I had a question on this blog recently from someone who asked: What happens if the buyer signs a Buyer Customer Service Agreement because they don’t want to pay a commission and then the seller in a For Sale by Owner (FSBO) refuses to pay the commission – who pays the brokerage commission?
Well, first of all, I have to explain what these documents are and when they’re used.
A realtor usually gets a buyer to sign a Buyer Customer Service Agreement when the realtor is already acting for the seller, i.e. when they are double-ending a deal. The realtor must act in the seller’s best interest. Usually, the seller usually wants the highest price possible and the buyer wants to pay as little as possible. Given this inherent conflict of interest, the realtor can’t represent both parties. The terms of the Buyer Customer Service agreement make it clear that the realtor does not represent the buyer, and also that the buyer is not expected to pay the realtor any compensation. Since the realtor already has a listing agreement with the seller, who has contractually agreed to pay the listing brokerage’s commission, this makes perfect sense.
Remember, in this situation, the realtor is in what would otherwise be a conflict of interest: the Buyer Customer Service Agreement is a way of getting around that, by explicitly recognizing that the realtor’s primary duties are to the seller:
In a FSBO (For Sale by Owner) situation, however, there is no listing agent, no double-ender, and no conflict of interest. In those circumstances, the buyer who wishes to make an offer signs a Buyer’s Representation Agreement (BRA). Among other things, the BRA sets out that if the seller refuses to pay the brokerage’s commission, the buyer will pay it:
To avoid a situation where a buyer ends up on the hook for commission, before we present an offer in a FSBO situation, we ask the seller to first sign two documents that acknowledge that we are acting for the buyer, not them, and also that the seller will pay our commission. One is Form 202, specifying the amount of commission the seller will pay.
The other is a Confirmation of Co-operation and Representation that specifies that we are acting in the buyer’s interests, not the seller’s. On p. 2 , you’ll see that commission is again referred to. (I’ve completed this one to show you what it would usually look like: the amount will vary depending on what the seller agrees to pay.) This is a document, by the way, that our Board requires be submitted as part of every offer.
If the proper paperwork is prepared and signed, there shouldn’t be any issue about who is going to pay a brokerage’s commission in any given transaction.
The question, however, was what happens in the hypothetical situation where the buyer signs a Buyer Customer Service Agreement because they don’t want to pay a commission and the FSBO seller then also refuses to pay the brokerage’s commission.
I don’t agree with someone insisting on signing a Buyer Customer Service Agreement because they don’t want to pay a commission, and then wanting me to take them to see a For Sale By Owner where the seller doesn’t want to pay a commission either. It’s one thing to have a buyer want to see a property I’ve listed. But if they want me to show them a FSBO, and then put in an offer, that is more than customer service: I am definitely representing them. In that case, they need to sign a BRA. They can’t have it both ways.
But if a realtor agrees, for some strange reason, to let the buyer sign a Buyer Customer Service Agreement, instead of a BRA, and the FSBO seller won’t sign a Form 202 and/or the Confirmation of Cooperation and Representation, the realtor should not present the offer, plain and simple. Someone has to pay our commission. Realtors don’t work for free. If they do so, and this is important, they will have accepted an agency role with all its liabilities, without any payment.
Sometimes, in a sale by owner (and this happened to me once), the buyer signs a BRA, obliging them to pay the brokerage commission if the seller refuses to, and the FSBO seller accepts their offer but refuses to sign the Form 202. What happens then?
In my situation, the seller had agreed verbally and via email/text to pay an agreed upon commission, but said they wanted to go over the paperwork with their lawyer before they signed anything. Based on their assurances, I gave them the paperwork, although reluctantly, because we really should have that Form 202 signed first, precisely to avoid this kind of situation.
To my horror, they then signed and accepted the offer, thereby contractually binding my clients to the sale, but refused to sign the Form 202, and told my buyers they’d have to pay the entire commission.
That changed the overall price of the home and made it impossible for my buyers to proceed so they backed out over financing. I found them another house they love, so it all worked out in the end, but I had quite a few sleepless nights thinking about what would have happened if they hadn’t.
In that case, because of the Buyer’s Representation Agreement, my brokerage was protected. If the buyers had chosen to proceed, they would have had to pay the commission or we would have had to work something else out, or maybe sued the sellers for bad faith. But if I had relied on a Buyer’s Customer Service Agreement instead of a BRA,and if I had presented the offer to the seller without that protection and if the seller had pulled the same stunt, my brokerage would have been entitled to nothing.
So, that was a great question – I hope this helps to answer it!