New Forms Legally Bind Buyer, Broker

The California Assn. of Realtors has introduced three new forms that they said will reduce buyers’ confusion about the responsibility of realty agents during the home-buying process.

But real estate lawyers and consumer advocates cautioned buyers to think carefully before signing the forms, which create legal ties between home buyers and the realty agents they work with.

The new forms, developed by the CAR over the last five months and introduced last week, create a contractual relationship between buyers and their agents, somewhat like the legal agreement that sellers enter when listing their home with a Realtor.

June Barlow, CAR vice president and general counsel, said the forms spell out for potential buyers what real estate agents’ duties are and what buyers’ own responsibilities are during the home-buying process.

“This is a way, very early in the transaction, to set it out in black and white,” she said.

The most basic of the new forms--called the Buyer Broker Representation Agreement--describes the obligations of both broker and buyer but does not limit the buyer to working with just one agent.

The contract does not specify how the broker will be paid, and it may be terminated by either of the parties in writing at any time.

The two other forms are the Non-exclusive Authorization to Acquire Real Property and the Exclusive Authorization to Acquire Real Property.

Both include the same lists of duties as the representation agreement, but they also provide for the broker to be paid for his or her services if compensation is not forthcoming from the seller. (In most home-purchase transactions in California, home sellers are responsible for paying the commissions of both the seller’s agent and the buyer’s agent.)

Under the nonexclusive form, if the buyer finds a property and purchases it without the help of the agent, the buyer is not obligated to pay that agent.

Using the exclusive agreement, the agent gets paid according to agreed-upon terms regardless of whether he or she finds the property the buyer ultimately purchases. This form replaces an existing one known as a Buyer-Broker Agreement, but the other two are new.

Both the nonexclusive and exclusive authorization contracts are irrevocable, meaning the buyer agrees to work with the agent for a specified time period, much as a home seller agrees to list a house with an agent for a certain length of time.

Which contract a broker decides to use--if any--”will be driven by the broker’s style [and] the broker’s relationship to their clients,” Barlow said.

Before the introduction of the CAR forms, agents shouldered the task of explaining their responsibilities to the buyers themselves.

But CAR officials said their consumer surveys show that buyers’ most frequent complaints are about lack of communication on the part of the agent. And, Barlow said, some buyers are quite naive about the agent’s role.

“Maybe the buyer expects the broker to move their furniture; they don’t know where the line is,” Barlow said.

CAR believes that the forms will combat these problems while offering brokers additional protection from liability.

But some real estate brokers and attorneys say that good agents should explain their duties to buyers without asking them to sign legal contracts.

Paula Reddish Zinnemann, a Beverly Hills real estate attorney, said she would probably encourage her broker clients to use the forms and counsel her buyers not to.

She said the forms will help agents “build a little wall between themselves and any future litigation . . . [but] I don’t see anything on here that gives any advantages to a buyer.”

Reddish Zinnemann and other real estate attorneys pointed to some provisions in the forms that they said are not necessarily in buyers’ interests:

* The contracts tell buyers that “any information provided through the broker . . . has not been and will not be verified by the broker.”

Some real estate lawyers see this as a way to protect brokers if they, for example, report that a lot is a certain acreage and that claim is later found to be inaccurate. Recent court decisions have found in favor of buyers in such cases.

* A broadly written clause requires buyers to put in writing to brokers any requests for “information on, or . . . any concerns regarding, any particular area of interest or importance to the buyer.”

Attorneys called this clause vague and said buyers should be allowed to convey their interests and preferences to brokers verbally.

* One clause seeks to reduce the time period during which buyers can bring legal action against a broker. By signing, buyers acknowledge that they may not sue the broker more than two years after the expiration of the contract. This is more restrictive than some statutes of limitations, lawyers said.

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For example, the statute of limitations on fraud allows consumers to sue within three years of the discovery of the fraud.

“Their [CAR’s] forms are obviously trying to educate buyers, but also trying to shift responsibility off of the broker,” said Westside real estate lawyer Robert A. Aronson.

“These are tools for brokers to feel some comfort that buyers are working with them in good faith,” said Orange County lawyer Michael Joyce, adding that he doubts the new forms will gain widespread acceptance.

But CAR officials defended the forms as being primarily designed to inform buyers of the brokers’ duties throughout the home-buying process.

“What we think [the forms do] is educate both buyer and agent to negotiate what their expectations are upfront,” said Debra Ferrier, assistant general counsel for CAR.

The potential for reduced liability, she said, is just a welcome byproduct of better communication.

Some of the routine responsibilities described in the forms are:

* The buyer’s agent has a responsibility to visually inspect the property and disclose to the buyer anything that he or she observes about the property that might affect its value or desirability.

* The agent cannot decide what price a buyer should offer on a house, but will help the buyer negotiate a price and facilitate the escrow process.

* The agent is not responsible for inspecting for environmental or seismic hazards, nor for construction defects.

Jeff Kahn, general manager of Prudential California Realty in Northridge, said his office would probably require agents to use the new buyer-broker representation agreement.

Kahn, who was on the task force that wrote the forms, said consumers won’t be disadvantaged by signing the forms because they will have read and understood the contract before signing it.

But other real estate experts challenged that idea, noting that people frequently sign things they only partially understand.

“A lot of times a Realtor will point and say, ‘Initial here.’ A lot of people will do that,” said Robert Bruss, who writes a nationally syndicated consumer advice column. “As a buyer, I would never sign any of these forms.”

Bruss agreed with other experts, however, who said that the contracts that include compensation components can provide needed protection for agents.

Those contracts assure that agents get paid if, for example, a buyer they’ve assisted decides to have a friend or relative with a real estate license write their purchase offer to avoid paying a commission to the agent.

Under these contracts, agents will also get paid by buyers if they show them a for-sale-by-owner home.

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Although few Realtors have had a chance to read the new forms yet, some welcomed their introduction.

Carla McKendry, an agent with ReMax in Yorba Linda, said that now that information from the Multiple Listing Services is available over the Internet, brokers are becoming more like real estate counselors than purely property-finders.

And, she said, the new CAR forms may be valuable tools in the “counseling” role, as well as providing a safeguard for agents.

“I would have to say this is probably a big plus for brokers, because it would probably eliminate some liability for brokers,” McKendry said.

Barbara Shoag, an agent with Robert Weil & Associates in Long Beach, agreed with CAR officials that realty agents do not always expertly explain their roles to their clients.

But she said that, in general, she does not favor asking buyers to establish contractual relationships with her.