Part II of this two-part Brokerage Reminder discusses the agency duties owed a buyer and the benefits a buyer can expect on entering into a buyer’s listing agreement. For insight on the importance of obtaining a buyer’s listing agreement prior to acting on a buyer’s behalf, see Part I of this article series.
Agency duties owed to buyers
When a broker and their agents take on the task of locating property on behalf of a buyer of real estate, they are obligated to apply special agency duties, called fiduciary duties, to their conduct with that buyer. The special duties owed a buyer first arise when the broker, directly or through their agents:
- enters into an exclusive right-to-buy agreement with the buyer; or
- presents property information to an unlisted buyer who they have orally or by conduct agreed to assist to locate qualifying properties and find one suitable to the buyer.
When acting on a buyer’s behalf under a written exclusive right-to-buy employment agreement, the broker and their agents have entered into a bilateral employment agreement. Such an employment obligates the broker and their agents to exercise due diligence by way of a constant and continuing search to locate qualifying properties and routinely inform the buyer of their progress.
Without an exclusive right-to-buy listing, the brokerage duty to locate properties for a buyer is a best-efforts obligation created by an oral (or written) open listing, called a unilateral employment agreement. The best-efforts obligation requires no affirmative action (diligence) on the part of the broker’s office staff to actively do anything to locate property of the type the buyer wants to acquire.
However, when acting on behalf of a buyer, the delivery of property information to them further obligates the broker and their agents to be diligent in their efforts to:
- gather readily available data on the property under review;
- assist in the analysis of the consequences of the property data gathered and delivered to the buyer; and
- advise the buyer regarding the property and any proposed transaction in a conscientious effort to act honestly, and care for and protect the buyer’s best interests.
When acting as the buyer’s agent regarding the acquisition of a particular property, due diligence includes:
- disclosing facts relevant to the integrity of the property; and
- recommending investigative activity which the agent suspects might influence the buyer’s conduct and decisions in negotiations.
Without written exclusive employment with a buyer on whose behalf the agent is locating properties, the agent initially reduces themselves to a mere “locator” or “finder.” However, on review of a property with a buyer they represent, the buyer’s agent takes on the affirmative agency duties of utmost care and protection owed their buyer. This duty arises whether or not their buyer enters into a written exclusive right-to-buy listing agreement to employ the agent’s broker.
Provisions for payment of a fee
An exclusive right-to-buy agreement contains the same operative fee provisions found in exclusive right-to-sell agreements. [See RPI Form 103]
In exchange for the broker’s promise to use due diligence while rendering services to comply with their end of the employment bargain, the buyer promises to pay the broker a fee specified in the exclusive right-to-buy listing agreement.
Fees are either a fixed dollar amount or a percentage of the price paid, but may be set as an hourly rate. Fixed and percentage fees are contingent fees. They are earned at the time the buyer enters into a binding purchase agreement, the payment due and contingent on the transaction closing.
However, buyers, like sellers, often do not go under contract during the period of employment by entering into a purchase agreement. Thus, on expiration of the listing, the buyer’s broker has not earned a fee — an event triggering payment of the promised fee has not yet occurred.
Like a seller’s listing agreement, fee provisions in a buyer’s listing agreement include a safety clause. The clause protects the agent against loss of a fee for services rendered in regard to a property:
- brought to the buyer’s attention by the broker or their agents during the listing period; and
- acquired by the buyer after the buyer’s listing expires due to renewed negotiations during the safety clause period. [See RPI Form 103-1 §5.1(c)]
The safety clause contains a period for reconvened negotiations following expiration of the buyer’s listing, which entitles the buyer’s broker to a fee if:
- information specific to the property was provided to the buyer by the buyer’s agent during the listing period, called negotiations;
- on expiration of the buyer’s listing, the buyer is handed an itemized list which identifies those properties the buyer’s agent brought to the buyer’s attention, called perfecting the broker’s right to earn a fee [See RPI Form 123];
- the buyer enters into negotiations with the owner of a registered property or an agent of the owner; and
- the negotiations during the safety period ultimately result in the buyer acquiring an interest in the property.
The buyer in a listing agreement promises to pay a full broker fee on the acquisition of the type of property sought. However, in practice, the buyer will nearly always close the purchase without directly paying the promised broker fee. It is the seller who typically pays the fee the buyer has promised their agent will receive.
Benefits for the listed buyer
Agents best encourage potential buyers to retain them by reviewing with them a list of benefits buyers receive when a broker represents them as their full-time exclusive agent. Conversely, without representation, the unlisted buyer is on their own to conduct a random search among all properties they can locate for sale to find a suitable property.
However, brokers and their agents have access to much data which is not publicly available to buyers, such as:
- new listings in the local multiple listing service (MLS);
- database searches for qualifying properties;
- property profile reports; and
- comparable sales data and market trends provided to brokers and agents by the local MLS, title companies and other industry sources.
The activities of a buyer’s agent also include advising the buyer on:
- competitive mortgage lenders;
- the suitability of qualifying properties they have located;
- the socio-economic mix of neighborhoods;
- rental income and expenses;
- schools and their reputations;
- public transportation;
- fire and police information;
- local amenities;
- zoning; and
- any subdivision or common interest development (CID) restrictions on property usage.
Further, agents read market studies directed solely to them and attend marketing sessions for licensees only, with the sole purpose of sharing information in the context of properties for sale and properties wanted by buyers.
Thus, when entering into a buyer’s listing agreement employing a broker and their agents, a buyer bargains for this insider knowledge and information to find their way through the maze of the market to make a more viable decision on the ownership of real estate.
For a discussion on the importance of obtaining a buyer’s listing agreement prior to acting on a buyer’s behalf, see Part I of this two-part article series.