When acting as a buyer’s agent, a large portion of your time is spent assisting your buyer locating qualifying properties. However, you generally are not involved in this initial step of locating a property when:
- you represent a buyer at a real estate auction;
- the buyer has already located a property to purchase independent of you; or
- you and the buyer have already located a property of interest and no written employment agreement assuring a fee exists. [See first tuesday Form 103]
When a specific property has been selected by the buyer, you need to enter into a written single property fee agreement with your buyer. The agreement safeguards your time spent on behalf of the buyer by assuring collection of a fee if the buyer acquires the property. [See first tuesday Form 103-1]
Related article:
Fee agreement to buy a specific property – the buyer assures payment
The single property fee agreement is essentially a buyer’s retainer agreement of the contingency fee variety, in contrast to an advance fee arrangement, setting the fee amount to be paid by the seller, and not by the buyer, contingent on the buyer acquiring the property.
Without the need to locate a suitable property, the single property fee agreement lists the specific tasks you, as the buyer’s agent, are to do to receive your fee, such as:
- evaluating the economic suitability of the transaction;
- attending an open house with the buyer prior to auction and inspecting the property;
- obtaining and analyzing a title profile on the property;
- examining pest control reports;
- obtaining plat maps of the area surrounding the property;
- checking the property’s proximity to schools, markets, financial institutions, etc.; and
- developing an opinion of the property’s fair market value (FMV). [See first tuesday Form 103-1 §3.1]
If the buyer is already aware of a suitable property, or has located a suitable property prior to or after working with you, you must then enter into a single property fee agreement with the buyer as soon as possible. With the writing in hand, you hold an enforceable fee arrangement with the buyer, whether it is the seller or the buyer who is to pay your fee.
Once a suitable property has been selected for purchase, it is in your best interest not to enter into a listing agreement with the seller to establish an enforceable right to collect a fee. Doing so with the seller unnecessarily creates a dual agency under circumstances not understood by many agents, and thus the dual agency goes undisclosed.
If you enter into a listing agreement with the seller, you will then be representing both the buyer and the seller, taking on an agency duty to each of the opposing parties in the transaction. This dual agency relationship must then be disclosed and consented to by both clients.
When you have been working with a buyer to locate property and the buyer decides to acquire a specific property, your prior conduct with that buyer has established a client relationship with them. Thus, it is the buyer who needs to sign a single property fee agreement. The writing formally employs you as the buyer’s agent and assures payment of a fee if the buyer acquires the property, whether it is the buyer or the seller who is to pay the fee. [L. Byron Culver & Associates v. Jaoudi Industrial & Trading Corporation (1991) 1 CA4th 300]
After the buyer signs the single property fee agreement granting you the right to collect a fee, you can then prepare a purchase offer for signing and delivery to the seller. The terms of the purchase offer signed by the buyer include a fee provision calling for your fee to be paid by the seller as part of the buyer’s agreement to purchase the property. [See first tuesday Form 159 §15]
In the instance of a real estate auction, a buyer’s agent has absolutely no assurance their buyer will be the highest bidder. Thus, under a regular buyer’s listing agreement calling for a fee to be paid on the buyer’s acquisition of the property, you run the very real risk of receiving no compensation for your time, effort and talent conducting due diligence investigations and assisting in the bidding – the epitome of sunk costs. Sunk costs are not recoverable under any present or future condition and are lost forever.
Related articles:
When the buyer does acquire the property as the highest bidder, the single property fee arrangement is structured as a percentage of the price paid, such as 3%, or a fixed dollar amount, to be paid by the buyer. [See first tuesday Form 103-1 §5.1]
However, you need to be paid under some formula for handling auction situations when the buyer does not win the bidding contest. When the buyer does not acquire the property, the fee under the single property agreement calls for compensation based on an hourly wage, such as a dollar amount per hour, for your time spent investigating and assisting the buyer prior to completion of the auction. Alternatively, you can arrange to be paid a flat lump-sum fee for your services rendered. [See first tuesday Form 103-1 §5.3(a), (b)]
