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.
Negotiated contracts can get messy. There may be multiple documents, an offer and a counteroffer, or the original offer may have multiple strike throughs and insertions. Buyers, sellers and lenders may want a “clean” or conformed copy of the final terms for ease of knowing the final terms. The purpose of the conformed contract is to create a legible version of the original agreement.
The Terms of the Original Contract Should Not Change.
A conformed contract is just a clean version of a valid, fully executed contract and should not change any of the terms of the contract. The date on the conformed contract should not change. It should be the same date as on the original contract, even though it is signed at a later date.
If one party refuses to sign the conformed contract, the parties would still have a binding agreement so long as the original contract was signed by the parties and delivered back to the party making the last offer.
Assignment of Contracts
Assignment to a new party of the purchase agreement rights of a buyer is common in both residential and commercial real estate contracts. As previously noted in broker corner articles, the LLC form of ownership offers a number of advantages to owners of investment properties, including limiting the liability of the members.
The majority of assignments are to LLCs to hold specific property for the express purpose of limiting liability. The specific LLC has usually not been created at the time of the purchase, so assignment is the easiest way to transfer the contract to the new legal entity. This is true for both small investors and large investors in both residential and commercial purchase agreements.
Watch out. Assignments to newly formed LLCs can be for a legitimate purpose and perfectly legal. On the other hand, they can be a part of a money laundering scheme. It is very important for the closing attorney to review assignment and LLC documents closely to confirm the assignee’s status.
A limited liability company (LLC) is a business structure that protects its owners from personal responsibility for its activities, including its debts or liabilities. Protection from personal responsibility is the most significant advantage of creating an LLC. An LLC can have a single owner (member) or can have multiple owners (members).
LLCs are hybrid entities offer unique advantages to its members. They combine the characteristics of a corporation with those of a partnership or sole proprietorship. LLCs are easier and cheaper to form than corporations while limiting the liability of the owners more than a partnership would. Its Owners are called Members, rather than partners or shareholders.
The limited liability feature of LLCs make LLCs very attractive to investors of real estate, as well as many other business ventures. In fact, the LLC is the most common form of business entity in Georgia.
Does A Listing Agent Have to Present Subsequent Offers After an Offer to PurchaseHas Been Accepted by the Seller?
A listing broker’s duties to the seller are enumerated in the Seller Brokerage Engagement Agreement. Among other duties, there is a clearly defined duty to timely present all offers to and from the Seller, even when Property is subject to a Contract to Sell. (F101 Seller Brokerage Engagement Agreement Section 7.(a)(2).
The obligation to present all offers, even after the property is subject to an offer to sell, is also included in the Code of Ethics Article 1 Duties to Clients and Customers.
Standard of Practice 1-7. When acting as listing brokers, REALTORS® shall continue to submit to the seller/landlord all offers and counter-offers until closing or execution of a lease unless the seller/landlord has waived this obligation in writing. Upon the written request of a cooperating broker who submits an offer to the listing broker, the listing broker shall provide, as soon as practical, a written affirmation to the cooperating broker stating that the offer has been submitted to the seller/landlord, or a written notification that the seller/landlord has waived the obligation to have the offer presented.
The only way the listing agent is relieved of this obligation is if the seller has waived the obligation in writing.
The market has shifted. Multiple offers have slowed down, but sellers still want the best price for their property. In an effort to increase prices, sellers may ask their agents to reveal the terms of competing offers to the prospects. This is called “shopping an offer.”
Here’s an example. Even though their neighbors got 9 offers 6 months ago with no contingencies, no inspections and huge escalation clauses, their listing has produced only (!) 3 in 2 weeks. And the lowest price has the best terms – cash and a quick closing. The seller wants cash and a quick closing, if only that offer was as high as the best price. The seller instructs his listing agent to reveal the price of the highest offer to the buyer he wants in an effort to get that buyer to increase the price. Can the listing agent do that? Can the seller do that? Is it legal?
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