Fact Pattern: You are a listing agent. A buyer submits an offer to purchase along with a Seller Payment to Buyer’s Broker (SPBB). The SPBB asks the seller to pay 2.5%. Instead of signing that, the seller issues a counter offer agreeing to pay only 2%, not 2.5%. The parties enter into an agreement on August 24, 2024. After opening escrow, the buyer’s broker is now asking for the seller to sign the SPBB, given that it was a part of the buyer’s offer. The seller would like to cooperate to maintain a good relationship with the buyer’s side.

Multiple Choice Question: What should the seller do? Pick the best answer:

A. Sign the SPBB as it is.
B. Take the following 3 steps: (1) Cross out (e.g., with a pen) the 2.5% on the SPBB, insert 2% in its place, and have the seller initial and date next to the revision, as well as sign and date on the signature line below; (2) Require the buyer to counter-initial and counter-sign next to the seller’s initials and signature on the SPBB; and (3) Require the buyer’s agent to also agree in writing.
C. Write “subject to the terms of SCO #1” directly above the seller’s signature line, and then the seller can sign and date.
D. Use an Amendment of Existing Agreement (AEA) to clarify that the parties agree to an SPBB for 2%. 

Answer: This week’s Legal Tip shows that the drafters of C.A.R.’s SPBB form may not have contemplated possible changes to the buyer’s broker compensation (“coop comp”) during the negotiation of a sale. The amount of compensation in the SPBB is fixed, and it cannot be easily revised when a seller and buyer try to renegotiate the amount in the counter-offer stage.

Answer A is not the best answer. The SPBB in our situation says that the seller “agrees to pay” the buyer’s broker 2.5%, even though the parties have agreed to only 2%. It also says that, by signing, the seller “accepts” the 2.5% SPBB. Many sellers would not feel comfortable just signing the SPBB as it is written.

Another issue is timing. After contract acceptance on August 24, 2024 with an agreement for 2% to the buyer’s broker, a seller would not want to subsequently sign and date an SPBB for 2.5%. And if the seller is being asked to sign the 2.5% SPBB on August 26, 2024, for example, the seller should not be signing on August 26, but inserting a different date, e.g., August 23, as the date of that signature. Clients should not use a date for their signature other than the date that they are actually signing, otherwise they are misstating the truth.

Answer B is the best answer, but it’s not the only way to handle this situation. Answer B properly addresses 3 seller concerns. First, the revised SPBB shows the correct amount (before the seller signs). Second, the seller should get the buyer to re-sign, so the SPBB becomes a part of the parties’ agreement. Third, the seller wants the buyer’s agent to agree. As the listing agent, you can either get the buyer’s agent to also sign and date the revised 2% SPBB form, or at least get an email from the buyer’s agent agreeing to 2%, instead of 2.5%. After all, paragraph 4 of the 2.5% SPBB specifically says that the buyer’s broker is a “third-party beneficiary of this agreement and may pursue Seller for failing to pay the amount specified in this document.” A seller would not want to just sign that.

Answer C is not the best answer. Instead of crossing out 2.5% and inserting 2% (as in Answer B), it’s fine for the seller to insert “subject to the terms of SCO#1” above the seller’s signature. But Answer C is not a good answer to the question posed, because the seller should also take the extra steps of getting written confirmation from both the buyer and buyer’s agent (as explained in Answer B above).

Answer D is not the best answer. Getting a mutually-signed AEA is another valid way to handle the situation. However, the seller should still take the extra step of getting the written agreement of the buyer’s agent. Answer D is also not a good answer, because it fails to address the issue at hand. We’re dealing with a buyer’s agent, presumably the TC, who wants the seller’s signature on the original 2.5% SPBB. Using an AEA may not stop the TC from demanding the seller’s signature on the original 2.5% SPBB. Yet, many sellers would not feel comfortable signing the original 2.5% SPBB, especially after contract acceptance.

Practice Tip: Be forewarned that this situation is just one example of how the SPBB is not a robust form for negotiations of the amount of coop comp at the counter-offer stage. The parties’ intentions should be clearly memorialized in their written contract.

-Thank You to Devon Beck (Pasadena Office) for suggesting this week’s legal tip!

Copyright© 2024 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of August 26, 2024. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals. Written by Stella Ling, Esq.