What does the new requirement for buyer representation agreements mean for buyers and agents?
Requirement for buyer representation agreements
One important aspect of the National Association of REALTORS® (NAR) settlement is a requirement for MLS participants (aka “agents”) working with buyers to enter into written agreements prior to touring a home. A great article by NAR’s Chief Legal Officer and Chief Member Experience Officer, Katie Johnson, provides insight into when this requirement is triggered and clarity around the definition of “working with buyers” and “touring a home.”
These changes are slated to take effect later this summer, on August 17, 2024, in accordance with the settlement that was preliminarily approved in April 2024. The settlement is, however, subject to final court approval in a hearing scheduled for November 2024.
Benefits of buyer representation agreements
A buyer representation agreement is a contract between a buyer and their real estate agent that outlines the terms of their working relationship. These agreements don’t just address an agent’s fees and how those fees will be paid, they also create transparency around the services a buyer can expect from their agent and any important limitations to those responsibilities. In this way, buyer representation agreements help to establish realistic expectations between the parties and provide important protections to an agent and their brokerage in the event of a dispute.
Case law and buyer representation agreements
The benefits noted above were recently exemplified in the Montana Supreme Court case, Jodie Young v. Era Advantage Realty, 409 Mont. 234 (2022), which underscores, in relevant part, the importance of having a buyer representation agreement in place to set clear expectations and protect both an agent and their brokerage against professional negligence claims.
The case arose when a purchaser discovered that local zoning restrictions prohibited her from making desired modifications to her newly acquired home. The purchaser informed her agent when she first began working with him of her plans to build a high fence around the yard for her service dog. Sometime after the purchase of her new home, however, she learned the property was subject to setback requirements and height restrictions that prevented her from building the fence she’d envisioned. The purchaser then filed a claim against the realty company for the negligence of its brokers in failing to disclose this information.
In Montana, a buyer’s agent has a duty to disclose all (1) material information concerning the real estate transaction (2) that the agent has knowledge of (3) which was not known or discoverable by the plaintiff (MCA Section 37-51-313(4)(a),(c)). All of these elements must exist before the duty to disclose arises, subject to exceptions not applicable in this case.
Under this standard, the court found that even assuming (1) the zoning ordinance constituted “material information” and (2) the agent had actual knowledge of the zoning ordinance, the purchaser could not establish the information was “not known or discoverable” by the purchaser because the zoning ordinances were publicly available and, therefore, clearly accessible and discoverable by the purchaser.
The court further noted that the agent had alerted the purchaser of her need to consult local building and zoning codes when he provided her with a buyer representation agreement, which she signed, and a due diligence checklist. Together, these warned the purchaser that the agent and brokerage do not and could not assure that:
- any house or building will be satisfactory to buyers in all respects;
- the property and improvements thereon that buyers are considering comply with the current building and zoning codes; and
- any intended future improvements comply with the current building and zoning codes.
Based on these facts, the court affirmed the lower court’s findings that the agent owed no duty to the purchaser to disclose the zoning restrictions at issue.
Educating your agents about buyer representation agreements
As you navigate the changing world of real estate, education and training will be essential for brokers seeking to minimize their risks. Particularly in light of the impending requirement for buyer representation agreements, brokers should consider educating and training their agents on:
- the risks involved in working with unrepresented buyers: discuss the opportunity buyer representation agreements present in crafting more realistic client expectations and the importance of the disclosures and disclaimers contained in your buyer representation agreements.
- protocols for securing signed buyer representation agreements: preparing agents to: (1) convey the value of an executed buyer representation agreement to potential clients; (2) negotiate with potential buyers who are hesitant to sign the brokerage’s buyer representation agreement without reducing the agent’s commissions and fees (e.g., limiting the scope of the agreement to the specific property being shown or modifying the expiration date of the agreement so that it aligns with the buyer’s specific touring schedule); and (3) identify the impact any modifications could have on the rights, responsibilities, and risks of the parties.
- protocols for sellers’ agents when approached by an unrepresented buyer with respect to one of their listings: review what disclosures and written acknowledgements or consents are required and by whom.
There are a number of resources available to assist in the education and training of your agents. These include publications and other materials provided by NAR, such as NAR’s guide on written buyer agreements. Trusted title companies and law firms in your area may also offer valuable insights and training materials that are beneficial for your agents and brokerage.
