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So your buyer wants to see a FSBO

House For Sale By Owner Home Real Estate Sign

By Peg Ritenour, Ohio REALTORS Vice President of Legal Services/Administration

Recently the Ohio REALTORS Legal Hotline has received inquiries from brokers about representing buyers who want to look at For Sale By Owners. Of course, the issue of compensation in this situation is important, but also of concern should be agency disclosure.

Both Real Estate License Law and NAR Standard of Practice 16-11 provides that a buyer’s agent must disclose to a FSBO that he represents the buyer and make any request for compensation from the seller at first contact. Thus, if your intent is to have the seller pay your fee, you need to disclose this intent and explain that you are acting as the buyer’s agent in your first conversation with the seller and document this disclosure in your file.

If the seller agrees to pay your fee, it is important that you reduce that agreement to writing to protect your right to a commission. To do this, many agents will have the seller sign what they refer to as a “one party” listing, modifying the exclusive right to sell agreement of their brokerage or local Board of REALTORS to only require the seller to pay a commission if that particular buyer purchases the property.

While this practice can be followed, the buyer’s agent must consider the agency implications of using a listing agreement to secure payment of their fee by the seller.  By using an exclusive right to sell agreement, the buyer’s agent is creating an agency relationship with the seller. This may or may not be the intent of the agent, or more importantly, the intent of the buyers who asked the agent to show them the property.  Assuming the agent already has an established agency relationship with the buyer, by signing an exclusive right to sell agreement with the seller, the salesperson has created a dual agency relationship. Of course, dual agency is perfectly legal in Ohio if it is disclosed and the parties agree, but again, that may not have been the intent of the buyer.

If the buyer wants their agent to represent only their interests, but still wants the seller to pay the commission, a compensation agreement other than a listing contract should be used. Under such a compensation agreement, the seller agrees to pay the buyer brokerage fee, and acknowledges that the agent and brokerage represent only the buyer and not the seller. Although not technically required, it is recommended that such a fee agreement include an expiration date and the fair housing language and logo. Ideally, this agreement should be presented to the seller prior to showing the property.

Instead of using such an agreement, many REALTORS commonly include language in the purchase contract requiring the seller to pay the buyer brokerage fee. While this can be done, it is not the best practice for a few reasons. First, if this provision regarding compensation is the first time this is being discussed, the REALTOR may have violated his license law and ethical duty to disclose this intent at first contact.  Second, if the seller refuses to pay the compensation and the REALTOR has no written agreement with the buyer obligating the buyer to pay his fee, the REALTOR has placed himself in a situation where neither party is contractually obligated to pay for the services he provided.

Again, to avoid such a situation, it is recommended that if your expectation is for the seller to pay your fee, get it in writing upfront.

 

Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Tags: legal