/or after Buyer receives any advisories, disclosures, reports, or other information.

Market Conditions Advisory (MCA)

Revisions are being made to point out that (1) some of the additional causes of market cycles that were not previously listed, including worldwide conditions, natural disasters, and widespread health issues, (2) agents as well as brokers cannot predict market swings, (3) the insurability of a property is a factor that lenders will evaluate to determine whether to fund a loan and therefore that issue should be considered in determining what buyer contingencies are needed, (4) buyers must determine what is an acceptable risk, and agents cannot make that determination for their clients, and (5) buyers making simultaneous offers on multiple properties at the same time risk being found to have acted in bad faith which could cause the buyers to pay substantial damages. The MCA now includes a reference to acting in good faith and a reference to the definition of fair market value.

PRDS hopes to have all three of these forms available by the end of August or beginning of September 2023.