Buyer broker agreements

Hiring a buyer's broker

A California buyer-broker representation agreement is a written contract authorizing the buyer's agent to perform licensed real estate services for the buyer. It hires the broker; it is not the buyer's offer to purchase a seller's property. A salesperson works under the responsible broker, and owes the buyer the duty that broker owes.

Content and sequence

Under Civil Code section 1670.50, the agreement must include terms related to broker compensation, services to be rendered, when compensation is due, and contract termination. Distinguish the amount or method of compensation from the event that makes it payable. Read the actual termination terms rather than assuming that ending representation erases an earned payment obligation.

California requires execution as soon as practicable, but no later than execution of the buyer's offer to purchase real property. Before the representation agreement is executed, the buyer's agent must provide the agency relationship disclosure form. The disclosure explains agency duties; the representation agreement establishes the contractual engagement. Agency confirmation identifies the actual relationship in the transaction and is an additional requirement.

Duration and renewal

California limits the agreement to three months from the date it was made. That limit does not apply to an agreement between a broker and a corporation, limited liability company, or partnership. Agreements may not renew automatically. A renewal must be written, dated, and signed by all parties. Where the three-month limitation applies, a renewal also may not last longer than three months from the date the renewal was made. An agreement made in violation of these duration and renewal provisions is void and unenforceable. A licensee's violation of section 1670.50 also violates the licensing law.

Representation and compensation

A buyer's agent owes the buyer fiduciary duties of utmost care, integrity, honesty, and loyalty. Payment by the seller does not by itself turn the buyer's agent into the seller's agent. Dual agency requires both parties' knowledge and consent, and a dual agent may not disclose a buyer's confidential willingness to pay more without the buyer's express permission. A seller's agent showing a property solely for the seller is not thereby acting as a buyer's agent.

For example, a buyer signs an agreement stating the services, compensation, payment trigger, and termination provisions. The seller later agrees to fund the broker's compensation. The funding does not change whom the broker represents. Check the agency confirmation separately. Buyers still must exercise reasonable care to protect their own interests.