An Introduction To The Revised C.A.R. Buyer Representation And Broker Compensation Agreement (Part 1)

By David Hamerslough and Victoria B. Naidorf

September 6, 2024

In July of 2024, C.A.R. released its revised Buyer Representation And Broker Compensation Agreement (“BRBC”) and several related forms (Buyer Identification Of Preferences And Priorities (“BIPP”), Buyer Financial And Personal Information (“BFPI”), and Buyer Material Issues For A Specific Property (“BMI-SP”)). These and other C.A.R. forms were revised to comply with the practice changes mandated by the NAR settlement of the class-action litigation relating to, among other things, the payment of compensation. The new rules went into effect as of August 17, 2024

This is the first of two articles that will discuss these new and revised CAR forms so as to point out some of issues that should be considered when using CAR’s forms. Please recognize that an executed BRBC is a contract which is subject to, among other things, California law and the laws of agency (including fiduciary responsibilities). Interpreting these forms in any lawsuit arising from their use by agents will necessarily consider the knowledge, training, skill, and experience of the parties, and the facts and circumstances surrounding its execution and performance. These articles are not intended to address the potential factual and legal consequences of a dispute over the execution and/or performance of a BRBC.

Formatting Change

The BRBC now contains a grid in Paragraph 2 similar to the grid in the C.A.R. RPA. This grid contains some of the contractual terms (“Terms Of Representation”) with references to other paragraphs in the BRBC that provide further explanation of those terms. Please remember that the grid (Paragraph 2) does not contain all of the Terms Of Representation of the BRBC. The rest of the terms are contained in the five pages of the agreement. Don’t assume that all of the terms outside of the grid are not important and/or do not need to addressed by anyone filling out the BRBC.

One example of this issue relates to whether the representation of the Buyer will be non-exclusive or exclusive. The default status in the BRBC is non-exclusive representation (e.g., Paragraph 2A(2)). If exclusive representation by the Broker is intended, then not only does the box in Paragraph 2A(2) need to be checked, but Paragraph 15 also needs to be initialed by the Buyer. If Paragraph 15 is not initialed, the BRBC states that the representation is non-exclusive. Some of the issues related to exclusive vs. non-exclusive representation will be discussed further below.

The Right To Represent (Paragraph 1)

Paragraph 1 authorizes the Broker to represent the Buyer. To do so requires that the parties to the BRBC be identified. The names filled in the blank spaces provided in this paragraph become defined terms (“Buyer” and “Broker”) throughout the balance of the agreement. Please remember that agents who are only licensed as salespersons legally cannot enter into any type of commission agreement – only brokers can do so. Thus the BRBC needs to be an agreement between the Broker and Buyer and must be signed by the Broker. Paragraph 11, entitled “Management Approval,” is a new provision to the BRBC, which states that the Broker or Manager has the right to cancel the BRBC, in writing, within five days after its execution. The space for the Broker’s or Manager’s signature is on the last page under the heading “Broker’s Signature(s).” Failure to secure the Broker’s or Manager’s signature in a timely manner effectively voids the BRBC.

Paragraph 1 also creates two other defined terms, “Property” and “Representation Period.” The definition of the Property and the Representation Period requires that the provisions of Paragraph 2B(1)(2) and (3) and Paragraph 2A(1) be filled in.

Terms Of Representation (the grid/Paragraph 2)

It is important to make sure that all of the information contained in the grid/Paragraph 2 regarding the Terms of Representation is provided in full. While this may seem obvious, the significance of doing so is that the grid/Paragraph 2 contains the essential terms of any representation, including the Representation Period, the type of representation, the Property to be acquired, any excluded property, the amount of any compensation, the incorporation of the BIPP and BFPI forms, etc. As with any contract, the enforceability of the BRBC may be impacted if these essential terms, among other things, are not fully completed.

Paragraph 2A(1) of the grid requires that a definite beginning or start date for the BRBC be filled in. This starts the Representation Period. The Representation Period ends (absent a cancellation, an extension, or the completion of a resulting transaction) on the second date that is filled in in Paragraph 2A(1). Use of ambiguous terms such as “to be determined” should not be used. The BRBC is now consistent with C.A.R.’s RLA in defining the Representation Period based on specific beginning and ending dates rather than on a specified number of days, which was the format used in the last version of the BRBC.

Preprinted language below the blank lines for the start and end dates states that the Representation Period cannot exceed three (3) months and, if it does so, the BRBC is void unless the buyer is a corporation, LLC, or partnership. This language raises a number of issues. Under these circumstances, if the BRBC is void for exceeding the three-month period, then is it still valid for the first three months, or is the BRBC void from its inception? Is compensation recoverable if a resulting transaction closes escrow within the 90-day period irrespective of these other issues?

My belief is that C.A.R. included the three-month limitation in anticipation of that term being enacted by the California legislature that is expected to go into effect in January of 2025. That new law will require written buyer representation and compensation agreements. While there is currently no California law restricting the term of a buyer representation agreement, this CAR provision is still a contractual one and is enforceable between the Buyer and the Broker.

Whether or not the anticipated law goes into effect, the better practice is to fill in dates in these blanks so that the term of the BRBC does not exceed three months and, if you’re going to continue to work with a Buyer beyond three months, either (a) amend the BRBC with respect to the Representation Period or (b) enter into a new BRBC. An amendment to the BRBC requires, pursuant to Paragraph 14, an agreement in writing signed by the Buyer and Broker. C.A.R. does have a form to modify the terms of a BRBC (“MT-BR”). That form provides for an extension of the Representation Period.

Type Of Representation (Paragraph 2A(2)

As noted above, the default status in the BRBC is non-exclusive representation. If the representation is non-exclusive, the Buyer can sign BRBCs with other brokers. Whether the representation is non-exclusive or exclusive impacts, among other things, the payment of compensation and the effective date of any cancellation.

If the representation is non-exclusive, the Buyer is only required to pay compensation to the Broker if there was “Broker Involvement,” which is defined in Paragraph 4B(4). To be entitled to payment under a non-excusive BRBC, the Broker must have (a) showed the “Property” to the Buyer in person or virtually, (b) introduced the Property to the Buyer, (c) written and presented an offer to the seller that the Buyer signed (d) performed a market analysis related to the Property or (e) reviewed property-specific documents or disclosures with the Buyer. As with the prior version, only sending the Buyer a list of properties is not considered to be Broker Involvement without documented action on the part of Broker analyzing the Property for the Buyer specifically in order to assist the Buyer in the potential acquisition of the Property or communicating with the seller or seller’s agent regarding Buyer’s potential acquisition of the Property.

On the other hand, if the representation is exclusive, compensation is payable to the Broker if during the Representation Period the Buyer purchases any Property defined in Paragraph 2B, whether or not the Broker was involved in any way in that transaction.

The status of representation also affects the effective date of cancellation. In a non-exclusive representation, cancellation is effective upon receipt of a cancellation unless a box is checked in Paragraph 2F of the grid and a specified number of days is filled in the blank line adjacent to this box. Where representation is exclusive, cancellation is effective 30 days after receipt of a cancellation (Paragraph 2F).

Paragraph 5 provides that either the Buyer or Broker may cancel the BRBC “at any time” by giving written notice “within the time specified in Paragraph 2F.” However, Paragraph 2F addresses when a notice of cancellation is going to be effective, not when written notice of cancellation needs to be provided. An additional issue is raised by the use of the term “receipt.” There is no definition in the BRBC of that term or of the term “deliver.” These terms are defined in the CAR. RPA but not in the BRBC. Thus, there could well be a problem in determining the effective date of an attempted cancellation.

It should also be noted that the CAR BRBC does not provide a space adjacent to the Buyer’s signature for an email address to be used, although it does provide such a space for the Broker’s email address. The better practice would be to confirm in writing what modes of communication can be used by the parties and to also specify the acceptable addresses.

The effective date of any cancellation of the BRBC is important because the Broker has five (5) calendar days after that effective date to provide the Buyer with a written list of those properties for which there was Broker Involvement. C.A.R. has a form (Notice Of Broker Involved Properties/“NBIP”) for doing so. Providing the Buyer with a NBIP or a similar list of Broker-involved properties is necessary to preserve a claim for compensation in the event of cancellation (Paragraph 5B).

The decision to work on a non-exclusive vs. an exclusive basis requires the evaluation of a number of issues, including the motivations of the Buyer and Broker, the terms of representation, what value the Broker believes they provide and can demonstrate to the Buyer, the length of the Representation Period, the potential to become involved in commission disputes with not only the Buyer but with other brokers, and many other factors. Whatever choice is made, the Buyer and Broker should understand the consequences of that choice with respect to the payment of compensation, duties and responsibilities, and the impact on some of the other provisions of the BRBC.

Property To Be Acquired (Paragraph 2B(1)(2) and (3)

Paragraph 2B(1)(2) and (3) is where the property to be acquired (thereafter defined as the “Property”) is to be identified. The Property can be defined in terms of its type (e.g., single-family residential, multi-family residential, industrial, etc.) or location (e.g., County(ies) or City(ies)). There is also a box that can be checked in Paragraph 2B(1) to specify certain properties only. The default property type is single-family residential unless boxes are checked in Paragraph 2B(1) for the other property types. Paragraph 2B(2) requires that a box be checked if the Property is to be identified by location.

There are different philosophies regarding whether it is better to be narrow or broad in the description of the Property to be acquired. The criteria selected and the descriptions used may, among other things, have an impact on the Broker’s ability to recover compensation but, conversely, may limit the scope of services to be provided by the Broker. The criteria selected by the parties may also be impacted by whether the parties agree to non-exclusive or exclusive representation.

Next month’s article will address some of the remaining terms of the revised C.A.R. BRBC and issues relating to them.