BARRISTER'S BRIEFING: Getting Paid, Maybe Not: Understanding Broker and Buyer Agency

Currently, we are seeing an uptick in the use of “broker agency” in our MLS, and there is much confusion in its use and how it applies, so I’m going to breakdown the difference between it and “buyer agency” and the pitfalls that can occur; specifically, not getting paid cooperating compensation (Note: I will not delve in the issues of vicarious liability as it relates to representation in this article.)

Buyer’s Agency

We are all pretty familiar with buyer’s agency, so this will be brief. In buyer’s agency, you represent the buyer. Upon first substantive contact you must fill out an Agency Disclosure form indicating that you are acting in the buyer’s best interests. Cooperating compensation is paid through the MLS to all buyer agents and the offered compensation is placed under the prefix “BA.” It is important to note that you cannot change agency unless, after full discussion and disclosure of its impact, you inform your client of the proposed change and obtain their consent to change agency (i.e., buyer agency to dual agency, etc.).

Broker Agency

Broker agency was around before there was buyer agency and it is currently coming back in vogue. It is most often established by a listing agent (Note: there is buyer broker agency as well, but it is rare.) when they list a property and place it on the MLS, offering broker agency cooperating compensation under the prefix “BRA.” In this relationship, the cooperating broker who brings a buyer does not have a direct relationship with the seller, who is the listing broker’s exclusive client, but they take their instructions from and communicate with the listing broker. The offer of broker agency compensation on the MLS creates the broker agency relationship with all participating members. In effect, the listing agent is saying, “Hey, brokers, work with me and my client to find a buyer.” If a cooperating agent has a potential buyer, then they can present the buyer and receive cooperating compensation as a broker’s agent…but there is a catch.

If there is a pre-existing relationship between the cooperating agent and the buyer (buyer agency), because the cooperating agent is now trying to act as a broker’s agent, their fiduciary duty is shifting and they are now trying to represent the interests of the seller/listing agent’s client, not the buyer. This creates a problem. In this situation, if the buyer agent wishes to switch to a broker’s agent, the cooperating agent would be required to explain the impact of this change, how the buyer is giving up his representation, and then obtain the consent of their client to change representation from buyer agent to seller agent. If authorized by their client, they would also be required to provide a new Agency Disclosure Form to the buyer indicating that they are representing the interests of the seller in this transaction and the buyer is being treated as a customer. Further conflicts may arise in that the agent may already have confidential information about the buyer, so how can that agent effectively change relationships without jeopardizing those confidences?

If there was no pre-existing relationship with the prospective buyer and the cooperating agent (the buyer is a customer), then the cooperating agent simply needs to provide the Agency Disclosure that they are representing the seller at first substantive contact. From there, the broker agent can introduce the buyer to the property and if a transaction is completed, they will receive broker agency compensation. It is important to note that if the cooperating agent successfully engages as a broker agent, the buyer may still engage the services of another agent to represent their interests (a buyer’s agent). However, that buyer’s agent would not receive any compensation under the MLS, as the cooperating compensation is only to broker agents not buyer agents, and the buyer’s agent would have to arrange their own compensation.

Troubleshooting

All agents should religiously check the compensation being offered on the MLS. Do not confuse BA compensation with BRA compensation. If you are working with a buyer as a client and a cooperating broker is offering BRA compensation on the MLS, you must make certain that if you try to switch relationships it is done before an offer is made, after full disclosure is made with the client, and they have consented, preferably in writing, to the switch. Remember: an agent may not place their interest in compensation above the interests of the client.

Unfortunately, if an agent makes an offer on behalf of his buyer client and cooperating compensation is only being offered to broker’s agents, that agent is simply out of luck, unless they can negotiate compensation from the buyer client.

Another practice that helps protect the compensation of the cooperating agent is the execution of the Exclusive Right to Represent Agreement (also known as a Buyer Agency Agreement). With this agreement, the buyer agent is ensuring that they will be compensated, as these standard agreements indicate that the buyer client will compensate the agent for their work and, in turn, if there is other compensation available, the agent will offset that compensation against the amounts owed by the client, with the client consenting to dual compensation. In this fashion, the buyer’s agent can continue to represent the interests of the buyer if the compensation being offered is only broker agency compensation, there is no switching of fiduciary duties and even if the agent did overlook BRA for BA, they will still get paid.

Conclusion

A Realtor’s duty of reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account are the most important aspects of being a real estate agent. Consumers rely on Realtors for guidance and truth. This means that an agent’s compensation is an afterthought for those that are engaged in protecting the rights of consumers. To flip-flop on representation in an effort to make money will not play well with the Department of State or a Professional Standards panel. Realtors must take affirmative steps to ensure that they get fairly compensated for the work they perform and this means making sure what type of compensation is being offered, who they are representing, and what precautions have they taken to guarantee they will be paid.