Compensation of firm for referral of client to builder

QUESTION:  There is a broker in my office with a client who is interested in purchasing a lot and then hiring a builder to construct a home.  The broker has asked what procedures need to be followed in order to strike an agreement that the builder will include a commission to the broker if the broker brings the builder and buyer together and they work together to build a house.  What has to be in writing between the broker and his client?  Is the building part of the arrangement covered by the buyer agency agreement that covered the lot purchase?  If the buyer is not willing to sign any further agreement with the broker after the transaction on the vacant lot closes, what restrictions and/or obligations does the broker have to the client?  In that case, is there anything that prevents the broker from collecting a commission from the builder if the builder builds a house for the buyer?

ANSWER: The Exclusive Buyer Agency Agreement (form 201) isn’t really designed to cover brokerage commissions paid on the value of improvements made to a lot after the closing on the lot, although it could be modified to do so.  However, in our experience, it is the builder rather than the buyer who is willing to pay a commission to a broker for bringing the buyer and the builder together.  There is nothing that would prevent a brokerage firm from collecting a fee from a builder in such a situation.  An agreement between your firm and the builder should be entered into to compensate your firm if the buyer engages the builder to construct a home on the buyer’s lot.  The NCR Broker-to-Builder Referral Agreement (Form 731) may be used for this purpose.

To ensure compliance with the Real Estate Commission’s compensation disclosure rule (Rule 58A.0109), your broker should disclose to his client any compensation that will be paid by the builder to your firm for the broker’s referral of the client.  The disclosure should be made to the client in writing before the client enters into a building contract with the builder, and it should specifically describe the compensation that will be paid to your firm.  NCAR’s Confirmation of Compensation (form 770) may be used for this purpose, but any form of written disclosure would suffice.

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