New PRDS Listing Agreement Amendment Addresses The Current Gap In The C.A.R. RLA If A Seller Wants To Offer Compensation To A Buyer’s Broker At The Time Of Listing

By David Hamerslough and Victoria B. Naidorf

August 6, 2024

This month marks the release of the PRDS Listing Agreement Amendment (“LAA”). This form will allow the seller and seller’s broker to amend the listing agreement regarding not only price and terms but also compensation issues. The need for the latter might arise if a seller initially decides to not offer compensation to a buyer’s broker but then wants to do so.

While PRDS forms are usually intended to be used in conjunction with other PRDS forms, the PRDS Forms Committee revised the LAA so that it can also be used with the current C.A.R. Residential Listing Agreement (“RLA”). C.A.R. revised and released, among other forms, the RLA on July 24, 2024. C.A.R.’s RLA doesn’t give the seller or the seller’s broker the option of offering compensation to a buyer’s broker. C.A.R.’s current position is that any such offers of compensation should be addressed in a separate addendum prepared by the seller’s broker and/or their counsel.

PRDS believes that developing any such form so that it complies with the requirements of, among other things, the NAR settlement is a task that the industry should perform. PRDS believes that this approach eliminates potential risks and issues for brokers, agents, and their clients. The PRDS Exclusive Authorization And Right To Sell (“EXA”) gives the seller or seller’s broker the option of offering compensation to a buyer’s broker. The LAA can now be used to amend the PRDS EXA or supplement the C.A.R. RLA to address such offers of compensation. If offers of compensation through a listing agreement are ultimately eliminated, then PRDS will revise its EXA at that time.

PRDS is also releasing its Seller, Buyer, And Broker’s Compensation Agreement And Escrow Instructions (“BSBCA”) this month. This form will allow all four of the parties to a transaction to confirm the agreements reached among them regarding the payment of compensation. The PRDS Forms Committee believes that the issue of who pays what to whom should be in a separate writing so that the seller, buyer, and both brokers can sign that document. This avoids potential legal confusion that can arise when this subject is addressed in the purchase contract or in an addendum to the purchase contract. That confusion stems in part from the fact that the brokers are not parties to the purchase contract; thus, any agreements reached in the purchase contract regarding compensation may then not be enforceable by the brokers, or a buyer or seller may attempt to argue that the brokers are now parties to the purchase contract, are bound by all of its terms and conditions, and/or are responsible for any contractual nonperformance.

The approach PRDS has taken with respect to this issue differs from C.A.R.’s. First, the PRDS Purchase Contract (“REPC”) does not contain any provisions regarding payment of a buyer’s broker’s commission, in contrast with Paragraph 3(G)(3) of the C.A.R. RPA. The approach PRDS has taken avoids, among other things, predetermining the commission issues in the purchase contract. The PRDS BSBCA provides a separate commission agreement for all parties to sign.

C.A.R.’s form release on July 24th confirms that it has eliminated its Cooperating Broker Compensation Agreement And Escrow Instruction (“CBC”) and now recommends that the payment of compensation to a buyer’s broker by the seller be addressed through Paragraph 3(G)(3) of the RPA in conjunction with its Seller Payment To Buyer’s Broker form (“SPBB”). We believe that this approach may lead to issues because, among other things, the broker is not a party to the SPBB. Only the buyer and seller sign the SPBB. While Paragraph 4 of the SPBB makes the buyer’s broker a third-party beneficiary of the seller’s agreement to pay the buyer’s broker, we see several potential issues. First, the SPBB is incorporated into and made a part of the RPA. What provisions of the RPA are also now a part of the SPBB? The SPBB does not indicate if it is intended to be a fully integrated contract. If not, then what other provisions of the RPA apply to a claim by the broker? For example, do the attorneys’ fees and mediation clauses in the RPA now become part of any claim asserted by the broker? Are the brokers responsible for any alleged contractual nonperformance?

In contrast, these issues are addressed in Paragraphs 9 and 10 of the PRDS BSBCA. Paragraph 9 states that attorneys’ fees are not recoverable in any dispute amongst the parties to the BSBCA , and Paragraph 10 contains, among other things, an integration clause stating that the BSBCA constitutes the entire agreement amongst the parties.

Members will be able to access the forms online. For non-members, if you join SILVAR as a primary or secondary member, you can gain access to the forms. Brokers can also negotiate a licensing agreement that will provide access to these two (2) forms for your agents through your brokerage library online. Please email [email protected] for more information.