AAR’s Buyer-Broker Agreement and Agency Forms

Posted on December 31, 2012 by Michelle Lind, Esq.

By the early 1900’s, the Arizona Courts recognized the agency relationship between the broker and the client in a real estate transaction. See, Jenkins v. Irvin, 20 Ariz. 164, 178 P. 33 (1919). By 1950, the Arizona courts overwhelmingly held that a real estate broker is an agent with fiduciary duties to the principal. E.g., Haymes v. Rogers, 70 Ariz. 257, 219 P. 2d 339 (1950), modified on rehearing 70 Ariz. 408, 222 P. 2d 789 (a real estate broker employed to sell property owes the duty of utmost good faith and loyalty to his principal and a fiduciary relationship exists); Leigh v. Loyd, 74 Ariz. 84, 87, 244 P. 2d 356 (1952) (it is well settled that a confidential relationship exists between agent and his principal). This broker-client agency relationship imposes on a broker the fiduciary duties of “utmost good faith, integrity, honesty, and loyalty in her transactions with the principal…” Musselman v. Southwinds Realty, Inc., 146 Ariz. 173, 175, 704 P. 2d 814, 816 (App. 1985).

The Arizona Association of REALTORS® (“AAR”) has developed various forms to assist brokers in disclosing and clarifying these agency relationships and duties to their clients, such as the Buyer-Broker Exclusive Employment Agreement, the Real Estate Agency Disclosure and Election form, and the Consent to Limited Dual Representation form. Each form serves a different purpose. The Buyer-Broker Exclusive Employment Agreement is an employment agreement that provides for compensation. The Real Estate Agency Disclosure and Election form addresses agency representation only. The Consent to Limited Dual Representation form is designed to obtain the informed consent of both the buyer and the seller in an in-house sale. The following highlights some of the provisions of these three important forms.

The Buyer-Broker Exclusive Employment Agreement (“Buyer-Broker Agreement”)

The Buyer-Broker Agreement is designed to be used when a buyer employs a broker to work with the buyer exclusively to locate property and negotiate terms and conditions acceptable to the buyer for the purchase, exchange, option, or lease of the property. The form describes the general method by which the broker will be compensated. Specific compensation terms may be addressed on the blank lines provided for “additional terms.” The Buyer-Broker Agreement should be used in conjunction with the Real Estate Agency Disclosure and Election form.

By executing the Buyer-Broker Agreement the buyer agrees to work exclusively with the broker and be accompanied by the broker on the buyer’s first visit to any property. The buyer acknowledges that the broker may not be compensated by the builder, seller or seller’s agent if the broker does not accompany the buyer on the first visit to a model home, new home/lot, or “open house.” The buyer also agrees to act in good faith, provide the information necessary to acquire the property and conduct any inspections/investigations that the buyer deems material and/or important. Further, the buyer acknowledges that pursuant to Arizona law, sellers, lessors and brokers are not obligated to disclose that the property is or has been: (1) the site of a natural death, suicide, homicide, or any other crime classified as a felony; (2) owned or occupied by a person exposed to HIV, diagnosed as having AIDS or any other disease not known to be transmitted through common occupancy of real estate; or (3) located in the vicinity of a sex offender (“Stigmatized Property Notice”).

The form also contains a dispute resolution provision. In this provision, the parties agree to mediate any dispute arising out of the Agreement. However, if mediation does not result in the resolution of the dispute, the parties agree that the dispute will be resolved by binding arbitration.

Real Estate Agency Disclosure and Election

The READE form is not an employment agreement, but a disclosure and election of the agency relationship that a buyer or seller will have with the broker in the transaction. The READE form should be executed in every transaction. As the READE form makes clear, regardless of whom the broker represents in the transaction, the broker will exercise reasonable skill and care in the performance of the broker’s duties. Further, the broker is obligated to be honest and truthful to both parties and disclose all known facts that materially and adversely affect the consideration to be paid by any party. Additionally, the Stigmatized Property Notice is included in the READE form to alert buyers that information regarding certain “stigmatized” property is not required to be disclosed.

The READE form explains the fiduciary duties a broker owes when representing a buyer or seller exclusively, such as; loyalty, obedience, disclosure, confidentiality and accounting. The form also notifies the buyer or seller that the broker may represent others interested in buying or selling the same or similar properties.

The READE form also introduces the concept of limited dual representation. A broker can legally represent both seller and buyer in a transaction with the knowledge and informed consent of both parties. The form discloses that, in the case of limited dual representation, there will be conflicts and that disclosure of confidential information will be made only with written authorization. In the event of a dual agency situation, the parties’ informed consent should be acknowledged on the Consent to Limited Dual Representation form.

Consent to Limited Dual Representation

The Consent is designed to be used when there is an identified buyer, seller, and property in an in-house sale. The Consent should be used even if the parties have consented to dual agency on the READE form because informed consent is required. The parties are not truly informed enough to give consent to dual agency until a specific property has been identified.

The Consent authorizes the broker to represent both the seller and the buyer in the transaction. The parties consent to the dual representation with the stated limitations of the broker’s duties. For example, the broker will not, without written authorization, disclose to the other party that the seller will accept a price or terms other than stated in the listing or that the buyer will accept a price or terms other than offered. However, the broker is still obligated to exercise reasonable skill and care in the performance of the broker’s duties and is obligated to deal honestly with all parties at all times. The Consent also includes the Stigmatized Property Notice, which is particularly important in a dual agency situation. The Consent terminates if the parties do not enter into a contract, if the transaction fails to close, or by agreement of the parties.

Agency and employment relationships should be clearly defined and disclosed

Defining and disclosing the agency and employment relationships between the broker, the buyer, and the seller is critical to the transaction. Brokers must prevent undisclosed dual agency to avoid both civil liability and administrative sanctions. The AAR agency forms should assist brokers in establishing and disclosing these agency relationships. The Buyer-Broker Agreement should clarify the employment relationship between buyers and brokers.