Buyer-Broker Agreements Are Now A California Mandate – 2025

As of the start of 2025, all buyers being represented by a broker will need to agree in writing regarding their business and transactional relationship. In many cases, the broker’s compensation is now being shifted to the buyer. There will be a lot of explaining to do if a buyer wants experienced representation. California Civil Code §1670.50, effective January 1, 2025, mandates that real estate agents representing buyers enter into a written “buyer-broker representation agreement” with their clients. This agreement must be executed as soon as practicable, but no later than when the buyer submits an offer to purchase real property.

Key Provisions in a Buyer-Broker Agreement Include:

1. Broker’s Compensation
   • Clearly state how the broker will be compensated for their services.
   • Include the amount or method of calculation (e.g., a fixed fee, percentage of the purchase price, or other arrangements).
   • Specify whether the compensation is contingent on the completion of a transaction or is payable under other conditions.
2. Services to Be Provided
   • Detail the specific services the broker agrees to provide to the buyer, such as property searches, negotiations, or assistance with purchase contracts.
3. Payment Conditions
   • Clarify the conditions under which compensation becomes payable, including:
     • Whether payment depends on the successful closing of a transaction.
     • Responsibility for compensation if the seller offers to pay part or all of the buyer’s broker’s fees.
4. Contract Duration
   • For agreements with individual buyers, limit the duration of the agreement to no more than three months.
   • Prohibit automatic renewals of the agreement.
   • State that any extensions must be in writing and signed by all parties.
5. Termination Clause
   • Include conditions under which either party may terminate the agreement.
   • Address the buyer’s obligations regarding compensation if the agreement is terminated before a transaction is completed.
6. Legal Disclosure Requirement
   • Attach or reference the required buyer representation disclosure form as specified in Section 2079.14. This ensures the buyer understands their rights and obligations.
7. Signatures
   • Include the signatures of all parties (buyer and broker) to validate the agreement.
8. Governing Law and Dispute Resolution
   • Optionally include provisions regarding governing law (California law) and how disputes will be resolved (e.g., mediation, arbitration, or litigation).

Additional Notes on Compensation

• The agreement should address how compensation will be handled if the buyer purchases a property without the broker’s involvement.
• If a seller or another broker offers compensation, the agreement should clarify whether this reduces the buyer’s obligation to compensate their broker.

AIRCRE has developed two forms for both exclusive and non-exclusive agreements. Both are detailed and protect the broker. I will be curious to see how fund-level investors treat this mandate. First Tuesday has also developed a similar form that is simpler to use. I’m debating which of the two versions is more practical. In either case, we’ve been instructed by our legal counsel to prepare an addendum for every property that is submitted. California has added a layer of complexity to every deal. There is an opportunity in this legislation to modernize our brokerage process, but more about that another time.