Chapter 10

The Brokerage Engagement Agreement

A. OVERVIEW

DEFINITION

Under Section 10-6A-3 (a) (4) of BRRETA ‘Brokerage engagement’ means a written contract wherein the seller, buyer, landlord, or tenant becomes the client of the broker and promises to pay the broker a valuable consideration or agrees that the broker may receive a valuable consideration from another in consideration of the broker producing a seller, buyer, tenant, or landlord ready, able, and willing to sell, buy, or rent the property or performing other brokerage services.

THE NEED FOR AN ENGAGEMENT AGREEMENT

BRRETA provides that a brokerage engagement must be a written contract.  Further, Section 10-6A-10 of BRRETA provides that all brokerage engagements must:

(1) Advise the prospective client of the types of agency relationships available through the broker;
(2) Advise such prospective client of any brokerage relationships held by such broker with other parties which would conflict with any interests of the prospective client actually known to the broker but excluding the fact that the broker may be representing
other sellers and landlords in selling or leasing property or that the broker may be representing other buyers and tenants in buying or leasing other property;

(3) Advise such prospective client as to the broker’s compensation and whether the broker will share such compensation with other brokers who may represent other parties to the transaction in an agency capacity; and

(4) Advise the prospective client of the broker’s obligations to keep information confidential under this chapter.

B. CONTENTS OF THE ENGAGEMENT AGREEMENT

INTRODUCTION

The following discussion is not a comprehensive discussion of what an engagement agreement can or must contain.  Subject to the limitations of the law, brokers and clients are free to contract for whatever relationship they wish with whatever duties and obligations they wish.  Therefore, this discussion is for purposes of illustration only, to set forth matters for a broker to consider in preparing an engagement agreement.

CUSTOMER ELECTION

After the prospective client receives the required disclosures, he or she may not wish to become a client of the broker, but rather elect to be a customer.  The broker could have a separate customer form for the customer to sign; or the broker may include the election in the engagement agreement as a separate section that the customer signs, indicating the desire to be a customer of the broker.  It is possible to act as a broker without forming an agency with any party to a real estate transaction.

BRRETA allows this situation, which has become known in the business as a transaction broker sale.  The broker treats both buyer and seller as customers, observing all the requirements of BRRETA. Under 10-6A-3 (8) ‘Customer’ means a person who is not being represented by a real estate broker in an agency capacity pursuant to a brokerage engagement but for whom a broker may perform ministerial acts in a real estate transaction pursuant to either a verbal or written agreement.  Further, under 10-6A-3  (14) ‘Transaction broker’ means a broker who has not entered into a client relationship with any of the parties to a particular real estate transaction and who performs only ministerial acts on behalf of one or more of the parties, but who is paid valuable consideration by one or more parties to the transaction pursuant to a verbal or written agreement for performing brokerage services.
ENGAGEMENT

The agreement must include some language indicating that the client engages the broker to perform brokerage services for the client (such as locating property for lease or some other specified real estate brokerage activity).

CLIENT’S DUTIES

Per 10-6A-3. (6) ‘Client’ means a person who is being represented by a real estate broker in an agency
capacity pursuant to a brokerage engagement.The agreement may specify certain duties owed by the client to the broker, such as providing accurate financial information if the broker is assisting with financing, or viewing properties only with that broker and not with any other real estate broker.

TERMINATION

Section 10-6A-9 (a) of BRRETA sets forth the official beginning and ending of the brokerage engagement. (a) The relationships set forth in Code Sections 10-6A-4 through 10-6A-8 and Code Sections 10-6A-12 and 10-6A-13 shall commence at the time that the client engages the broker, and shall continue until:

(1) Completion of performance of the engagement; or
(2) If paragraph (1) of this subsection is not applicable, then the earlier of:
(A) Any date of expiration agreed upon by the parties in the brokerage engagement or in any amendments thereto;
(B) Any authorized termination of the relationship; or
(C) If no expiration is provided and no termination has occurred, then one year after initiation of the engagement.

It may also provide for an authorized termination by either party in case of specified events happening, or it may provide that either party has the right to terminate without cause.  There is substantial freedom of contract available for termination provisions.

COMMISSION

The agreement must provide for the broker’s commission and the conditions for payment.   For example if the broker has charged a retainer fee, the agreement would state whether it is refundable or nonrefundable.

BROKERAGE POLICY

Although the broker could disclose the agency policy in a separate written document, the broker may include it in the engagement agreement.

DUAL AGENCY

If the broker will act as a dual agent in the transaction, the broker must obtain the informed, written consent of all clients to the dual agency.  Generally, the law does not favor dual agency representation, and the broker must take care to assure that the client’s consent is truly informed and that the client understands the consequences of the written consent.  Section 10-6A-12 of BRRETA sets forth the information to include in the dual agency disclosure.

(a) A broker may act as a dual agent only with the written consent of all clients. Such written consent shall contain the following:

(1) A description of the transactions or types of transactions in which the broker will serve as a dual agent;

(2) A statement that, in serving as a dual agent, the broker represents two clients whose interests are or at times could be different or even adverse;

(3) A statement that a dual agent will disclose all adverse material facts relevant to the transaction and actually known to the dual agent to all parties in the transaction except for information made confidential by request or instructions from another client which is not allowed to be disclosed by this Code section or required to be disclosed by this Code section;

(4) A statement that the broker or the broker’s affiliated licensees will timely disclose to each client in a real estate transaction the nature of any material relationship the broker and the broker’s affiliated licensees have with the other clients in the transaction other than that incidental to the transaction. For the purposes of this Code section, a material relationship shall mean any actually known personal, familial, or business relationship between the broker or the broker’s affiliated licensees and a client which would impair the ability of the broker or affiliated licensees to exercise fair and independent judgment relative to another client;

(5) A statement that the client does not have to consent to the dual agency; and

(6) A statement that the consent of the client has been given voluntarily and that the engagement has been read and understood.

(c) Copyright 2006 Georgia Real Estate Commission and Appraisers Board. All rights reserved.