The Brokerage Agreement - What To Look Out For?

By: Tamara B. Pow, Esq.

When buying a commercial real estate property, the brokerage agreement is the agreement between you (the buyer) and your broker. For the buyer, it is in your best interest to get this agreement in writing, and have it reviewed by a real estate attorney to ensure the best outcome and to have a document that states each parties duties but doesn’t give the broker more than is necessary. For the broker it is required to get the agreement in writing in order to receive the brokerage fee. Any transaction that involves real estate must be in writing to be legally binding. (Cal. Civ. Code §1624(d)).

The broker is an agent of the buyer or seller. An agent simply means that the broker can act on behalf of their client - the buyer or seller. (Cal. Civ. Code §2079.13). Sometimes the broker could act as a dual agent, meaning the broker represents both seller and buyer. If this occurs, be sure to read the brokerage agreement thoroughly to ensure the broker will represent your interest in the transaction. It is advisable to hire a real estate attorney to represent you if your broker is a dual agent.

The benefit of the brokerage agreement is a clear communication between the buyer and the broker. It is a great opportunity to discuss who will perform what tasks. Some tasks to discuss include:

  • Time limitations or expectations of tasks to be completed.
  • How and when the broker will be paid?
  • What kinds of expenses the broker and the client will pay and what will the cap be on these expenses?
  • When will the broker’s representation end?
  • Will the broker be a party to another transaction after the sale is complete? For example leasing the property or finding tenants after the transaction.
  • The attentiveness of the broker and response to notifying the client on progress of the transaction.
  • Indemnification - the broker will seek to be indemnified from the clients acts and as the client you should check that you will not be held responsible for the broker’s act. Because this is an agency relationship, it is important as the client to communicate clearly to the broker on what representations or statements the broker can make on your behalf as buyer or seller.
  • Documents - Who will retrieve any documents that would disclose defects, title validity, improvements, zoning, or environmental issues of the property?

If a disagreement arises between the broker and the client, and the client wants to change brokers, it is best to revoke or terminate the past brokerage agreement before signing a new brokerage agreement. This way there is clarity regarding which broker is representing the party. Failing to do this could result in you having to pay a commission to more than one broker on the same transaction.

The brokerage agreement is a formal agreement between the buyer/seller and the broker. If any dispute should arise between these two parties, this agreement will be the source to understand which duty each party had in the agreement. A real estate attorney can assist you in reviewing and revising the broker’s form, which could otherwise favor the broker to your detriment.

The information appearing in this blog does not constitute legal advice or opinion. Such advice and opinions are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to Strategy Law, LLP.

Categories: Real Estate

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