Filling in Compensation Blank in Exclusive Buyer Agency Agreement

QUESTION: I am a broker-in-charge and I have a question about how one of my agents has filled out the compensation section of the Exclusive Buyer Agency Agreement (form 201). In the compensation blank in paragraph 4(b), the agent inserted the following: “Up to X percent of purchase price, to be paid by seller or listing firm.” (I used an “X” instead of a real number because I know that we need to be careful talking about commissions.) Is that an appropriate way to fill in that blank?

ANSWER: No, for a couple of reasons. First of all, the “up to” wording is problematic. In addition to being vague, “up to X percent” does not constitute adequate disclosure under the Real Estate Commission’s rules, which require a broker to disclose to his or her principal in writing the compensation that the broker will receive in the transaction. “Up to X percent” does not describe precisely what the broker is going to be paid. This can be cured by making written disclosure of the compensation the broker expects to be paid on the sale of a property before showing it to the buyer. However, in our view it makes more sense to insert in the compensation blank a precise amount (expressed as a percentage of the purchase price or otherwise) that the broker might typically expect to receive for selling a property rather than using a range because it avoids the necessity of having to make any additional disclosure if the amount actually offered to the broker for selling a particular property is the same as the amount inserted in the compensation blank.

The “to be paid by seller or listing firm” is also problematic. If the intent of that wording is simply to indicate that the agent will look to the seller or listing firm for the fee, that is already addressed in paragraph 4(b)(i) of the Exclusive Buyer Agency Agreement. On the other hand, if the intent is to indicate that the buyer will not be responsible for paying the fee under any circumstances, that contradicts or overrides paragraph 4(b)(ii).Although the form could be modified to relieve the buyer of any obligation to pay the fee, consideration should be given to using the Non-Exclusive Buyer Agency Agreement (form 203) because it clearly provides that the buyer is not obligated to pay a brokerage fee to the buyer agent’s firm.

(The differences between the compensation provisions of the exclusive and non-exclusive buyer agency agreements is discussed in more detail in a multi-question Q&A that may be found on the Legal Department page of the NCAR web site under Archived Legal Articles/Buyer Agency Agreement Forms.)

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