Why this matters: The singular change in 2025 for all representation in real estate sales and leasing is the method for setting broker fees. Today, the buyer agrees to their broker’s fee up front and in a writing, unlike in olden days when the seller broker fixed the fees each broker earned on the sale or lease of a listed property.

However, one critical component has not changed: broker fees are still disbursed from the purchase price set in the purchase agreement.

Negotiating broker fees — the past finally bows out

A purchase agreement form is the primary document a buyer broker uses to prepare a buyer’s offer to submit and negotiate a real estate sales transaction between a buyer and seller.

Different types of properties, financing and broker fee arrangements require a diverse variety of purchase agreements, options, and exchange agreements. Here, we review a straightforward one-to-four residential unit acquisition under a purchase agreement with conventional financing terms.

Variations in purchase agreement forms accommodate government insured financing and other types of real estate. Purchase agreements make no distinction and are unconcerned as to whether the participants are individuals or entities.

In contrast, brokers and their agents for sales of income producing real estate will use a different form entitled: Purchase Agreement — For Other than One-to-Four Residential Units — with Buyer Broker Fee Provision. [See RPI Form 151]

Fast-forward via California’s new antitrust codes

In the past, broker fees were set by the seller broker and advertised as overseen (read: policed) by the local Association of Realtors’ (AOR’s) multiple listing service (MLS).

The MLS system, as managed by the trade union, long ago standardized the practice of negotiating all broker fees paid in sales and leasing transactions as solely between the owner — as seller or landlord — and the broker representing the owner. [People v. National Association of Realtors (1981) 120 CA3d 465]

Thus, broker fee provisions in purchase agreement forms stated the seller paid all broker fees due any brokers on a sales transaction. The fees the seller broker set were mostly split evenly between the two brokers, who then further split the fees with their respective agents.

Today, the outside control for setting the buyer broker fee ends midnight December 31, 2024. An enacted civil code eliminated the “standard conduct” for fixing fees maintained by peer pressure and conscious parallelism which fixed the amount of fees. The seller brokers implemented the fix when they prepared and negotiated their seller broker representation agreement (formerly called a listing).

Today, fee-setting negotiations are separately conducted by each broker and their client. The negotiated broker fee amount is reduced to a simple writing prepared and signed by each broker and their client — either the buyer-client or the seller-client.

To comply with buyer broker representation of a buyer-client, a provision stating the buyer broker fee amount replaces the provision for fee splitting in now obsolete pre-2025 purchase agreements forms. [See RPI Form 150 §10.1]

Now, the buyer broker and buyer do not set out the fee due the seller broker in the purchase agreement offer — nor do not want to.

In practice, a buyer broker is mandated by code to enter into a written Buyer-Broker Representation Agreement with all their buyer-clients, no exceptions. The buyer broker does so as soon as possible (ASAP), on or before initially undertaking any task to locate suitable property or advise on property their buyer selects for acquisition. At the very latest, the buyer representation agreement is negotiated and entered into before the buyer reviews a purchase offer for their signature. [See RPI Form 103.1 and 103.2]

The buyer broker enters into a written representation agreement with their buyer-client to avoid a violation of California real estate contract law and, in turn, licensing rules for their proper conduct with a consumer.

When a broker represents a buyer or tenant to locate and acquire property or space, it is the Department of Real Estate (DRE) who now holds the whip the government uses to ensure compliance with written representation agreements. California codes have eliminated use of the arbitration committee with the local union association to enforce any fee fixing policy. [Calif. Civil Code §1670.50(e)]

In the new real estate environment of the mandated buyer broker written representation, the seller broker is barred from setting or interfering with the broker fee to be earned by the buyer broker. The two have been decoupled.

Also, critically, the MLS no longer is involved in publishing broker fees in transactions on listed property. The representation codes formally end the practice of fixing broker fees on deals.

Big brokerage offices will fume and fuss at the loss of their past control over broker fees — and their business profits. The trade union will listen. Consumers will notice.

The purchase price has always funded all broker fees — so what changed?

Most all buyers since the Great Recession engaged a broker to assist them. In some fashion, they acquiesced to their broker receiving a fee. That fee, as always, was part of the purchase price the buyer paid to acquire a property.

Yes, this was logical, and yes, it was especially clear to mortgage loan originators (MLOs) and escrow officers. Today, the accounting for broker fees remains the same with the new representation codes.

Without an upfront discussion between the buyer-client and the buyer broker about their broker’s fee, the fee was rarely disclosed to the buyer, a violation of agency duties owed their buyer. Today, the liability risk of violating fiduciary rules will not arise for compliant buyer brokers with a representation agreement with their buyer-client. Failed disclosure is a more common issue during periods of property value declines as buyers experience a loss in the value of the property they acquired.

Worse, prior to 2010, kickbacks from transaction providers were common practice, even though outlawed by state and federal rules. Then, kickbacks (fees for referral advice given to a client) were available by just asking the providers — but not so today. Consumer laws now imposed on the states and their real estate licensees — part of the MLO registration regime — put an end to federal Regulation X kickback violations, for the most part — but zombie providers cheat to survive another day.

The sole change now in place for broker behavior in property sales and leasing is the never-before, up-front negotiations a buyer broker and their agents conduct with their buyer-client to set the amount of their fee. The agreed fee amount must be entered in a written and signed Buyer-Broker Representation Agreement, colloquially just called a buyer representation agreement. The KISS guideline for drafting a representation agreement is “Keep It Simple, Stupid.” The legislature did. [CC §1670.50(b); See RPI Form 103.1 and 103.2]

Due to the mandated use of a written buyer representation form by the buyer broker on all sales and leasing transactions, the seller broker may only concern themselves with their fee they negotiate for themselves alone with their seller.

When to prepare the buyer broker representation agreement

Before preparing a purchase agreement offer for review with their buyer-client, the buyer broker by necessity negotiates their fee and enters into a buyer representation agreement authorizing them to represent their buyer-client. [See RPI Form 103.1 and 103.2]

Negotiations for entering into a buyer representation agreement take place before the agent begins any effort to meet the buyer’s objective to buy property. Efforts of a buyer broker include any aspect of locating property, advice concerning a property, analysis of the buyer’s price point capacity, and any activities which lead to buying a property.

Before any work on behalf of the buyer is undertaken, the agent needs to first clear with their broker or office manager the propriety of the broker’s office representing the client. Conflicts of interest known to the broker immediately come to mind. Dual agency aspects might also arise as property listed with the office may have caused the buyer to contact the broker’s agent.

Also, the demeanor of the buyer might be such that the broker does not want their agents spending time assisting the individual. Simple prior planning needs to be undertaken when any fiduciary (read: buyer broker) considers representing an individual.

On confirming the representation of the buyer is proper, the agent prepares a buyer representation agreement. The buyer broker enters the fee deemed to be necessary as their fee on the representation agreement. Each broker properly establishes the fee amount they will charge for their services. They do not set the fee in collaboration with another broker.

The agent then reviews the prepared buyer representation agreement with the prospective buyer-client for their approval and signature. Only after receiving a signed representation agreement is the buyer broker and their agent authorized to proceed to diligently locate, advise and assist the buyer to purchase property.

Without first negotiating a signed representation agreement with the buyer-client, a broker may not prepare and review a purchase agreement offer for their buyer-client to sign. The purchase agreement fee provision calls for entry of the buyer broker fee as previously set in the representation agreement. [See RPI Form 150 §10.1]

While the purchase agreement sets out the buyer broker fee, it will never set out the seller broker fee amount — that practice is gone with yesterday’s antitrust violations. Again, the conduct is about complying with the Buyer-Broker Representation code and licensing law. [CC §§1670.50(a), 1670.50(e)]

Conversely, the fee due the buyer broker is not of concern to the seller or the seller broker. However, the seller broker protects their fee by negotiating and entering into a separate representation agreement (formerly called a listing) signed by their seller-client. [See RPI Form 102]

Of course, as before, the purchase price the buyer funds is the source for payment of all broker fees. The seller broker, when disclosing material facts, prepares and reviews a net sheet with their seller-client. The disbursement of broker fees from the purchase price is listed. No change there. [See RPI Form 310 §4.31]

The fee-math involved in a sale

Let’s look at some scenarios.

We’ll demonstrate the math of the new negotiating power buyer brokers are given to protect their fee, both in the representation agreement and in the purchase agreement offer the buyer-client signs.

Editor’s note — The type of person — individual or entity — only affects the duration of the period of representation, not the type of purchase agreement form to be used. In contrast, the use of different forms of buyer representation agreements avoid error in the expiration of representation when the broker’s buyer is an individual or an entity. [See RPI Form 103.1 and 103.2]

Consider a buyer who meets a real estate agent. The buyer decides to hire the agent and their broker to locate, advise and negotiate the acquisition of property they want to own, whatever type it might be.

The buyer and broker enter into a buyer representation agreement negotiated by the agent. A provision in the agreement authorizes the broker and their agent to represent them to find properties, discuss the advantages and disadvantages of ownership with the buyer, and write up and submit an offer when a suitable property is located. [See RPI Forms 103.1 and 103.2]

A suitable property is located with a market value of $1 million. The buyer is able and willing to make a $200,000 cash down payment on the purchase price. Mortgage financing funds the remaining $800,000 of the purchase price.

As called for in the representation agreement, the broker is entitled to the fee calculated as a percentage of the purchase price, say, the standard fixed fee of 3%.

The fee will be included in the purchase price offered the seller.

Here, escrow disburses the buyer broker fee from the buyer’s funds deposited and transferred to the seller to pay the purchase price — $1 million.

With these representation and purchase agreement conditions, the buyer broker’s business risk for letting others control their fee no longer exists. The buyer and the buyer broker set the fee without outside influence, eliminating the risk of misconduct from other brokers, trade unions, MLSs or AORs. [People, supra]

The buyer broker manages the purchase agreement transaction

The buyer and agent agree to offer $1 million as the purchase price paid to acquire the property. The buyer agent prepares a Buyer’s Cost Sheet itemizing the total costs to be funded to close escrow on the purchase agreement and take title to the property. No broker fees are paid by the buyer as transactional costs. [See RPI Form 311]

On the seller’s side of the transaction, the seller broker advises their seller by itemizing the charges they will incur on the $1 million price tag and the amount of net sales proceeds on closing. For a review with the seller of the costs disbursed from the purchase price on acceptance of the buyer’s offer, the seller broker prepares an estimate using a Seller’s Net Sales Proceeds form. Broker fees are listed as one itemized transactional cost. [See RPI Form 310 §4.31]

On closing, the seller’s net proceeds will reflect disbursement of all broker fees — the buyer broker fee and the seller broker fee in an amount of, say, 6% of the purchase price. The result of separate negotiations by clients produces the same expected broker fees to be paid on the transaction.

Under past escrow accounting procedure and now going forward, all the broker fees are disbursed from payment of the purchase price agreed to in the purchase agreement and the seller representation agreement. Thus, critically, the seller today ends up with the same net sales proceeds on the same purchase price as in the past. No change from the past in accounting for the brokers fees in cost sheets and escrow settlement statements.

Analyzing preparation of the purchase agreement

A buyer agent uses the Purchase Agreement — for One-to-Four Residential Units — with Buyer Broker Fee Provision published by Realty Publications, Inc. (RPI) when preparing an offer for their buyer to purchase one-to-four unit residential property with a fee provision for disbursing the buyer broker fee from the purchase price. [See RPI Form 150]

The Purchase Agreement provisions include:

  • Facts: the buyer’s name, the amount of the good-faith deposit, the property’s address and the type of ownership sought (fee simple, leasehold, etc.) [See RPI Form 150 §1];
  • Terms: the down payment and mortgage amounts, the terms of the mortgage, the principal balance and monthly amount of the mortgage, any second trust deed notes, improvement bond liens and solar bond liens [See RPI Form 150 §§3 through 9];
  • Purchase price: the purchase price the buyer is to fund, with a provision for payment of the buyer broker fee out of the purchase price funds [See RPI Form 150 §10];
  • Acceptance and performance: the amount of time in which the offer may be accepted, the sale of the buyer’s current residence when applicable, termination provisions, a mediation provision and any amount the seller is due on a buyer’s breach [See RPI Form 150 §11];
  • Property conditions: indicates whether the seller agrees to provide:
    • a structural pest control inspection report;
    • a home inspection report;
    • a home warranty policy;
    • a certificate of occupancy;
    • a certification by a licensed contractor stating the sewage disposal system is operational;
    • a certification by a licensed water testing lab stating the well supplying the property meets potable standards;
    • how many gallons a well on the property produces per minute, when applicable;
    • an energy audit report;
    • the Transfer Disclosure Statement;
    • the Seller’s Transfer Fee Disclosure Statement;
    • a Natural Hazard Disclosure (NHD) Statement;
    • informational booklets on environmental hazards, lead and earthquake safety;
    • a Property Expense Report; and
    • a Seller’s Neighborhood Security Disclosure. [See RPI Form 150 §12]
  • Closing conditions: the escrow company to be used, the date escrow is due to close, any covenants, conditions and restrictions (CC&Rs) or easements on record, and the title company to be used [See RPI Form 150 §13];
  • Notice of Supplemental Property Tax Bill: a notice about additional property taxes the buyer may owe due to the change of ownership to the buyer [See RPI Form 150 §14];
  • Notice Regarding Gas and Hazardous Liquid Pipelines: a notice the buyer can find the location of gas and liquid transmission pipelines online and through local gas utility operators [See RPI Form 150 §15];
  • Sales Data: a statement that the broker is authorized to report the sale, its price and terms for dissemination to and use of participants in listing services [See RPI Form 150 §16]; and
  • Signatures of the buyer, their broker and agent, and a space for the seller, their broker and agent to enter their signatures, forming a contract. [See RPI Form 150]

Related article:

FOTW: Buyer Representation Agreements and Renewals — Forms 103.1, 103.2, 103.1A and 103.2A

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