Q1. Does a Listing Broker need to sign a new ER-Residential Listing Contract with a seller once the new practice changes take effect?

A1. No.  However, best practice would be for the listing broker to discuss the practice changes with the seller, the removal of cooperative compensation from the MLS, confirm their consent to offer compensation to a potential buyer broker, and consider how to address the possibility of an unrepresented buyer.  If the listing broker and seller mutually agree to alter the terms of their existing ER, they can either sign an addendum to the ER on the Listing Contract Addendum or sign a new ER using the August 2024 edition of the form.

Q2. Does a Buyer Broker with an existing Buyer Broker Exclusive Employment Agreement (BBEEA) need to enter into a new BBEEA?

A2. Yes.  The practice changes require an “ascertainable” rate or amount of compensation to be paid to the buyer broker.  The previous BBEEA does not include required language and does not include an “ascertainable” rate or amount of compensation.  Therefore, best practice is for the buyer broker and buyer to cancel their existing agreement and sign a new BBEEA no later than August 17. 2024.

Q3. A Buyer Broker is concerned that the buyer is unsophisticated and may not understand the legal ramifications of agreeing to exclusive representation.  What is best practice in this circumstance?

A3. A buyer broker soliciting a buyer to enter into a buyer broker agreement should first ask the buyer if they have already signed any other buyer broker agreements.  Lines 7-8 of the Buyer Broker Exclusive Employment Agreement (BBEEA) provide an opportunity, and plain language, to facilitate a discussion about the consequences to the buyer should they breach an exclusive agreement.  Best practice is also for the buyer broker to send a blank buyer broker agreement prior to discussing the terms and prior to sending the completed agreement for signatures to ensure that the buyer has the necessary time to review the form without feeling pressured to sign. If they do have questions, encourage the buyer to ask you or discuss with independent legal counsel.  Finally, should the parties agree to Compensation After Expiration Date on line 54 of the BBEEA, best practice would be for the buyer broker to explain the term and remind the buyer of this obligation on the date the term of the agreement ends so that it is fresh in their minds.

Q4. A buyer enters into a Buyer Broker Exclusive Employment Agreement (BBEEA) with agent A.  Agent A is on vacation but arranges for another agent of the Broker to show the buyer properties while agent A is unavailable.  Does the other agent need the buyer to sign another written agreement prior to touring a home?

A4. No.  All buyer broker agreements are between the buyer and the Broker.  All agents of the Broker are therefore working for the buyer under the Broker’s BBEEA.  It would be confusing and potentially problematic for an agent to enter into another agreement with an agent within that same brokerage that may contradict or nullify the existing BBEEA.

Q5. A builder is offering a bonus to a buyer broker in excess of the compensation amount agreed to by the buyer.  Can the buyer and their broker use the Buyer/Tenant Employment Agreement Addendum to increase the compensation amount?

A5. First and foremost, the buyer broker is prohibited from receiving compensation from any source in excess of the amount set forth in the buyer representation agreement. As for this specific scenario, the NAR settlement agreement does not expressly prohibit increased compensation with the buyer’s express permission via a signed addendum to the buyer representation agreement, but there are concerns associated with increasing compensation to the buyer broker.  The primary reason being that the broker owes a fiduciary duty to the buyer to act in the buyer’s best interest. Increasing the buyer broker’s compensation may not be in the buyer’s best interest. In the event that the buyer proposes and insists that their broker keep the “bonus” offered by the builder, it should be documented to show the buyer had full knowledge, understanding, and willingness to pay their broker more money than was owed.

Q6. A buyer requests a broker assist them in the purchase of either an existing home or a vacant lot.  The parties agree that the broker will earn a higher percentage of the full purchase price as compensation if a vacant lot is purchased.  Can the buyer and broker agree to variable compensation?

A6. Yes.  The parties can agree to different compensation amounts for different services rendered.  Best practice would be for the buyer and the broker to enter into two (2) buyer broker agreements.  One buyer broker agreement for Residential and a separate one for Land.  Each buyer broker agreement would include the amount of compensation agreed to by the buyer and the broker for the services provided in that agreement. Remember that the compensation set forth in the buyer broker agreement for the residential property must be an identifiable sum certain, not open-ended.

Q7. If an MLS Participant hosts an open house or provides access to a property on behalf of the seller only, will they be required to enter into a written agreement with unrepresented buyers touring the home?

A7. No. In this case, since the MLS Participant is only working for the seller, and not the buyer, the MLS Participant does not need to enter into a written agreement with the buyer.

Q8. A seller and a Listing Broker are discussing strategy when signing the new ER-Residential Listing Contract.  The seller is willing to authorize the Listing Broker to offer compensation to a prospective buyer broker but wants to start with a small amount.  How should the seller and Listing Broker fill out lines 50-51?

A8. A seller should only authorize an offer of compensation in an amount they are willing to pay.  If the seller wants to start initial advertisements at a lower compensation amount than listed on line 51, this should be noted in the Additional Terms and Conditions section.  Alternatively, the seller can choose to offer a lower amount of compensation, or no offer of compensation, on lines 50-51, but authorize the Listing Broker to advertise that the seller is open to potentially compensating a buyer broker (or additional compensation) in a purchase contract offer.  Again, this strategy should be noted in the Additional Terms and Conditions section. Keep in mind that it must be the seller’s decision whether to offer cooperative compensation and, if so, how much.

Q9. Why does line 20 of the Seller Compensation Addendum (SCA) reference “either Section 8f or Section 9g of the Contract” when there is no Section 9g of the Residential Purchase Contract?

A9. The SCA was designed to be an addendum available for use with multiple Arizona REALTORS® purchase contracts.  Section 8f governs compensation in the Residential Resale Real Estate Purchase Contract and Vacant Land/Lot Purchase Contract.  Section 9g governs compensation in the Commercial Real Estate Purchase Contract.

Q10. Why are lines 14-16 of the Seller Compensation Addendum necessary?  If the brokers’ agreement is separate and independent, why is there a need to reference it?

A10. Disclosing the existence of a broker-to-broker agreement (Compensation Agreement Between Brokers) provides transparency and reminds the seller and seller’s broker that compensation is already owed to the buyer broker via a separate agreement.