There are lots of misconceptions out there about the new buyer representation forms and especially a new provision that was added to the RPA in December 2022. This article attempts to correct some of those common misconceptions.
Misconception # 1. Buyer representation agreements are required by law starting with the December 2022 release of new C.A.R. forms.
FALSE. Buyer representation agreements are good risk management but are not legally required.
Misconception # 2. New paragraph 3G(3) in the December 2022 RPA which asks the seller to pay a commission to the buyer’s broker is mandatory.
FALSE. Paragraph 3G(3) is optional. If the box is not checked, it will not be part of the agreement. Furthermore, it is important to understand that the buyer can make this request only if two conditions are met:
- First, the buyer must have already entered into a written agreement to pay their own broker (Form BRBC, Broker Representation, and Broker Compensation Agreement) and
- Second, the buyer commission obligation exceeds the amount that is offered in the MLS.
Even if the above two conditions are met, a buyer’s request that the seller pay his own agent’s commission would still be optional.
Misconception # 3. If paragraph 3G(3) is checked, the seller must pay the buyer’s broker.
FALSE. The seller can counter out that term, just like a seller can counter out any other term in a buyer’s offer.
Misconception # 4. If the seller agrees to paragraph 3G(3), the seller must pay the entire buyer’s broker’s commission.
FALSE. The seller is only agreeing to pay the difference between what the buyer’s commission obligation and what the listing broker has agreed to pay the buyer’s broker through the MLS, or otherwise. For example, if we assume that the buyer has agreed to compensate their own agent 3%, but the MLS offer of compensation is only 2%, then the buyer may use 3G(3) to request the additional 1% from the seller.
Misconception # 5. If the seller agrees to paragraph 3G(3), the seller no longer has to pay their own listing broker.
FALSE. The seller’s obligation to pay their own broker pursuant to a listing agreement is unaffected by 3G(3).
Misconception # 6. If the seller agrees to paragraph 3G(3), the listing broker has no obligation to pay the buyer’s broker.
FALSE. The listing broker’s obligation to pay a cooperating broker pursuant to the MLS is unaffected by 3G(3).
Misconception # 7. Paragraph 3G(3) violates the NAR Code of Ethics and MLS Rules which prohibit an agent from using the terms of an offer to try to modify the MLS offer of compensation. It is also an interference with exclusive agency relationships.
FALSE. Standard of Practice 16-16 of the NAR Code of Ethics only prohibits a buyer’s broker from using the offer to modify the listing broker’s offer of compensation through the MLS. It does not prevent the buyer from making a request under 3G(3). In fact, there is an NRA-published case interpretation that addresses this scenario (See NAR Case Interpretation #16-17).
Misconception # 8. Listing brokers no longer have an obligation to offer compensation to buyer’s brokers through the MLS.
FALSE. Model MLS Rule 7.12 requires a listing broker to make a unilateral offer of compensation to other MLS Broker Participants. However, there is no minimum amount or percentage that is required. That rule has not changed.
Misconception # 9. This is a new and dramatic change to how commissions work in the real estate industry.
FALSE. Buyer’s agents have always been able to enter into buyer representation agreements with buyers; many already do. Some agents have already incorporated this buyer commission cost into the agreement already in the form of seller credits. 3G(3) provides more transparency and a straightforward spot in the agreement to ask for that expense to be paid, similar to other costs in the transaction.
This article was adapted from C.A.R.’s Quick Guide “Buyer Representation — Misconception Corrections.”