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Latest Revisions To The PRDS Buyer Representation And Broker Compensation Agreement

By Dave Hamerslough

June 18, 2024

This article highlights the latest revisions to PRDS’ Buyer Representation And Broker Compensation Agreement (BRBC). Many but not all of the revisions were the result of the practice changes required by the settlement of the class-action litigation against NAR regarding, among other things, the payment of compensation to real estate licensees.

Revisions to the BRBC

  • Paragraph 1 (“Term”) still requires that dates be filled in to specify the term of the BRBC, and no changes were made to limit the length of time the BRBC could be in effect. The PRDS Forms Committee is aware that legislation has been proposed in California that would require buyer representation and broker compensation agreements; part of that proposed legislation will limit the term of those agreements to 90 days. Although many people in the industry anticipate that this new law will go into effect in January of 2025, it remains to be seen whether the 90-day term limit (or any other time frame) will be a component of that new law. If it is, then the PRDS Forms Committee will revise the BRBC accordingly. At this point, there is no law limiting the term of a BRBC; however, for risk management purposes, brokers should be aware that if a BRBC lasts for too long, it may be deemed unconscionable and thus unenforceable.
  • Paragraph 2 now enables the buyer to exclude specified properties from the BRBC and confirms that the broker will not represent the buyer on those excluded properties and will not receive compensation. This provision will be necessary if the buyer has previously entered into a BRBC with another broker that is not exclusive and/or is limited to certain properties.  I recommend that brokers carefully read a buyer’s prior BRBC before entering into a new BRBC so as to determine any exclusions and to avoid any possible conflicts with other brokers. 
  • Paragraph 3 still deals with agency relationships, but it now enables buyers to expressly authorize dual agency in the event that the buyer is interested in a property that the buyer’s broker has listed. If the buyer is uncomfortable with or unwilling to agree to dual agency, then a box needs to be checked to eliminate this authorization. When working with buyers and having them sign a BRBC, it will be important for agents to point out the possible types of agency relationships and what those agency relationships mean to a buyer. This paragraph also references the agency disclosure forms and helps explain how dual agency may arise.

Paragraph 3 also confirms that the broker’s representation of the buyer is exclusive as distinguished from non-exclusive. Non-exclusive representation creates more potential for disputes with other brokers regarding who is owed compensation.

  • Paragraph 7 now contains an express assumption of the risk by the buyer. Among other things, this paragraph provides that a buyer is assuming all risks if they fail to perform any or all of the buyer’s obligations contained in the BRBC. This language replaces what historically has been an express indemnity clause in the BRBC and other PRDS documents such as the Exclusive Authorization And Right To Sell (EXA). The express indemnity clause that was in prior versions of the BRBC and EXA included a requirement that the broker would be reimbursed for attorneys’ fees and costs, in the event that the buyer or seller failed to perform certain obligations. Due to potential factual, legal, equitable, and practical concerns regarding the enforceability of an express indemnity clause in these agreements, the PRDS Forms Committee has eliminated that clause from the BRBC and the EXA and has replaced it with this express assumption of the risk clause. Given the potential legal consequences of this clause, the BRBC now recommends in ¶ 7 and in several other places that the buyer consult with a qualified California real estate attorney before signing the BRBC.
  • Paragraph 10 provides that the buyer is acknowledging receipt of the PRDS Real Estate Broker Compensation Advisory (BCA). (See last month’s article for a discussion of that advisory.) Paragraph 10 then details how much commission the buyer’s broker will receive at the close of escrow on a sale, lease, or option.
  • The new practice changes mandated by the NAR settlement will likely result in commissions being negotiated amongst the buyer, seller, and brokers as part of a buyer’s offer, and the result of those negotiations may negatively impact the compensation to be paid to the buyer’s broker and thus may not be acceptable to the buyer’s broker. Therefore, PRDS has added language to Paragraph 10(D) giving the broker the right to terminate the BRBC with respect to the specific property that is the subject of these negotiations or demand that the buyer comply with the compensation terms of the BRBC. This new language gives the broker the right to participate in the commission negotiations but enables the broker to be free to reject any sum that is less than what the buyer had already agreed to pay as compensation.
  • Paragraph 10 also contains a key practice change to the MLS rules required by the NAR settlement. This change is that the total amount of compensation that the buyer’s broker may receive from any and all sources (including seller, seller’s broker, and buyer) cannot exceed the amount or rate agreed to in the BRBC. This language has also been added to the PRDS BCA and the EXA. While a BRBC and an EXA may be amended by appropriate documentation, brokers should remember that any such amendment will need to be in a writing signed by the broker and the buyer or seller. My suggestion to brokers is to put into the BRBC the amount of compensation you want and don’t focus on who will pay that amount. That amount can always be negotiated if you are inclined to do so.
  • Language has been added to the end of Paragraph 10 to advise the parties that who pays the buyer’s broker’s fee may impact the buyer’s ability to obtain a loan (e.g., due to the impact that the payment may have on a buyer’s cash reserves) or purchase a particular property (e.g., depending on competition with other buyers). The issue of who pays the commission may also impact the assessed value of the property. Buyers need to be aware of all of these potential consequences. As is true with some other issues related to the MLS practice changes, the impact of those changes on assessed values is currently unknown but is something that will play out in the future.
  • Paragraph 16 has been added to enable a broker to get paid the agreed-upon compensation in the BRBC; the buyer now irrevocably assigns to the broker the compensation specified in Paragraph 10. Since the buyer’s broker compensation is to be made from the buyer’s funds, the buyer is now required to submit adequate funds to escrow to meet buyer’s obligations. The BRBC is designated as a joint escrow instruction and authorizes the broker to submit the BRBC to escrow for any transaction where compensation is owed to the broker. Absent this language, the broker would need to file a breach of contract action to recover compensation. While it may still be necessary to do so if the buyer or escrow refuses to honor these instructions, this language provides the best contractual basis for getting paid. The BRBC does not provide for the recovery of attorneys’ fees by either buyer or broker in the event of any dispute. Consistent with this position, language is included in the BRBC that the assignment provided for in Paragraph 16 does not include an assignment of any rights to attorneys’ fees.

The MLS practice changes required by the NAR settlement are currently scheduled to go into effect on August 17, 2024. While this date may change, as it has already done so in the past, my recommendation is for all real estate licensees to start learning about these practice changes now and to start working with all of the new forms designed to comply with the terms of the NAR settlement. No one should be waiting until August to learn about the new forms and MLS requirements. I recommend that brokers encourage their agents to participate in multiple training sessions to practice not only how to fill out the new forms but also how to best demonstrate their “value proposition” to prospective buyers. It will take time to learn how to work with buyers under the new requirements and thus the training should start as quickly as possible.