In this hot housing market, agents have been using C.A.R.’s Single Party Compensation Agreement (SP) quite a lot. Please refer to the Legal Tip of the Week for the last 3 weeks for some guidelines on using an SP. For this week, we will consider the agency issues surrounding an SP.

When a seller does not want to enter into a listing agreement with you, but is nevertheless interested in paying you if a certain buyer buys the property, you must be careful selecting your agency relationship with that seller under an SP agreement. If you and the seller agree that you will be the seller’s agent, you will owe the seller a fiduciary duty of utmost care and integrity. You should generally refrain from taking on that much liability, unless you will be getting paid accordingly (e.g., a total SP commission of 5%, rather than only 2.5%).

Here are the different types of agency relationships that can be established using an SP: 

1. Represent Seller Only (paragraph 2B1 of the SP): Choose this option to represent the seller exclusively for the resulting sales transaction when someone else will be representing the buyer. Let’s say, for example, that you’ll be getting 2.5% to represent the seller, and the buyer’s agent also wants another 2.5% from the seller. In that situation, you can insert a total of 5% in the SP, and use a Cooperating Broker Compensation Agreement (CBC) to pay 2.5% to the buyer’s agent.

2. Represent Both Parties (paragraph 2B2 of the SP): Choose this option to represent both the seller and buyer in any resulting sales transaction.

3. Represent Buyer Only (paragraph 2B3 of the SP): Choose this option if you will be representing the buyer only in any resulting For Sale By Owner sales transaction. Although paragraph 2B3 of the SP provides some language about your non-agency relationship with the seller, you are generally better off attaching to the SP the more extensive C.A.R. Seller Non-Agency Agreement (SNA).

4. Represent Seller as a Full-Service Listing Agent: Although paragraph 2B of the SP only provides the above 3 options, you actually have a fourth option. That’s because the process of getting a seller to enter into an SP agreement is a great opportunity for you to try to get a full-blown listing agreement instead. After all, you will be explaining to the seller the benefits of using the MLS and getting the seller’s initials to opt out of that (see paragraph 1 of the SP). Additionally, if the seller refuses to pay you for representing him or her, you can use the SNA to help explain how you will not be performing certain tasks on the seller’s behalf, such as negotiating the sale, preparing counteroffers, providing seller disclosures, allowing access for showings and inspections, negotiating repairs, and doing everything else that a listing agent typically takes care of.

-Thank you to Nicki Marcellino (La Jolla Manager) for suggesting this week’s legal tip!

Copyright© 2022 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 March 28, 2022. 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.