When purchasing commercial real estate in California, buyers often engage the services of a licensed real estate broker or agent to help navigate the complexities of the transaction. To formalize this relationship, buyers and their agents typically enter into a Buyer Representation Agreement; a legally binding contract that defines their respective roles, obligations, and expectations.
Additionally, California law, specifically Business and Professions Code 10147.5, provides important consumer protections regarding these agreements. This article explores the purpose of Buyer Representation Agreements, their key components, and how California law regulates them to safeguard buyers’ interests.
Buyer Representation Agreement:
A Buyer Representation Agreement is a contract between a buyer and a real estate broker or agent that outlines the terms under which the agent will represent the buyer in a commercial property transaction. To ensure a buyer understands their rights, the agent’s obligations, and any potential conflicts of interest, real estate brokers and agents must provide written disclosure of their representation to the buyer before entering into a Buyer Representation Agreement.
The key elements of a Buyer Representation Agreement include:
Exclusive vs. Non-Exclusive Representation
- An exclusive agreement means the buyer commits to working only with one agent or brokerage for a specified time period.
- A non-exclusive agreement allows the buyer to work with multiple agents.
Duties and Responsibilities
- The agent agrees to assist the buyer in finding, evaluating, and negotiating commercial properties.
- The buyer agrees to communicate openly and work in good faith with the agent.
Compensation
- Specifies how the agent will be paid—either through a commission, flat fee, or other arrangements.
- In many cases, the seller pays the commission, but the agreement clarifies compensation in case the seller does not offer payment.
Term and Termination
- Defines the duration of the agreement and how it can be terminated.
- Some agreements include a protection period, ensuring the agent still receives compensation if the buyer purchases a property the agent introduced after termination.
Confidentiality and Fiduciary Duty
- The agent must act in the best interests of the buyer and maintain confidentiality about sensitive financial or strategic information.
Business and Professions Code 10147.5:
California’s Business and Professions Code 10147.5 was enacted to protect buyers from unfair or deceptive practices in real estate transactions. This law primarily addresses how real estate brokers and agents present agency relationships and written agreements to clients.
The law prohibits misrepresentation or misleading statements about an agent’s services, fees, or exclusivity requirements. Real estate brokers and agents must provide written disclosure of their representation to the buyer before entering into a Buyer Representation Agreement and act in good faith and avoid coercing buyers into unfair agreements
To protect buyers from fraudulent or unethical practices by real estate agents, Buyers must have the opportunity to review and understand the terms of the agreement before signing; including the aid of legal advice. If a Buyer Representation Agreement violates disclosure laws or is deemed unfair, it may be considered unenforceable in court.
Note:
By securing a dedicated broker, buyers gain expert guidance in navigating complex transactions, securing favorable terms, and ensuring a successful property acquisition. Whether entering an exclusive or non-exclusive agreement, understanding its terms is crucial for a smooth and efficient buying process.
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Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax, or other professional services. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.
