Buyer Agency

Buyer agency has been with us for many years now. While the act of representing buyers is very prevalent (most agents now agree to serve as agents for buyers), there remains a substantial resistance -- among both the general public and brokers and agents -- to properly documenting the buyer agency relationship.

Many agents continue to serve as buyer agents without a written agreement which can create substantial problems for a broker. Perhaps the most important consideration is the inability to sell in-house listings without conflicting fiduciary duties.

When a property is listed for sale, the broker has substantial fiduciary duties to the seller of the property. When a broker allows an agent to accept the responsibility of serving as agent for a buyer, the agent and the broker assume substantial fiduciary duties to the buyer. Inevitably, these co-existing duties to both parties conflict and the broker and agent are in an untenable position with conflicting duties to both buyer and seller.

The licensing act offers a solution: the broker can serve as an intermediary. When a broker serves as an intermediary, the law modifies the conflicting duties by providing that an intermediary (1) may not disclose to either party that the other party will offer or accept a greater or lesser price than the one on the table; (2) will not disclose confidential information received from a party other than certain disclosures required by law; (3) shall treat all parties honestly; and (4) will comply with the licensing act.

However, in order to obtain the protection of serving as an intermediary, both buyer and seller must give their written consent for the broker to serve as an intermediary. The ABOR listing agreement allows the seller to give consent for the broker to serve as an intermediary. Both the ABOR and the TAR buyer agency agreements allow the buyer to agree to an intermediary relationship.

When no written buyer agency agreement is signed, unless another agreement is signed by the buyer permitting the broker to serve as an intermediary, a broker cannot legally serve as an intermediary. This means that a broker cannot allow an agent serving as a buyer agent to sell in-house listings without violating fiduciary duties to one or both parties because the broker is outside the protections afforded by the licensing act for properly appointed intermediaries. A broker who is acting outside the Act does not have the statutory protection of serving as an intermediary. That makes the broker a sitting duck when sued for breach of fiduciary duty.

My experience is that most brokers are not insisting that agents obtain a signed buyer agency agreement prior to accepting the responsibility of serving as a buyer agent. If you permit agents to serve as buyer agents without an agreement, you should be aware of the risks you are accepting.

Most of the complaints I hear about the ABOR and TAR buyer agency agreements are that they are too long and complicated. I receive a proposed buyer agency agreement every few weeks to review for a brokerage company. These agreements are usually very short -- less than a page.

The difficulty in drafting a short agreement is that there are certain issues which have to be addressed in any effective agreement. The complexity of the required issues makes it very difficult to draft an agreement of less than one page. Before using an agreement that is less than two pages in length, I suggest that you have your legal counsel review and approve it before using it. Chances are good that some of the statutory requirements have not been included.

For instance, the licensing act requires that the consent to serve as intermediary must list the responsibilities of an intermediary as specified in the statute. The agreement must also contain the right to appoint an agent to “communicate with and give advice to...” a party if the broker intends to allow an agent within the office to consult with and give advice to the buyer and another agent to provide the same service to the seller. At a minimum, the agreement should also have a beginning and ending for the period of representation, deal with compensation issues, and provide for remedies in the event of default. Addressing these issues alone will make the agreement more than a page in length if the type is large enough to read.

I realize that the market has not matured to the point where buyers will readily accept and sign buyer agency agreements. The broker’s dilemma remains whether to accept the risks to representation without an agreement, or to insist upon an agreement.