The GAR Purchase and Sale Agreement (PSA) does not provide a space for the broker to fill in the amount of the commission or the split of the commission with any cooperating broker. Instead, the amount of commission and any offer to split a commission is handled through the Buyer Brokerage Agreement (BBA) and the Seller Engagement Agreement (Listing Agreement). Listings in the FMLS or MLS in Georgia also provide the commission to be paid to cooperating brokers.
Commission Protection Distinction Between Exclusive and Non-Exclusive BBAs
The Exclusive and Non-Exclusive BBAs are very similar. The buyer’s broker in both agrees to look to the seller or seller’s broker for commission. However, there is a critical difference between the two agreements. With the GAR Non-Exclusive Buyer Brokerage Engagement Agreement, the broker can only recover a commission from the buyer if the buyer purchases property identified to the buyer by the broker during the term of the agreement—in other words, if the broker was the procuring cause. This is in contrast to the GAR Exclusive Buyer Brokerage Engagement Agreement, under which the buyer’s broker can claim a commission for sales made during the term of the agreement whether or not the property was identified to the buyer by the buyer’s broker.
The Buyer’s Commission Obligation in Purchasing Real Property is Offset by Payment from the Seller
This language can allay the fears of buyers concerned that they will be required to pay their agent the full amount of the commission. Of course, if the seller refuses to pay a buyer’s agent, that may be the case. Some buyer’s agents do not complete the space for commission paid by the buyer. Others sometimes write in the BBA that the seller will be responsible for commission to the buyer’s agent. This is risky. If the buyer defaults either by not closing on a valid purchase agreement or the buyer purchases through a different agent, there is really no recourse against the buyer.
This is the buyer obligation and offset language.
“The obligation of Buyer to pay Broker the Commission shall be offset by any commission paid to Broker by either seller’s broker or seller. Buyer’s Commission obligation shall exist even if the closing of the transaction occurs after the term of this Agreement has expired. Buyer shall additionally be responsible for paying the Commission if Buyer defaults under this Agreement or if Buyer enters into a Contract to Purchase during the Protected Period on certain properties as explained in the Protected Period section below…
Interest Rate Buydowns
Interest rates have risen, putting a squeeze on buyers. In a rising interest rate environment, alternative mortgage programs start looking very attractive. The 2-1 interest rate buydown and the 1-0 interest rate buydown are getting a lot of interest.
What Is An Interest Rate Buydown?
A temporary buy-down is a cash payment that effectively lowers the borrower’s interest rate for a limited period, allowing borrowers to reduce their monthly payments during the early years of the mortgage. The party providing the buy-down funds will normally make a lump-sum payment into an escrow account at closing. The borrower pays a monthly payment based on the reduced or “bought down” rate and the funds from the escrow account are used to make up the difference to the lender.
Typically, the payment of discount points reduces the interest rate for the first few years of the loan. For example, if the interest rate is 7% and a 2-1 buydown has been purchased, the buyer would pay interest at the rate of 5% for the first year, 6% for the second year and 7% for the remainder of the loan. A 1-0 buydown would start at 6%. A loan can also be bought down for the life of the loan. It is more expensive, of course, but the buydown fee can be justified if the buyers expect to be living in the property for a long time.
Although the GAR Purchase and Sale Agreement (PSA) includes commission protection language, it does not provide a space to fill in the amount of the commission or the split of the commission with any cooperating broker. The amount of the commission and any offer to split the commission is included instead in the Buyer Brokerage Agreement (BBA), the Seller Engagement Agreement (Listing) and through FMLS or MLS.
Buyer Brokerage Agreement. (BBA)
Both the Exclusive and the Non-Exclusive BBA include a blank to indicate the amount of commission to the paid to the selling broker. Typically, we see the commission amount completed. However, sometimes the commission space is left blank and a statement included that the seller pays the commission. In those cases, if the buyer defaults or if the buyer enters into a contract to purchase with another realtor during the term of the BBA or during a protected period, the buyer’s broker will not be able to recover from the buyer. (Remember that a black space always indicates zero.)
There is language that in the BBA that can relieve any buyer anxiety of being responsible for the full commission. The Commission section in the BBA provides that the buyer is responsible for the commission “minus any commission paid to Broker by either the seller’s broker or the seller.” This safety valve for the buyer will generally get a buyer’s agent over the hump of the buyer’s fear of including a commission in the BBA.
The GAR Forms include a Sale or Lease of Buyer’s Property Contingency Exhibit that allows the buyer to condition the purchase of a new property on the sale or lease of an existing property. The contingency gives the seller a right to “kick-out” a buyer if the appropriate box on the contingency exhibit is selected and agreed to by the parties.
Kick-Out Clause Explained.
A kick-out clause describes a situation where the seller of a property that is under contract continues to market it for sale to other buyers because the buyer’s purchase is contingent on the sale or lease of other property owned by the buyer. If another buyer makes an offer to purchase the property that the seller wants to accept, the seller gives notice of the offer to the first buyer who must then timely submit an amendment to remove certain contingencies and possibly the Due Diligence Period from the agreement and in some cases pay additional earnest money to the seller. If the first buyer does not do these things within the pre-agreed time frame, the seller can then “kick-out” the first buyer, terminate that contract and sell the property to the second buyer. If the buyer meets the pre-agreed requirements of the kick-out clause, then the original contract remains in force subject to the terms of amendment signed by both parties. GAR F601
If The Kick Out Clause is Exercised
Whether all contingencies and the due diligence period get removed or just some of the contingencies and the due diligence period is a matter of negotiation between the parties. In a seller’s market, the seller might insist that all contingencies be removed, turning the sale into an all-cash transaction. (A loan would still be allowed if the contract contemplates a loan.) Conversely, in a buyer’s market, the buyer might insist that all contingencies remain. Note that even in a buyer’s market, it is logical that the seller insist that the Sale or Lease of Buyer’s Property Contingency would be removed if the Kick Out Clause is Exercised.
With the market shifting once again, buyers may require a lease period before purchasing a property. There are different ways to accomplish the goal of ownership through leasing, the Lease-Purchase Agreement and the Option to Buy a Leased Property.
There are a number of reasons why a Lease-Purchase might work well for a potential buyer. A rising interest rate may have knocked a buyer out of qualification, the buyer may not have the funds to close immediately or the buyer may need to rehabilitate credit. If the buyers anticipate that they will be able to purchase the property within some defined period of time, a Lease Purchase might be the answer.
The GAR Lease-Purchase Agreement is not the same thing as an option to purchase a leased property. The lease-purchase includes a closing is on a predetermined date. It is not optional. If the tenant/buyer does not close, the tenant/buyer is in breach of the purchase portion of the agreement.
The GAR documents to be used in a Lease Purchase are:
F201 Purchase and Sale Agreement
F207 Lease Purchase and Sale Exhibit
F916 Lease for Lease/Purchase Agreement Exhibit
There are differences between a regular Purchase and Sale Agreement and a Lease-Purchase Agreement.
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