Practices Licensees Should Avoid
Given the new landscape in buyer representation and compensation, licensees should avoid the following practices in their representation of buyers and sellers:
- Failing to Provide a Written Agreement: Licensees must ensure that any agreements regarding compensation are in writing. Any modifications to the compensation agreement must be in writing and agreed upon by both parties. Licensees must avoid making verbal changes or allowing terms to be altered informally through emails or texts.
- Not Clarifying Compensation Expectations: If the buyer’s agent fails to clearly explain how they will be compensated, this could lead to misunderstandings or legal disputes. Clear communication is critical. Licensees should clarify that buyers are now more likely responsible for negotiating and paying their agent’s commission directly, unless other terms are negotiated by the seller and buyer.
- Misrepresenting Commission Terms: Licensees should not claim that there is a “standard” rate. Commissions are fully negotiable under California law, and it is the licensee’s duty to clearly explain this to the buyer, ensuring transparency in negotiations.
- Not Disclosing Dual Agency: If licensees are representing both the seller and buyer, they must disclose this relationship to both parties in writing. A licensee has a fiduciary duty to their clients, meaning they are legally obligated to act in their client’s best interest.
- Pressuring the Buyer: Licensees should avoid pressuring buyers into signing contracts or agreements without explaining the practice application of the documents and giving them adequate time to review and understand the terms.
- Requesting Advance Fees: If a licensee chooses to piecemeal real estate services (i.e., driving and showing a property, writing an offer, ordering inspections, reviewing disclosures, etc.) and charge for those services individually, these fees may be acceptable if the fee is collected after the service has been rendered. However, if the licensee’s affiliated broker wishes to collect advance fees for services, the broker will need to submit an advance fee agreement to DRE for review and receive a letter of “no objection” before demanding or receiving any advance fees. For more information about advance fee agreements, see the following link: adv fees essential elements (ca.gov).