The saga of buyer representation

Although it’s been prudent practice for decades, brokers and agents were not required by agency law to enter into a written employment agreement with buyers who seek to acquire real estate, unless they intended to diligently be the buyer’s exclusive agent with the assurance a fee will be collected.

Until recently, that is.

Effective January 1, 2025, brokers have a mandate, subject to licensing review, to always:

  • enter into a written employment agreement with the buyer they intend to represent; and
  • do so as soon as practicable (ASAP) on agreeing to advise the buyer and locate property, always before submitting their buyer’s purchase offer.

The representation agreement identifies the broker as the buyer’s exclusive agent, unless otherwise disclosed as with a dual agent. It states the amount of the fee the buyer agrees the broker is to receive as earned when the buyer achieves the objective of the employment, and who pays the fee.

Brokers who facilitate the sale of any type of property, residential or commercial, are required to enter into a written agreement signed by the client to be entitled to compensation for services rendered. [Calif. Civil Code §1624(a)(4)]

Buyer-Broker Representation Agreements come in two forms, distinguished in use by the difference in types of buyer-clients:

The period of employment and its extension or renewal is a secondary distinction between the two forms of representation agreements.

The renewal or extension of a Buyer-Broker Representation Agreement are separately restricted in application, with no crossover between individual and entity clients.

When the buyer is an individual, the representation may only be renewed for a period no greater than three months from the date the renewal/modification agreement is entered into. [CC §1670.50(d)(2)]

For an individual to renew the representation, the broker uses a Renewal of Buyer-Broker Representation Agreement form. [See RPI Form 103.1A]

When the buyer-client is an entity:

  • the representation period before expiration may be for any duration; and
  • the expiration date may be extended for whatever duration the broker and buyer negotiate.

The broker representing an entity-client is not bound to the maximum three-month representation period for the initial or renewal of the representation imposed on brokers representing an individual client.

Note: Representation agreements with individuals cannot be extended on expiration, only renewed from the date of their representation agreement is modified to set a new expiration date without reference to the prior expiration date. [CC §1670.50(d)(1)]

A broker representing an entity as a buyer-client uses a modification form tailored to reset the expiration of the retainer period for whatever duration negotiated. [See RPI Form 103.2A]

Putting the forms into practice

Consider a buyer who is an individual seeking to purchase real estate. The buyer wants to work with a broker whose agent will advise and assist them to achieve their objectives in a property acquisition.

The buyer interviews an agent and determines the agent is best suited to help them acquire the property they seek.

The agent explains their next step is to enter into a Buyer-Broker Representation Agreement authorizing the agent to represent the buyer exclusively.

The agent benefits from the representation agreement, since it assures them collection of a fee when the individual acquires the type of property they want. The buyer benefits from the agreement, since the broker and the agent are identified as the buyer’s fiduciaries and the services they can expect the agent to diligently provide are clarified.

The agent explains the provisions in the individual’s Buyer-Broker Representation Agreement include:

  • a retainer period: here, the buyer and agent agree on the date the broker is retained and when the employment expires, limited to three months from the date of the agreement [See RPI Form 103.1 §1];
  • broker obligations: the broker will use diligence in serving the buyer’s needs in exchange for a fee [See RPI Form 103.1 §2];
  • general provisions: such as:
    • the buyer’s acknowledgement they received the Agency Law Disclosure [See RPI Form 305];
    • the buyer’s authorization that the broker may divide fees with other brokers, such as the sellers broker;
    • a mediation provision;
    • an attorney fees provision; and
    • the agreement is governed by California law [See RPI Form 103.1 §3];
  • brokerage fee: the buyer and broker agree on whether the buyer or the seller will pay the agreed fee amount, either a percentage of the purchase price, or a fixed fee, when:
    • the buyer’s objective is achieved during the retainer period;
    • the buyer terminates the broker’s employment without justification during the retainer period; or
    • the buyer acquires a property within one year after the representation expires and when the broker introduced the buyer to the property during the representation period. [See RPI Form 103.1 §4.1];
  • alternatively, the buyer does not pay the brokerage fee when the broker is paid a fee by the seller [See RPI Form 103.1 §4.2];
  • the broker and buyer may agree to an hourly rate earned by the broker and paid by the buyer when the representation terminates without the broker otherwise earning a fee. [See RPI Form 103.1 §4.3]

The agent prepares the form by entering a general description, location and size for the property sought. When the client seeks a rental, the agent enters the location, rental amount and term sought. [See RPI Form 103.1]

The broker and buyer agree to the Representation Agreement and sign it. Only when the buyers broker obtains a representation agreement, signed by their buyer, may the broker submit their buyer’s purchase offer and expect to receive a fee on the transaction (and avoid violating real estate contract law).

The buyer and the brokers agent review property available for sale. They view open houses independently and together. Eventually the buyer selects a property suitable for acquisition, which may or may not have been initially located by the agent.

However, the deal falls through and the period of representation has or is about to expire without purchasing a property.

The broker and the individual buyer then agree to and enter into a Renewal of Buyer-Broker Representation Agreement. [See RPI Form 103.1A]

The broker using the representation form enters:

  • Facts, including:
    • the date of the renewal;
    • the buyer’s name;
    • the broker’s name; and
    • the real estate services sought by the buyer [See RPI Form 103.1A §1];
  • the date the new retainer period is to expire, not to exceed three months from the date of the renewal agreement [See RPI Form 103.1A §2.1]; and
  • other modifications to the representation agreement.

The buyer and broker sign the renewal form.

The agent and buyer continue to look for properties, and suitable property is located.

The agent prepares the buyer’s offer using a purchase agreement form with a fee provision calling for the buyer to pay the buyers agent’s fee as part of the purchase price. [See RPI Form 151]

The seller accepts the buyer’s offer which binds the seller and buyer to the terms of the purchase agreement. The document is evidence the broker has earned their fee under the representation agreement.  Escrow is opened with instructions dictated to call for the buyers broker’s fee to be paid from funds accruing to the buyer’s account (cash deposits and mortgage funds). [See RPI Form 103.1 §4 and 151 §10.1]

This same scenario works similarly for an entity buyer seeking to acquire real estate with the advice and assistance of a buyers broker. However, with an entity client, the expiration of the representation period is an extension on modification of the representation agreement, not a renewal of the agreement.

Thus, the broker representing a buyer which is an entity, while mandated to obtain a representation agreement to evidence the employment, may negotiate any acceptable representation periods, both initially and on expiration. With an entity as the buyer, the broker is unaffected by the three-month limitation of the representation period for individual clients. The renewal may happen for whatever time period the broker and entity buyer agree to. [See RPI Form 103.2 and 103.2A]

Related article:

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