Does the buyer agency agreement cover post-closing construction of a home?
QUESTION: I represented a buyer who recently closed on a lot that she plans to build a new house on. When she hired me, it was understood that I would help her with both the lot purchase and getting her lined up with a builder to build the home. I have an Exclusive Buyer Agency Agreement (form 201) with the buyer. Is that sufficient or do I need to get anything else signed? Also, should I get the parties to sign an Offer to Purchase and Contract—New Construction (form 800-T) to cover the construction of the home?
ANSWER: The answer to your first question is most likely “yes” and the answer to your second question is a definite “no.”
As to the first question, the Exclusive Buyer Agency Agreement is not really designed to address compensation of a buyer agent where improvements are going to be made to the property after the sale of the property closes. The manner in which the agent is compensated is inserted in the blank in paragraph 4(b). It is typically filled in to provide for a fee based on a percentage of the purchase price of the property, with the fee payable at closing. The sales price of the property would be the price of the lot but not include the value of improvements made following the closing.
If the agreement between the buyer and the buyer agent is that the buyer himself or herself is going to pay the buyer agent a fee based on the value of the property plus the post-closing improvements, the blank could perhaps be completed in a way that would work. However, in our experience, it is typically the builder, not the buyer, who pays the agent a fee for improvements the builder is going to make for introducing the buyer to the builder. Assuming that is the case in your situation, you need to have a separate agreement with the builder that addresses what the compensation will be, when it will be deemed earned, and when it will be paid. Also, in order to comply with the Real Estate Commission’s compensation disclosure rule, you should disclose to the buyer in writing your compensation arrangement with the builder and the amount of compensation you expect to receive for referring her to the builder. NCR’s Broker-to-Builder Referral Agreement (Form 731) may be used to memorialize a referral agreement with a builder.
Regarding your second question, as set forth in the bracketed statement immediately under the name of the form, the Offer to Purchase and Contract—New Construction is for use when a licensed contractor is constructing or will construct a “spec” or custom single-family dwelling on land owned or to be owned by the contractor and then convey the improved land to the buyer. It is not for use when the buyer owns the land. In your situation, there is no sale of land as between the builder and the buyer. The builder may well have its own construction contract; if not, the parties should be advised to consult an attorney to prepare one.
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