At this week’s Principal Broker Forum, the question arose as to which parties need to be included on a buyer representation agreement when there are multiple people involved in purchasing a property.
It helps to start by understanding what a Buyer Representation Agreement is. A Buyer Representation Agreement is a contract between an agent and the person(s) to whom they are providing buyer brokerage services, for compensation. Thus, two conditions must be met for a person to be the appropriately included on a buyer representation agreement:
- The person is receiving buyer brokerage services from the buyer broker
- The person is obligating themselves to pay the buyer broker for those services
If a person is involved in a home purchase but is not receiving brokerage services from the brokerage and is not going to be obligated to pay the broker for those services, then that person should not be on the buyer representation agreement.
There are several situations where there could be more than one person on a loan, on a deed, or even on a sale agreement when they are not on the Buyer Representation Agreement. For example:
- Child is taking the lead on a home purchase, but parents are paying for the downpayment and co-signing the loan. In this scenario, two options are viable:
- Child is the one receiving the services and is willing to be obligated to pay the buyer broker, so only child enters into the buyer representation agreement. Even though parent is making downpayment and co-signing the loan, only the child is the client of the buyer broker, and only the child is owed the services and fiduciary duties described in the buyer representation agreement.
- Child is the one primarily receiving the buyer brokerage services, but parents are paying for the buyer broker. In this case, child and parents should be on the buyer representation agreement, and buyer’s agent owes the services and fiduciary duties to both child and parent.
- Father is buying a house for a child. The child (or the child + father) will be on the deed, but the father is the one who will be entering the sale agreement and obligating themselves to pay the seller. In this scenario, two options are viable:
- Only the father wants to be committed to paying the buyer broker. Only the father enters into the buyer representation agreement, and only father is the client of the buyer broker.
- Child has agreed with father that, while father is the one paying for the house, child is willing to split the cost of the buyer brokerage services. In this case, father and child enter the buyer representation agreement and both are clients of the buyer broker.
- Two friends are buying a house together. They both will be on the sale agreement because they both will obligated to pay the seller at closing in exchange for the title to the home. However, one buyer does not want to be represented by an agent and does not want to pay an agent. The other buyer wants to be represented by an agent and is willing to pay the agent. People cannot be forced into agency relationships or into paying agents against their will. If one buyer doesn’t want to be represented, that is their choice. The agent could sign a Buyer Representation Agreement with the one buyer who wants the representation, and only provide brokerage services to that one buyer. This may not be advisable because the other buyer may try to free-ride and obtain advice from the agent, and because if the two buyers disagree it could create some awkward and uncomfortable situations, but legally speaking this would be an allowable scenario. The agent would only provide advice and services to their client, and only the client would be obligated to pay the agent. The other buyer would remain unrepresented (in this scenario, the agent should have a written agreement with the unrepresented buyer confirming that they are not that buyer’s agent).
We also received a question about how this relates to trusts. With a trust, the trustee, on behalf of the trust, is the homebuyer and the party that should enter the buyer representation agreement. If there are multiple trustees and the trust authorizes a single trustee to obligate the trust to contracts and to purchases of real property, then only one trustee needs to be on the buyer representation agreement. If the trust requires agreement among trustees to enter into contracts and to purchase real property, then all trustees required to agree should be on the buyer representation agreement, and on the sale agreement. That begs the question, if there are multiple trustees and any single trustee can obligate the trust to contracts, but multiple trustees are going to sign the sale agreement in any event, should all of those same trustees sign the buyer representation agreement? Here, it goes back to who is receiving the services. If the buyer broker is going to be interacting with and advising (in other words, providing services to) multiple trustees, then all of those trustees should be on the buyer representation agreement. If the buyer broker is working exclusively with one trustee, then that one trustee would be the one entering the buyer broker agreement. Each trustee has a fiduciary obligation to the trust and to act in accordance with the trust, so in this scenario it really shouldn’t matter whether the buyer representation agreement is with one or multiple trustees, but it’s critical to know who your client is, especially if there is a disagreement. If the client is John Doe, as Trustee for the Jane Doe Trust, then your duties and obligations are to John Doe, who in turn is obligated to the trust. If the client is John, Jim and June Doe, as Trustees for the Jane Doe Trust, then your duties and obligations are John, Jim and June, each of whom in turn is also obligated to the trust.