Expectations Grow Greater For Broker Fee Disclosure

From the Arkansas Real Estate Commission

A case heard by the Commission on Monday, June 8, 2015, will likely increase expectations for brokers representing buyers to disclose fees the buyer’s broker will receive through seller concessions. Following the hearing, the Commissioners were concerned that their decision not to sanction the buyer’s broker may lead to the inaccurate conclusion that the Commission will render the same decision in future hearings on this issue. Each case has many variables that can impact the Commissioners' decision. 

In this case, the seller’s broker’s due diligence in detecting and disclosing the professional services fee payable to the buyer’s broker lessened the likelihood that the buyer’s broker would be sanctioned. Had the seller’s broker not detected the fee, the seller would likely have closed on the transaction without knowing that, through seller concessions, she was paying the buyer broker professional services fee on behalf of the buyer. The seller’s broker made sure his seller was aware of the fee prior to closing. The seller’s complaint was that she did not agree to pay the fee when she executed the contract. The fact that the seller knew about the fee prior to closing, and still chose to close, was a significant component in the Commissioners’ decision.

While this case will likely increase expectations for brokers representing buyers, the defending attorney made a very valid argument that brokers representing sellers have a duty to review documents on behalf of their seller clients to make the sellers aware of the fees they will be paying. Had this seller learned of the fee after closing, you can bet the buyer broker’s attorney would have laid the blame on the seller’s broker for not adequately representing his seller client.  

Here are some basic facts of the case:

The seller was a licensed real estate agent and had her property listed with her broker.

Through an Exclusive Buyer Agency Agreement, the buyer agreed to pay $499 for professional services rendered.

The Real Estate Contract (New Construction), Paragraph 5. LOAN AND CLOSING COSTS: included the statement “Seller to pay buyers closing costs, prepaids, and settlement fees not to exceed $5,750.”

The $499 fee was deducted from the seller’s proceeds as a portion of the “Seller Concessions for Closing Costs” on line 506 of the seller’s Settlement Statement (HUD-1).

The seller claimed that she did not consider the $499 fee a cost that should have been included by the verbiage in Paragraph 5 and therefore, she did not agree to pay the fee on behalf of the buyer.

Seller’s broker requested a copy of both the buyer’s and seller’s closing statement the day before closing. The seller’s broker discovered the $499 shown as a Transaction Fee payable to the buyer’s broker on line 704 of the buyer’s Settlement Statement (HUD-1).

Seller’s broker prepared a General Addendum to the contract with language regarding paragraph #5 of the Real Estate Contract, disclosing that the $499 dollar fee paid to the buyer’s broker was included in the buyer’s cost paid by seller at closing. Buyer and Seller signed the addendum.

 During the hearing, the seller’s broker indicated that his reason for preparing the General Addendum was to protect himself by making it known that he had discovered and made his seller client aware that the fee was included in her concessions to the buyer. The seller’s broker stated the purpose of the addendum was not to have his seller agree to pay the fee.

Complaints filed with the Commission on this issue will continue to be investigated. There are many variables in any transaction, any of which can affect the outcome of a hearing. Here are some to consider in this situation: 

What if the seller had not been a licensed real estate agent, but a consumer less knowledgeable of real estate transactions? 

What if instead of a fixed fee for professional services rendered, the amount collected was the difference between the sales commission the buyer’s broker received through the co-op arrangement and the percentage fee the buyer agreed to pay according to the terms of the Exclusive Buyer Agency Agreement?

What if instead of a fixed fee for professional services rendered, the amount collected was the difference between the actual amount of typical closing costs paid to third parties versus the total amount the seller had conceded to pay on behalf of the buyer?

What if the seller had not learned that the fee was part of her concessions until after the closing? 

What if there had not been a General Addendum prepared and signed by the parties with regard to the fee?

Lastly, what if this had been an in-house transaction with both parties being clients of the broker? 

This case in and of itself, is more important than the Commission’s decision. This case puts all real estate licensees on notice that the inclusion of buyer broker fees as part of the seller concessions can be confusing to consumers. Brokers representing buyers should consider language that will inform sellers that their concessions include fees payable to the buyer’s broker. It will be prudent for brokers representing sellers to inquire as to whether the costs their sellers are conceding to pay on behalf of the buyers include any fees payable to the buyer’s broker.

In a court of law, this case may be considered a precedent upon which future decisions will be based. Commission hearings can be different. The more aware brokers are that an issue is confusing to the parties to a transaction; the greater the expectation is that the brokers address the situation in a manner that lessens that confusion.

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