Buyer-Broker Representation Agreements: The end of the “gold standard”

It’s no longer just recommended as prudent brokerage practice to implement best public policy. The use by a buyers broker of a signed employment agreement entered into ASAP with every person seeking to acquire an interest in any type of real estate is now mandatory — or no fee is due the buyers broker.

A buyers broker is now fully detached from the sellers broker and the seller for collecting their transactional fee, as California law cements long-standing public policy.

The “Buyer-Broker Representation Agreement” has long existed as a “Buyer’s Listing Agreement”

Standard custom for setting fee arrangements, long enforced by the real estate trade union, has been dramatically reversed due to the National Association of Realtors®’ (NAR’s) March 2024 settlement. In response, prior California case law has fast bled into legislation specifying the fee arrangements and authorization needed for agents to represent buyers.

As a result, before an agent begins to advise and act on behalf of the buyer who wants to acquire an interest in real estate, the agent needs to:

initiate fee discussions; and
obtain a written fee agreement.

Specifically, legislation now requires a buyers agent — not the sellers agent unless acting as a dual agent — to enter into a written employment agreement when their buyer client seeks their assurance to acquire an interest in any type of real estate. [See RPI Forms 103.1A and 103.2A]

The employment agreement provides upfront disclosure of the brokerage fee to be earned by the buyers agent for acquisition services. Further, the writing establishes the buyer will pay the fee, unless pushed to the seller for payment. In either circumstance, the fees are always included in the total purchase price the buyer is to pay to acquire property.

The written Buyer-Broker Representation Agreement is entered into by the buyers agent:

as soon as practicable (ASAP) after determining the agent will represent the prospective buyer client; and
always before the buyer signs an offer the agent will submit to acquire an interest in a property. [Calif. Civil Code 1670.50(a)]

This buyer-agent conduct with their buyer, in and of itself, is not a new or novel employment arrangement. Rather, this codification is a welcome advancement on a well-worn and storied theme.

For decades prior to the settlement rattling the trade union’s “gold standard,” a buyer’s listing agreement was used by a buyer to employ a broker and their agents. The agent then locates qualified properties for the buyer to purchase, exchange or option, as authorized under an exclusive right-to-buy listing. [See RPI Form 103-1]

As with an exclusive right-to-sell listing, the exclusive right-to-buy variation contained provisions for a brokerage fee earned and owed as agreed to with the buyer, not the seller or the sellers agent as they are the buyer’s adversaries. The buyers broker fee is paid to the broker at the close of escrow from funds for payment of the purchase price, when the buyer acquires property described in the buyer’s listing (representation) agreement.

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. [People v. National Association of Realtors (1981) 120 CA3d 459]

So what has materially changed in the past several decades?

Not much, actually.

The new statutory title is Buyer-Broker Representation Agreement. It is fundamentally a new name for a long-established employment agreement.

The label “representation” was added in the wake of the recent NAR antitrust case settlement, codifying some of the new nomenclature to replace the name “Buyer’s Listing Agreement.”

The operative components of the representation agreement entered into by a buyer and a buyers broker, as negotiated by the brokers agent, include the same essential provisions:

a description of the real estate services to be rendered by the buyers agent;
the fee to be paid to the broker;
when the fee is to be paid; and
the conditions for termination of the employment. [CC 1670.50(b)]

The Buyer-Broker Representation Agreement also contains the same boilerplate notice already required in all employment contracts a broker uses to establish their right to a fee, such as any listing agreement:

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.

Editor’s note — Ironically, this is likely the same verbiage the trade union would have preferred to have been surreptitiously dropped from this new form. [Calif. Business and Professions Code §10147.5(b)]

Written documentation of the client’s obligation to pay a fee — here, being a written fee agreement negotiated and signed by the buyer and their agent — has long been legislated and judicially mandated. The writing is a requisite to the right to enforce collection of a broker fee on a contemplated purchase transaction entered into by the buyer client.

But there is another minor difference apart from the name and mandated use of the employment agreement.

The Buyer-Broker Representation Agreement retainer period is now limited when the buyer is an individual. 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)]

However, when the buyer-client is an entity, they may agree to a retainer period for whatever duration the broker and buyer negotiate. Further, the expiration of an entity’s retainer period may be extended by modifying the representation agreement. With an entity as 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 and 103.2B]

Editor’s note — An inter vivos trust, also known as a living trust, is not an entity but is an individual. The buyer is the individual who established the inter vivos trust 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-broker representation agreement may be reset for a new three-month retainer period by a separate renewal agreement entered into with the buyer. [CC §1670.50(d)(2)]

Often, the employment objective of getting a property under contract before the representation period expires has not been achieved and the individual buyer intends to continue to work with their agent to locate and acquire a suitable property. Here, the Buyer-Broker Representation Agreement may be renewed by using a written renewal agreement form, dated and signed by all participants. [See RPI Form 103.1B]

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 listing, the broker faces suspension or revocation of their license by the Department of Real Estate (DRE). [Bus and PC §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 article:

NAR’s long-established compensation model finally evolves

California laws (and forms) designed for transparency

Despite this recent purportedly seismic shift for collecting fees in the real estate industry, California law has long required disclosure by the agent to their client relating to the real estate fee their broker is to earn. [Bus and PC §10176(g)]

Further, fees were already independently negotiable by law — forever and always. However, new legislation was needed to force trade union members to comply.

RPI has published and encouraged use of a buyer’s listing agreement for forty-plus years. However, the buyer’s listing agreement is now retitled and replaced by the new representation agreements.

Editor’s note — ALERT TO RPI FORM 103 USERS: Do not use the old buyer’s listing agreement. It is void and unenforceable, threatening collection of the fee when challenged by buyers.

Regardless of the name used to describe employment, Buyer-Broker Representation Agreements allow a broker to be employed by a buyer as their exclusive agent. Through the exclusive agreement, the broker renders real estate services sought by the buyer to locate and acquire property during a maximum, fixed period of time. [See RPI Form 103.1A and 103.2A]

RPI produces two versions of Buyer-Broker Representation Agreements:

a version used when the buyer-client is an individual seeking to acquire an interest in real estate containing a retainer period not greater than three months duration [See RPI Form 103.1A]; and
a version used when the buyer-client is an entity seeking to acquire an interest in real estate. [See RPI Form 103.2A]

Likewise, two versions for modification of the retainer period under the representation agreements exist:

a version used to reset the retainer period for representation of an individual seeking to acquire an interest in real estate, by renewing the representation agreement for a period not to exceed three months from the date the renewal agreement is signed and received by the broker [See RPI Form 103.1B]; and
a version used to extend the expiration of the retainer period for representation of an entity seeking real estate transactional services for an additional period of time. [See RPI Form 103.2B]

Separately, RPI’s Agency Law Disclosure form has been updated to conform with minor adjustments required by the new legislation. [See RPI Form 305]

Where the duties the buyers agent owes to their buyer are described, the Agency Law Disclosure specifies the activities a buyers agent performs under a Buyer-Broker Representation Agreement. These duties were always case law, just not mentioned in the deficient Agency Law Disclosure form, which has now been mostly reconciled. [See RPI Form 305 §3]

The second page of the Agency Law Disclosure replicating the controlling legal schemes has also been updated to contain the statutory definition of the Buyer-Broker Representation Agreement. [CC §2079.13]

California’s commitment to transparency between a client and their broker regarding the brokerage fees earned is furthered by this legislation. Simply put, best practices are now mandated as public policy for all licensees involved as transaction agents.

The SFR buyer’s purchase agreement

When an agent submits a purchase agreement entered into by individuals, the provisions of the purchase agreement state whether the buyer or the seller is to pay the buyers agent’s fee. Either way, the brokerage fee is paid as part of the purchase price on the close of escrow — i.e., the change of ownership. [See RPI Form 151 §10.1]

In contrast, the old “gold standard” purchase agreements called for the seller to pay all fees due all brokers in the transaction. Thus, as intended by big brokers, the listing broker kept control over all aspects of nearly all transactions. [See RPI Form 150]

Now in the present, a prudent buyers agent first enters into a Buyer-Broker Representation Agreement — ASAP — to be able to enforce collection of a fee and, critically, avoid violating licensing law.

The buyers agent’s fee is negotiated with the buyer and the Buyer-Broker Representation Agreement is entered into. Only then does the buyers broker and their agent commence any services to locate property on behalf of the buyer — if they expect to be paid when the fee is earned.

Later, when an offer to buy is submitted for a property, the buyer pays the agreed fee earned by their agent as part of the total purchase price stated in the Purchase Agreement — Separate Buyer’s Agent’s Fee. [See RPI Form 103.1A and 151]

The freedom to choose forms

The California real estate industry has an extensive variety of boilerplate forms available for practically any contractually negotiated real estate situation. A broker may use any form they choose, without concern for any trade union affiliation.

Other brokers, trade union local associations, E&O insurers and the multiple listing services (MLSs) may not and do not require the use of a particular transactional form by a broker and their agents.

Though forms the California Association of Realtors® (CAR) publish are ubiquitous, real estate transaction forms including offers may be written on any number of other available formats, such as those RPI maintains and publishes.

The use of commercially-published electronic forms in lieu of a brokerage office’s independently-drafted forms to document their real estate transactions and services is justified for two reasons.

First, a commercially-published form satisfies the writing requirements of the Statute of Frauds controlling real estate transactions. Commercially published forms also contain sufficient terms to be enforceable through the courts. [Calif. Civil Code §1624]

Second, a commercially-published form generally provides clarity of meaning and includes boilerplate provisions and disclosures to be considered when advising clients, which typically are not included in independently-drafted forms due to bias and naïveté.

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Critically, commercially-published forms provide a checklist of various provisions agents need to consider when negotiating a transaction. Thus, they mitigate the risk of failure to consider all material aspects of a transaction – or just simple error. Commercially-published forms limit the task of oversight by brokers and managers when reviewing the provisions left blank or checked as included in the agreement or disclosure.

Forms broadly fit into two categories.

Forms are either:

mandated for use by dictate of the state legislature, such as:
- Agency Law Disclosure, as recently updated by AB 2992 [See RPI Form 305];
- Transfer Disclosure Statement (TDS) [See RPI Form 304]; and
- Natural Hazard Disclosure Statement (NHD) [See RPI Form 314]; or
generic forms, such as:
- purchase agreements [See RPI Form 150 – 159];
- listing agreements [See RPI Form 102, 103.1A and 103.2A]; and
- net sheets. [See RPI Form 310]

Each form the state mandates for use needs to have the same content — no matter who publishes it, and many do.

However, no one approves the forms publishers draft and release — not the State Bar, the DRE or trade unions. Each publisher is responsible for the content of the forms it publishes.

RPI is a long-established California publisher of real estate forms for use exclusively in California. RPI forms are: