Chrisny, Home Seller in New York, NY

LEGAL QUESTION: Does our contractual obligation to our agent prevent a FSBO purchase?

Asked by Chrisny, New York, NY Mon Jul 7, 2008

Hi everyone. We have been using an agent to search for our perfect home. Turns out he's less than good at his job. We recently had a contract out, at which time we signed a business relationship agreemnt between broker and buyer, which ends July 20. We've been released from our sales contract (the house insepction turned up several terrible issues wih the house), but would not like to continue to use the services of our current agent.
More to the point, we've found a house online that we previously looked at with said agent; the house is now FSBO, and $20k less than before. The price is right for us. Questions: if we attempt to purchase this house FSBO, are we liable to our agent (will we owe him commission)? Does our agent have any claim to any house we look at or purchase now that we have been released from our sales agreement? Do we also nee to be released from our business relationship?

Any help will certainly be appreciated. Thanks in advance....

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12
Deborah Madey, Agent, Brick, NJ
Tue Jul 8, 2008
Jared,,

Absolutely correct on the statment that any financial obligation that a buyer has to an agent should be fully discused.

Perhaps it was, but the agent quidkly rushed through it ....or it's also possible the buyer rushed through it. We can't know from this post.

I am not sure what you meant about the agent had the oppty to walk away.

And, if Christy does have a buyer agency agreement that includes compensaiton, the rights to collect that compensation are tied to the agent fulfillment of his duties. Brokers have the right to override the agreement, cancel or modify it if they see it as the appropriate action. So, Christy also has the option of discussing the situation w/ the broker, since she is expressing a lack of confidence in her agent.

Deborah
2 votes
Deborah Madey, Agent, Brick, NJ
Tue Jul 8, 2008
Jared,

The good thing that has happened in real estate during the last few years is that a number of alternative business models with a variety of different fee structures for sellers who wish to sell or list their properties has emerged. Change in that regard has a domino impact how buyer agents are paid and what type of arrangements buyer agents have with buyers.

Roll the clock back a few years, and buyer agents were generally offered a cooperative compensation agreement by the listing broker and the details of such were included in the agent’s copy of the MLS sheets. The amount paid to the buyer agent was often similar or the same from one listing to another, and buyer agents had no need to establish any type of compensation agreement directly with the buyer. It was already handled.

Today, there is a wide variation in the amount of buyer agent cooperative compensation offerings in the MLS. Because the compensation offering can range from $1 (rare…but, yes) to thousands, the buyer agent is now faced with the need to discuss and arrange compensation agreements directly with the buyer. At this time, a majority of the listings included in the MLS offer a compensation to buyer agents that buyer agents find acceptable and therefore, many do not yet find need to negotiate a minimum fee with a buyer. Other buyer agents may find the need to do so, but remain too uncomfortable doing so, since buyers have long been accustomed to having this handled on the seller side.

I am a strong advocate of consumer choice, and welcome the diverse offerings. Buyer agents have a fiduciary to their clients, and that includes showing them all properties that fit their criteria, or advising them of the properties that are being excluded. (Agents can exclude, but must inform the buyer client. Agents cannot let a buyer client think they are being shown everything, when they are not.) How does a buyer agent work for free for the buyer, when the MLS cooperative compensation is $1, and still uphold their fiduciary duty? Does a buyer agent proceed without a buyer agency compensation agreement with the buyer, and hope the buyer doesn’t like the house that pays $1?

Although early stage, there is a growth in buyer agency agreements that outline the minimum compensation for which a buyer agent will work. Each buyer agent negotiates that individually, within the guidelines of their employing broker.

Typically, an agreement will read that the buyer will compensate the buyer agent “X” and that any cooperative payment received, “Y” from the seller/seller’s agent will apply to that amount due first. When the cooperative compensation is equal to or greater than the agreement, the buyer has no out of pocket expense.

Buyer agents also frequently help buyers with FSBO’s and the same agreement would apply. If the FSBO seller pays a commission or fee to the buyer agent equal to or greater than the buyer agency agreement, the buyer has no out of pocket expense.

Many buyer agents have not yet begun using buyer agency agreements. The tag line, “Our buyer services are free.” was very applicable in prior days. Today, some buyer agents still use this tag line, but some are shying away from it, given the changes.

Bottom line…..any fees due depend upon the agreement between the buyer and the buyer agent.

Deborah
2 votes
Mim Heisey, , Shippensburg, PA
Tue Jul 8, 2008
As always, Deborah gives a thorough, well thought out answer.

Thanks Deborah. You always state the issue so well, and fill in the blanks of mis-understanding
Mim
1 vote
Maggie Flart…, Agent, Blakeslee, PA
Tue Jul 8, 2008
Chrissy - If I understand what you are stating, while you were working with an company and signed a Buyer Agreement, the agent showed you a home that you are now interested in purchasing? The agent did show you this home and the agent may claim they were the procuring cause in finding you the home, and therefore due a commission. The agreement of sale release does not release you from a Buyer Agreement, these are two seperate contracts.

A buyer agreement is a contract with a buyer and the company, not the agent. If you are unhappy with the agent, I would suggest you contact the Broker of the company to discuss the issues and attempt to come to a mutual resolution of the problem.
1 vote
Lisa Sanders…, Agent, Stroudsburg, PA
Mon Jul 7, 2008
If you are 'trulia' looking for legal advice, you should contact an attorney. I am sure the answer will be 'It Depends,' as these situations are rarely black & white. And eventhough I am not an attorney, nor do I play one on tv, I am going to answer the question based solely on my experience as an agent but please note that this is not to be considered legal advice.

The Business Relationship Agreement is a binding contract separate from the Agreement of Sale, and cancelling an AOS does not release you from your obligation. If you signed the standard PAR Business Relationship Agreement with this agent, you are obligated to him or her for the term of the contract & subject to any limiting factors that may have been put in to the contract. Some agents specify a minimum fee on the form. If this is the case, your obligation to that agent is equal to that amount. Also, some agents limit the Agreement based on geographic or other limitations, or specify a different structure if the seller is not represented by an agent, so the situation could be different. These are just some examples of what you should be looking for. Usually, the agreement covers any purchase you make while the contract is in force...ie before the expiration date. You should read the Agreement carefully in order to fully understand what your obligations are.

If you need attorney references, I would be happy to provide some local names.
1 vote
Jared, Home Buyer,
Tue Jul 8, 2008
I meant IS NOT int he first line of the last post.
Trulia needs an edit for that.
0 votes
Jared, Home Buyer,
Tue Jul 8, 2008
By option to walk away I was just simply stating that the agent is bound to work for free. They could ask for compensation or simply walk away without finishing the sale. I know there are ways for the listing agent to go after the seller within a certain timeframe, and then the buyers agent would get paid, but if not, and no contract for payment otherwise was struck, the agent could just walk away and Chrisny could hire a new one and negotiate a contract then.
0 votes
Jared, Home Buyer,
Tue Jul 8, 2008
Just to clarify, any financial obligation Chrisny has to the buyers agent should have been disclosed Prior to now, right? I was under the impression that the agent just had the oportunity to walk away if it wasn't in the contract prior to when Chrisny saw the house.
0 votes
Jared, Home Buyer,
Tue Jul 8, 2008
I'd like to add a question to this discussion.

Even if Chrisny's agent is entitled to help her sell the house, Isn't that service free? I would read your agreement carefully.
0 votes
Michael Ford, Agent,
Mon Jul 7, 2008
you are likely liable for a commission. more so since the home is one that you were introduced to by the agent...who will claim procuring cause status. your statement that he or she was that, in tandem with an employment contract, makes it an easier case for them to make.

the seller will also have possible ramifications here but less clear ones.
0 votes
Mim Heisey, , Shippensburg, PA
Mon Jul 7, 2008
Chrisney,
Legal questions need legal answers-- from a qualified attorney.
This forum can give you individual OPINIONS and general guidelines of how things work in the real estate world, and need to be looked at as such.
My advice to you is to go back and read your CONTRACT. In general , if you signed a business relationship agreement with an agent, you entered into a CONTRACT that is a legal, binding document, with specific terms and dates attached. What does that document say? Did you agree to see that the agent is paid a commission if you buy a property within a given time period? Are there any additional 'protection periods' specified in your contract? A written release would be needed to cancel that obligation.
Just a thought; Persons of integrity honor a contract that they made, because it is the right thing to do. An added bonus is that the 'right thing to do' is also the best for them in the long run.
I'm sure that you will make a wise decision when you consider all the options.
Hope that helps
0 votes
Jesus (jesse)…, , Nashville, TN
Mon Jul 7, 2008
You truly need to read your agreement that you signed with him. If you have an Exclusive Right to Buy Agreement then most likely you will find a clause or line that reads something to the effect...

"if the sale is not through the Multiple Listing Service and the seller does not agree to
pay a buyer’s agent commission, Buyer will pay the Real Estate Company _________% of the sales price at the time of closing."

In the example above, if you have something similar, then most likely yes, you are liable however, MANY DIFFERENT TYPES OF AGREEMENTS EXIST SO BE SURE TO READ YOURS THOROUGHLY!
0 votes
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