This is the sixth episode in our video series covering a licensee’s authority to act on a client’s behalf under a written listing agreement. The fifth episode covers the use of an exclusive right-to-sell listing agreement.  

Locating qualifying properties of the type the buyer seeks to purchase

For brokers and their agents, an exclusive right-to-buy listing agreement creates a contrasting but parallel activity from listing and marketing property for sale. [See RPI Form 103]

Under a buyer’s listing, a prospective buyer employs a broker to locate qualified properties of the type the buyer seeks to purchase.

As with an exclusive right-to-sell listing, the right-to-buy variation has provisions for a broker fee to be paid by the buyer — if not paid by the seller — when the buyer acquires property during the listing period of the type described in the buyer’s listing.

Also, the exclusive right-to-buy listing provides greater incentive for brokers and their agents. The exclusive aspect and the due diligence provision imposes a duty to work diligently and continuously to meet their buyers’ objectives.

The buyer benefits under an exclusive right-to-buy listing due to the greater likelihood the broker will find the particular type of property sought. Brokers also act as a safeguard for the buyer since they:

  • have continuous access to all available properties;
  • investigate and qualify properties as suitable before they are presented to the buyer; and
  • advise the buyer on the pros and cons of each property presented.

Importantly, a buyer’s broker locating properties listed by other brokers does not become a dual agent or lose their status as the buyer’s exclusive agent merely because the buyer’s broker works with seller’s brokers to obtain information on the listed properties.

Also, the buyer’s broker’s fee is typically paid by the seller — either directly or through the seller’s broker — a fee activity which does not create a dual agency. As always, all compensation received by a broker and their agents arising out of a transaction involving their client is fully disclosed to the client.

A broker who seeks out and locates properties at their buyer’s request does so and negotiates the purchase terms as the buyer’s agent regardless of who pays the fee. Again, the fee is typically paid by the seller from the proceeds of the sales price paid by the buyer.

Alternatively, the buyer’s broker fee is paid by the buyer as part of their purchase price. Here, the seller receives the remainder as their gross proceeds from the sale, and is responsible for any fees the seller’s broker is to receive.

Fee agreement to buy a specific property – the buyer assures payment

When acting as a buyer’s agent, a large portion of the agent’s time is spent assisting their buyer to locate qualifying properties. However, an agent is generally not involved in this initial step of locating a property when:

  • they represent a buyer at a real estate auction;
  • the buyer has already located a property to purchase independent of the agent; or
  • the agent and the buyer have already located a property of interest and no written employment agreement assuring a fee exists. [See RPI Form 103]

When a specific property has been selected by the buyer, the agent needs to enter into a written single property fee agreement with their buyer. The agreement safeguards the agent’s time spent on behalf of the buyer by assuring collection of a fee if the buyer acquires the property. [See RPI Form 103-1]

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 the buyer’s agent is to do to receive a 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 RPI 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 the agent, the agent is to enter into a single property fee agreement with the buyer as soon as possible. With the writing in hand, the buyer’s agent then holds an enforceable fee arrangement with the buyer, whether it is the seller or the buyer who is to pay the fee.

Once a suitable property has been selected for purchase, the agent is 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 the buyer’s agent enter into a listing agreement with the seller, they will this 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 needs to be disclosed and consented to by both clients.

When an agent has been working with a buyer to locate property and the buyer decides to acquire a specific property, the agent’s 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 the agent as the buyer’s representation 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 the agent the right to collect a fee, the agent 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 the buyer’s agent’s fee to be paid by the seller as part of the buyer’s agreement to purchase the property. [See RPI Form 159 §16]

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, the agent runs the very real risk of receiving no compensation for their 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.

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 RPI Form 103-1 §5.1]

However, the buyer’s agent needs 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 the agent’s time spent investigating and assisting the buyer prior to completion of the auction. Alternatively, the buyer’s agent can arrange to be paid a flat lump-sum fee for your services rendered. [See RPI Form 103-1 §5.3(a), (b)]