Part II of this two-part Brokerage Reminder discusses the agency duties owed a buyer and the benefits a buyer receives on entering into a signed 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 real estate broker locates property on behalf of a buyer, they owe the buyer a special agency duty called a fiduciary duty, which arises 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.

Related video: Word-of-the-Week: Fiduciary duty

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When acting under a written exclusive right-to-buy employment agreement, the broker and their agents have entered into a bilateral employment agreement. This obligates the broker and their agents to exercise due diligence in constantly and continuously searching for qualifying properties and informing 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 such due diligence.

However, when acting on behalf of a buyer, the delivery of property information 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 protect the buyer’s best interests.

When acting as the buyer’s agent in the acquisition of a specific 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 decisions in negotiations.

Without an exclusive right-to-buy listing, the agent initially merely acts as a “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.

Related video: The Exclusive Right-to-Buy Listing Agreement

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Provisions for fee payment

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, the buyer promises to pay the broker a specified fee. 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 only when the buyer enters into a binding purchase agreement.

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:

  • the broker or their agents locate during the listing period; and
  • the buyer acquires 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 broker to a fee when:

  • the buyer’s agent provided information specific to the property during the listing period, called negotiations;
  • on expiration of the buyer’s listing, the broker hands the buyer an itemized list identifying 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.

In practice, buyers nearly always close without directly paying the promised broker fee; instead, it is the seller who typically pays the fee.

Related video: Provisions for payment of a fee

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The listed buyer’s benefits

A prudent licensee always informs potential clients of the benefits to a listing agreement. Without representation, an unlisted buyer is on their own to conduct a random search among all properties they locate for sale to find a suitable property. However, brokers and their agents have access to data 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 and attend marketing sessions for licensees only, with the sole purpose of sharing real estate information which will benefit potential clients.

Thus, when entering into a buyer’s listing agreement, a buyer banks on this insider knowledge to navigate the maze of the market and make more informed decisions about 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.

This article was published January 2016, and has been updated.