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Part Two(a) of Five: Buyer Broker Exclusive Employment Agreement

The National Association of REALTORS® settlement in the Sitzer-Burnett class action lawsuit includes significant practice changes that will be implemented in mid-August 2024.  To assist its members prepare for practice changes and be successful in the new environment, the Arizona REALTORS® has created and revised eighteen (18) forms.[1]  The new/revised forms, redlines, videos and articles on their use is available here.  This article and frequently asked questions (FAQs) is part two “a” (2a) of a five part series that will introduce the forms prior to their publication on August 1, 2024.

One of the most significant practice changes of the NAR settlement is the requirement that MLS participants working with buyers must enter into a written agreement with the buyer prior to touring a home.  (New MLS Policy Statement 8.13, p. 10).  Furthermore, the written agreement must include: 1) a specific and conspicuous disclosure of the amount or rate of compensation; 2) the amount of compensation must by objectively ascertainable and not open-ended; 3) a term that prohibits the MLS participant from receiving compensation that exceeds the amount in the written agreement from any source; and 4) a conspicuous statement that broker fees are not set by law and are fully negotiable.

To comply with the practice change described above, the Arizona REALTORS® significantly revised the Buyer-Broker Exclusive Employment Agreement and created two (2) new forms: Buyer-Broker Agreement to Show Property (Show Property) and Buyer/Tenant Employment Agreement Addendum (Addendum).

This article discusses the revised Buyer-Broker Exclusive Employment Agreement (BBEEA) and a redline of the changes can be found here.

Prior to Line 1, a “Notice to Buyer” sentence is included to notify buyers that all REALTORS® are required to have a signed written agreement prior to showing a home to a buyer.

Line 1 removed “Tenant” from the BBEEA.  The settlement does not require the practice change described above for brokers working with tenants.  As such, the workgroup felt the form would be clearer if it pertained solely to buyers.  A separate Tenant-Broker Exclusive Employment Agreement was drafted for brokers working with tenants and will also be available on August 1st.

Lines 2-3 identify the broker and their agent and were revised to match the Residential Listing Contract.

The Agreement paragraph was added to disclose the exclusive nature of the BBEEA and warn the buyer that signing more than one BBEEA or similar agreement could make the buyer liable to compensate multiple brokers.  The workgroup felt this language was important and thus placed it at the very beginning of the form and underlined the warning to provide emphasis.

The Term paragraph was revised to match the Residential Listing Contract by clarifying the time zone that governs the end of the term and defined it as the “Expiration Date.”

The Employment and Agency Relationship paragraphs were not revised.

The Property Viewing paragraph was slightly reworded to reference the newly defined “Broker Compensation” that appears later in the BBEEA but did not substantively revise the paragraph.

The Due Diligence paragraph was combined with other verbiage in the newly titled “Failure to Complete” subsection found later in the BBEEA.  The stigmatized property disclosure was removed because the workgroup felt it unnecessary to reiterate a disclosure that is already provided in the Real Estate Agency Disclosure and Election form, Buyer’s Advisory and the Residential Seller’s Property Disclosure Statement.

The disclosure language on lines 25-26 was previously located at the bottom of the Compensation Section of the BBEEA.  The revised language complies with the practice change to conspicuously state that broker compensation is not set by law and is fully negotiable.  The disclosure is now in bold and placed directly above the compensation sections to make it more prominent and now includes the Buyer’s initials to confirm they have read the disclosure.  Similar language will be found in the revised Residential Listing Contract, purchase contracts, and all Arizona REALTOR® forms that discuss broker compensation.

The Retainer Fee paragraph was relocated and revised.  Specifically, the new paragraph requires a click box if a retainer fee is agreed to, includes a timeframe for payment (five days is the default), and states the payment is for consultation, research and, now, “other services.”  The workgroup wanted the Retainer Fee paragraph to match the same paragraph of the Residential Listing Contract, so it combined the best parts of each.

The Broker Compensation paragraph was heavily revised.  First, it now clarifies that compensation is due if the buyer, or any entity owned or controlled by buyer, closes escrow on a transaction for the purchase, exchange, or option of a property.  Second, the rate or amount of broker compensation is chosen via a click box with the compensation filled in by the Buyer and Broker.  The form educates the Buyer and Broker that only one method of compensation is to be chosen and the actual rate or amount must be filled in.  Finally, the paragraph clarifies that compensation must be paid in U.S. currency to match the Residential Listing Contract and includes previous language that the compensation is to be paid at, and as a condition of, closing unless agreed otherwise.

The Compensation from seller or seller’s broker subparagraph discusses the possibility that the seller or seller’s broker may offer to compensate the Buyer Broker.  In such circumstances, the Buyer authorizes their Broker to accept the offer which will be credited against the “Broker Compensation” with any excess credited to the Buyer.  Pursuant to the practice changes, the Broker will not receive any amount greater than the compensation agreed upon in the written agreement from any source.  The subsection also notifies the Buyer they are ultimately responsible to pay any amounts not paid for by the seller or the seller’s broker.  If an offer of compensation is insufficient, the Buyer can request the seller to pay their Broker’s compensation but any amount unpaid shall be paid by the Buyer.  Finally, a notice box discloses that VA regulations may require VA transactions to be conditioned upon the “Broker Compensation” being paid by the seller or the seller’s broker.  Although the VA recently announced that it is lifting its ban on veteran borrowers paying for real estate representation, the change has been labeled “temporary” and it is unclear what the future holds in this regard.

The Failure to Complete subparagraph discusses the Buyer’s obligation to act in good faith to purchase the property.  This subsection combined previous sections of the BBEEA to notify the Buyer that once an acceptable property is located, the Buyer agrees to act in good faith to acquire the property and conduct any inspection/investigations they deem material or important.  The Buyer is also advised that if they prevent the transaction from closing, they will owe the “Broker Compensation.”

The Compensation After Expiration Date subparagraph includes a potential tail clause that would require the Buyer to pay the “Broker Compensation” if within a certain time period after the Expiration Date the Buyer enters into a purchase contract on a property that was shown or negotiated by the Broker.  “Broker Compensation” is also due and payable if the Buyer closes escrow on a property that was under contract or in escrow prior to the end of the term.

The Listings paragraph states that the Broker will show all property listings that fit the Buyer’s criteria regardless of any compensation that may or may not be offered by a seller or seller’s broker.  The paragraph includes that, if necessary, Buyer instructs Broker to negotiate the Broker Compensation be paid by the seller or seller’s broker and that doing so will not jeopardize the initiation, processing, or finalizing of a transaction. Finally, a Notice box informs the Buyer that if they instruct the Broker to filter or restrict property listings, they must do so in writing.

The Release of Broker paragraph advises the Buyer that the Broker is not qualified or licensed to offer financial, legal or tax advice.  Furthermore, if the Buyer requests a recommendation for these services, the Buyer is told to fully vet such professionals and choose the professional in their sole discretion.  Finally, the Buyer is asked to waive any liability of the Broker based on the Buyer’s choice of, or failure to hire, such professional.

The Alternative Dispute Resolution paragraph was revised to include an option for either the Buyer or Broker to opt out of binding arbitration following an unsuccessful mediation.  The paragraph also asks the Buyer to waive their right to be a member of a class action lawsuit.

The Entire Agreement paragraph now includes a sentence that if one or more term in the BBEEA is unenforceable, the remainder of the agreement remains valid.

Best Practices and Frequently Asked Questions for the Buyer-Broker Exclusive Employment Agreement (BBEEA) can be found here.

[1] Please note there are an additional two (2) Arizona REALTOR® forms that will also be released in August 2024, but they are not related to the NAR Settlement.