Why this matters: Learn when to enter into a buyer representation agreement with a buyer-client and distinguish between representing individual and entity clients and the forms and retainer periods used for each.
Follow along with an audio reading of this article adapted as a chapter from our upcoming Real Estate Practice course update.
Written representation agreements are mandated
A buyer agent — not the seller agent unless acting as a dual agent — is required to enter into a written representation agreement with their buyer-client when the agent expects to earn a fee from assisting the buyer to acquire an interest in residential or commercial real estate. [Calif. Civil Code §1670.50(a)]
The employment agreement authorizes the agent to represent and advise the buyer. Importantly, it provides an upfront disclosure of the brokerage fee the buyer agent earns for their services when the buyer-client acquires an interest in the type of real estate they retained the broker to locate.
Further, the agreement establishes any fee earned is paid when escrow disburses the fee from funds accruing to the seller on the close of escrow. [See RPI Forms 103.1 and 103.2]
The written buyer representation agreement, also known as a BRA, is prepared and entered into by the buyer agent and the buyer-client:
- as soon as practicable (ASAP) on determining the agent will represent the prospective buyer-client; and
- always before the buyer signs an offer the buyer agent will submit to acquire an interest in any type of property. [CC §1670.50(a)]
Related video:
Read more about the buyer representation agreement.
Employment arrangements haven’t changed
The buyer agent’s conduct with their buyer, in and of itself, is not a new or novel employment arrangement. Rather, this codification is a welcome advancement of a well-worn and storied theme.
For decades prior to the National Association of Realtors’ (NAR’s) March 2024 settlement which removed the underpinnings for the long-standing trade union’s “gold standard” for fee arrangements, a buyer listing agreement was used when a buyer employed a broker and their agents.
Once signed, the agent then located qualified properties for the buyer to purchase, exchange or option, as authorized under what is now titled a buyer representation agreement.
As with today’s exclusive buyer representation agreement, the prior employment agreements with buyers contained provisions setting the brokerage fee, including when it was earned and who was to pay the fee. The seller and the seller agent are not a party to the fee arrangements as they are adversaries of a buyer. The buyer broker fee when earned was and is paid to the broker at the close of escrow from funds accruing to the seller on the buyer’s payment of the purchase price.
Editor’s note — RPI (Realty Publications, Inc.) has published an exclusive right-to-buy listing agreement since 1981, induced by the California case decision of People v. NAR. This form is now replaced with the buyer representation series of forms. [People v. National Association of Realtors (1981) 120 CA3d 459; see RPI Forms 103.1 and 103.2]
What has materially changed in the past several decades?
The new statutory title for a buyer agent fee agreement is the Buyer-Broker Representation Agreement, or more simply, a buyer representation agreement. It is fundamentally a new name for a long-established employment agreement entered into by a buyer retaining a buyer broker. [CC §1670.50(a)]
The label “representation” was added in the wake of the 2024 NAR antitrust case settlement, the California legislature codifying the new nomenclature by replacing the name “Buyer Listing Agreement” with Buyer Representation Agreement (BRA). The word “listing” has been replaced, but it will take years for long-held real estate jargon to adopt this best terminology for the agency relationship between the buyer and their broker.
Related article:
Buyer Representation Agreements: The end of the “gold standard”
Components of the buyer representation agreement
The operative components of the representation agreement entered into by a buyer and a buyer broker, as negotiated by the broker’s agent, include the same essential provisions, which are:
- a description of the real estate services to be rendered by the buyer agent;
- the fee earned by the broker;
- when the fee is to be paid; and
- the conditions for termination of the employment. [CC §1670.50(b)]
The buyer representation agreement also contains the same long-enduring boilerplate notice required in all employment agreements brokers use to establish their right to a fee, which is:
NOTICE: The amount or rate of real estate fees is not fixed by law. They are set by each Broker individually and may be negotiable between Client and Broker.
Written documentation of the client’s obligation to pay a fee has long been legislated and judicially mandated. The writing is a requisite to the right to enforce collection of a broker fee earned on a purchase transaction entered into by their buyer-client.
However, new legislation was needed to force trade union members to comply since 60 years of appellate cases had not brought about the contractual change in practice. Also new is the Department of Real Estate (DRE) mandate to police the new fee agreement arrangements to enforce compliance. [CC §1670.50(b)]
Related article:
Form-of-the-Week: Buyer and Tenant Representation Agreements — Forms 103.1, 103.2, 105.1 and 105.2
The retainer periods in buyer representation
The buyer representation agreement retainer period is limited when the buyer is an individual. [CC §1670.50]
This is in contrast to buyers which are entities, such as:
- corporations;
- real estate investment trusts (REITs);
- limited liability companies (LLCs); and
- partnerships.
The broker’s retainer period for services to be rendered to individuals under a representation agreement may initially run no more than three months from the date the agreement is signed and received by the broker. [CC §1670.50(d)(1); see RPI Form 103.1 §1.1]
However, when the buyer-client is an entity, they may agree to a retainer period for whatever duration the broker and buyer negotiate. [CC §1670.50(d)(1); see RPI Form 103.2 §1.1]
Further, the expiration of an entity’s retainer period may be extended by modifying the representation agreement. When an entity is the buyer-client, the broker is not restricted by the three-month limitation on the retainer period which exists when representing individuals. [CC §1670.50(d)(1); see RPI Form 103.2A]
Editor’s note — An inter vivos trust, also known as a living trust, is considered an individual, not an entity. The buyer is the individual who established the inter vivos trust to take title and is the initial beneficiary with the right to remove the property from the trust vesting.
The expiration of the retainer period for an employment with an individual buyer may not be extended, automatically or otherwise. However, the buyer representation may be reset for a new three-month retainer period from the date of the reset by a separate renewal agreement entered into with the buyer. It is not an extension of the original representation agreement but is a new start that lasts no more than three months from the signing of the renewal agreement. [CC §1670.50(d)(2); see RPI Form 103.1A]
Often, the employment objective of getting a property under contract before the representation period expires is not achieved. However, the individual buyer typically intends to continue working with their agent to locate and acquire a suitable property. Here, the buyer representation agreement may be renewed by using a written renewal agreement form, dated and signed by all participants. [See RPI Form 103.1A]
This is also but a minor variation on an existing theme.
Previously, an exclusive listing needed to contain a specified period of employment set by an expiration date of the employment, say, three or six months, after its commencement. When an expiration date is not included in an exclusive representation, the broker faces suspension or revocation of their license by the DRE. [Calif. Business and Professions Code §10176(f)]
As before, use of an exclusive employment agreement provides greater incentive for brokers and their agents to perform their duty to work diligently and continuously to meet their buyer’s objective.
Related video:
Read more about BRA retainer periods.
Leasing agents and their tenants need written representation agreements
Though the vast majority of commentary within the industry on the new buyer representation rules references single family residential property, the rules fully apply to the representation of a buyer in all other property situations, such as the purchase of:
- multi-unit residential property with greater than four dwelling units;
- commercial property;
- raw land;
- a ground lease coupled with improvements; and
- mobilehomes classified as real estate. [CC §2079.13]
Further, these new rules involve the representation of a client who seeks to acquire an interest in real estate. Clearly, this covers a fee interest in a property, one type of estate conveyed in property transactions negotiated by agents in exchange for a fee.
But is the acquisition of a leasehold interest also targeted?
Yes! Any bet against this conclusion is a historical loser.
Commercial leasing agents will get a surprise when their tenant-client:
- acquires fee title to a property, initially or as a tenant; and
- learns their agent is not entitled to earn or keep a fee without a preexisting written representation agreement.
Buyers and tenants both face the same past issues of opaque dealings in broker representation and price-fixing when it comes to their agents’ fees. The legislative spirit — intent as public policy — behind proper representation and agency duties owed clients applies fully to all broker representations. Thus, both the representation of buyers and the representation of tenants come under the new contract codes.
Like buyers with broker representation to acquire — and eventually own — an interminable right to possession, two variations of an exclusive tenant representation agreement are used by a broker representing a tenant-client. Both versions employ the broker as the consumer’s sole agent, to locate and negotiate the terms and conditions to acquire a leasehold or fee interest in a property.
One version of the form is used when representing individuals to acquire either a fee or leasehold interest, a more likely alternative for users during a recessionary period. Here, the length of the representation period is capped at three months. [See RPI Form 105.1]
The other version of the form is used when representing entities to acquire a fee or leasehold interest. In this instance, the length of the representation period is fully negotiable and is not capped at three months. [See RPI Form 105.2]
Critically, payment of the broker fee is protected by an enforceable writing no matter which fork on the ownership path the user-client decides to take to attain the right to possession — whether it be the fee or a leasehold ownership, or eventually both.
Tenants occasionally acquire fee ownership of the property they are leasing, more often during recessions. The broker who expects a fee on that future transfer had best entered into a buyer representation agreement at some point before submitting the initial letter of intent (LOI) or offer to lease when they intend to enforce the expectation of a fee.
Editor’s note — Likewise, the Agency Law Disclosure is handed to the client as required prior to their commitment to representation, as a signed attachment to the tenant representation agreement. Both documents are mandated in practice by codes, and signed, to enable collection of an earned fee when representing a tenant.
Simply attaching the Agency Law Disclosure to the lease agreement is too late in the employment process to function as an agency disclosure. [CC §2079.13(j), 2079.14]
Related video:
Read more about commercial property representation.
Renewal and modification of tenant representation
Like the BRA, the tenant representation agreement retainer period differs depending upon what kind of tenant-client is involved (whether it be an individual or entity).
The retainer period for tenants who are individuals may not run longer than three months from the date the agreement is signed. [CC §1670.50(d)(1)]
However, when the tenant is an entity, the retainer period may be for whatever duration the broker and tenant-client negotiate. [CC §1670.50(d)(1)]
For an individual tenant who agrees to renew the representation, the tenant broker uses a Renewal of Tenant Representation Agreement form. [See RPI Form 105.1A]
For an entity tenant agreeing to modify the expiration of the retainer period, the tenant broker uses a Modification of Tenant Representation Agreement form. [See RPI Form 105.2A]
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