To: All PalmerHouse
Some REO and Short Sale Banks are voiding the buyer’s brokerage commission if it is disclosed in the purchase and sale agreement that a material relationship exists between the buyer’s agent and the buyer. As you know, banks are in the driver’s seat and there is little we can do in these situations, no matter how unfair they are.
In a case that happened last week, our agent disclosed that she was the 2nd cousin of the buyer. See the attached addendum that was presented to her AFTER binding agreement was reached in this deal. In this case, our agent was “stuck”, as the buyer wanted the home. She had two choices: to forfeit the commission or enforce the buyer’s brokerage agreement provision providing for buyer payment of the commission. That’s hard to do, as you know.
BRRETA describes material relationships as follows…
“one actually known of a personal, familial or business nature between the Broker and/or affiliated licensees and a client which would impair their ability to exercise fair judgment relative to another client.” (While we believe this language has more to do with Dual Representation, we must disclose, no matter its intention.
Section 13.C from the Purchase and Sale agreement is below.
C. Material Relationship Disclosure: Brokers and/or their affiliated licensees have the following material relationship(s) with either Buyer and/or Seller as follows:
Your options are few if there is in fact a material relationship. You must disclose your relationships to avoid any future repercussions. That leaves you with these additional options:
1. You can let your “materially related” client know in advance that there is a possibility that they may have to pay your commission in a short sale or foreclosure situation.
2. If you do disclose a material relationship and the seller then refuses to pay your commission, you can ask if substituting another agent or the PHP broker to represent the client will satisfy the seller’s concerns.
4. One sure way to avoid losing your commission would be to… in advance of writing an offer, you could ask another agent or a PHP broker to represent your client. If the PHP broker is asked to represent your client, there will be $200 service charge.
It may be helpful to ask up front if the bank has a policy around this prior to making an offer. There is a possibility that the listing agent will know or could find out. But no matter what they tell you, you could ultimately be presented with an amendment like the attached, as our agent was.
Contact your broker, Tod Von Brinegar (PALM and PHPR) or Joe Ruggles, (PHPA) for guidance on the most appropriate structuring of client representation should this situation impact you.
Tom
PalmerHouse Properties Blog 
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