Legal Loyalty: Brokerages and Buyer Commission Agreements

ORLANDO, Fla. – When working with a buyer, what are your options to document the relationship?

One option, of course, is to skip this step. It’s certainly possible to provide excellent service without having a document in place, and companies that go this route often find things work out okay if they find a transaction that includes an offer of compensation in the multiple listing service, or when they can negotiate a commission after finding a property that doesn’t include an offer of compensation (FSBO, for example).

For those who prefer to document the relationship, however, here are some options.

Exclusive Buyer Broker Agreement (EBBA)

This form obligates a buyer to use a specific real estate company for a set time. It has quite a few things in common with exclusive right of sale listing agreements, including the following terms, which, although not identical, are very similar in each agreement:

• It creates an exclusive relationship.
• It has a beginning and end date.
• It obligates the buyer to pay commission.
• It generally describes the type of property the buyer is looking for.
• It provides a specific list of ways the buyer must cooperate with the brokerage firm.
• There is a protection period if either type of agreement is terminated before the original expiration date.

There are also a few differences:

• If the brokerage firm collects commission from another source, such as an offer of compensation, it will be credited towards the amount the buyer otherwise owes. For example, if the offer of compensation the brokerage firm collects is identical to the amount in the EBBA, the buyer wouldn’t owe any commission.
• There’s an option for the buyer to pay a retainer up front.
• Unlike the listing agreement that requires the broker’s permission to terminate the agreement, the EBBA has a method for the buyer to terminate regardless of whether the broker agrees to the termination or not.

Showing Agreement (SA)

This one-page agreement (there is a second page, but it only contains signature lines) is also between a buyer and brokerage firm. However, this form is less burdensome on a buyer than the EBBA and only ties them to the brokerage firm for specifically listed properties the firm has shown them.

The key terms are a list of properties the broker shows to a buyer, the commission amount, and a deadline for the buyer to use the brokerage firm’s services to negotiate for any of the listed properties.

While the EBBA is similar to the listing agreement, this showing agreement is similar to the commission agreement but written from a buyer’s perspective instead of a seller’s perspective. Although we’re focusing on buyer agreements, here’s a refresher on how the commission agreement works, so you can compare it to the showing agreement.

Commission Agreement (CA)

This form is between a brokerage firm and either a seller or landlord (owner). The key terms are the name of a prospect, a commission amount, and a deadline for the owner and prospect sign a contract or lease (180 days if left blank).

There are a few additional details, but this short one-page commission agreement is straightforward. It can be used for both residential and commercial sales and leases any time an owner agrees to compensate a brokerage company for procuring a prospect.

Other

Why an “other” category? Because sometimes you’ll encounter buyers who don’t want to sign a formal legal document but are okay with the idea of compensating you for your services. In those situations, it’s worth remembering that an email agreement – or even a verbal agreement if that’s all you can get – are still contracts that can be enforced in a court of law. They may be missing several little details the lawyers who drafted the agreements we just reviewed added to protect the brokerage firm. That said, these informal agreements can still be contracts.

And, of course, if your company has specific needs or desires, it can be a great idea to have a lawyer create a form tailored to your business. They can also modify the Florida Realtors forms to address specific concerns, if the broker deems it appropriate.

Joel Maxson is Associate General Counsel for Florida Realtors
Note: Information deemed accurate on date of publication

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