REINCheck

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You're listening to REINCheck with Andrea Rice, Contracts and Industry Specialist at REIN, where you get the latest member news and information delivered straight from the source, REIN MLS.

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Andrea Rice
Hello and welcome to REINCheck. I'm your host, Andrea Rice. And today we are checking in with attorney Brandon Allred with the law office of Kaufman & Canoles. Brandon will cover some of the frequently asked questions REIN has received in response to the February 12th forms release. So Brandon, thank you so much for joining me today.

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Brandon Allred
Well, thank you, Andrea. I'm glad to be here.

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Andrea Rice
Yeah, we're happy to have you here, as always. And for those of you that may not know, Brandon serves as legal counsel for REIN’s Sales Managers’ Advisory Committee, and he was heavily involved in the form changes that took place on February 12. So I think there's probably no one any more qualified to speak to these questions than Brandon.

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Andrea Rice
So, Brandon let's just take the top five questions and address those here today.

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Brandon Allred
Well, thank you for that very nice introduction and I'm looking forward to talking a little bit more about what SMAC has been working on. As I'm sure everybody knows, SMAC has had a busy and I think a very productive few months working on the form update that just came out earlier this week. And I'm certainly happy to offer some additional insight on those forms where I can.

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Andrea Rice
Thanks, Brandon. So by far, the most common question that REIN has received is does the new compensation agreement replace the current selling firm Brokerage note?

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Brandon Allred
Great question. So in a way, but not entirely. And let me unpack that with a little bit of background and further explanation. So the old Con 1 that so many of REIN’s members are used to was designed to notify the settlement agent of the fee split on commission. However, since commissions paid to the buyer's broker or the selling firm no longer flow through the seller's broker or the listing form, this form is no longer applicable for new transactions, meaning transactions that are entered into or that work off of listing agreements from February 12th, the date of the new forms release going forward.

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Brandon Allred
That being said, REIN certainly understands that there are still many contracts and listing agreements in use for transactions that were pending prior to the recent forms release prior to February 12. And certainly we have to continue to accommodate those transactions. So the Con 1 will remain available for a period of time to accommodate those legacy transactions. I know that SMAC and REIN are talking about when that will be phased out and it will probably be phased out later this year.

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Brandon Allred
But certainly we want to make sure that that all of its legacy transactions are handled. Transactions that are initiated with listing agreements after February 12 did not use the old Conn 1.

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Andrea Rice
Great. Thank you for that explanation, Brandon. That's really helpful. And while we're talking on this topic, let's talk a little bit more about the compensation agreement, because several of our members have asked what is the purpose of this form and is it required?

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Brandon Allred
Yeah, absolutely. So the compensation agreement is designed to allow the parties to a transaction to agree on the compensation payable directly from the seller to a buyer's broker, if any, and to come to that agreement outside of the definitive purchase agreement. So many of you will notice that there is crossover between the compensation agreement now and the standard REIN purchase agreement and that obligation for the seller to pay a buyer's broker.

00:04:28:14 - 00:04:57:16
Brandon Allred
Again, it's part of the negotiated deal between the parties, is already covered in the standard grain purchase agreement. But we understand that not all transactions are necessarily going to use a standard REIN purchase agreement. So this is another way to put the seller into privity of contract with the buyer and the buyer's broker to pay whatever portion of the buyer's brokerage fees that the seller has agreed to pay.

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Brandon Allred
Again, if that's a part of the negotiated terms of the arrangement, it also provides an opportunity to have that discussion and enter into the agreement before a definitive purchase agreement is signed and ratified. However, remember that this form’s effectiveness is entirely contingent upon reaching a binding, ratified purchase and sale agreement. Whether that's a standard REIN purchase agreement or some other definitive purchase and sale agreement.

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Brandon Allred
So it springs into effect once you have a definitive purchase agreement. But up until the time you have a definitive purchase and sale agreement, that compensation agreement is non-binding. Two other important things to keep in mind here. If you have a compensation agreement and a purchase agreement that also specifies what compensation is being paid by the seller to a buyer's broker, if any, you really need to watch out for inconsistencies between the terms of the compensation agreement and the terms of the definitive purchase and sale agreement.

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Brandon Allred
The terms of the definitive purchase and sale agreement should always govern, and that's the concept in the compensation agreement. But certainly you can see where there's room for confusion if you have something different in a compensation agreement than you have in the definitive purchase agreement. So I encourage all of the REIN members and everyone who uses this form to watch out for that.

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Brandon Allred
The other thing to keep in mind is that the compensation agreement is only applicable if the seller is going to pay a portion of the buyer's brokerage fees. So if the seller is not contributing to those brokerage fees owed by the buyer, then the form is completely inapplicable. So do keep in mind that this is an optional form.

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Andrea Rice
Great. Thank you. I think that in-depth explanation for the compensation agreement will really answer a lot of questions for our members. And next, let's cover the buyer broker agreements, because February 12, REIN released four new forms. One was the compensation agreement that we just talked about, and then the other three were the new buyer broker agreements. And a lot of our members have asked if they are required to use REIN’s buyer brokerage agreement.

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Brandon Allred
Yeah, another great question. So the answer is no. REIN members are certainly not required to use REIN’s form buyer brokerage agreements. The buyer brokerage agreements were published in response to requests that REIN had from many of its members asking for a form or a template buyer brokerage agreement. But again, those are all optional forms, and many brokers prefer to use their own form of buyer brokerage agreement.

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Brandon Allred
And that is perfectly fine and perfectly acceptable. I will note, just for the sake of completeness, that the Virginia Code and it’s Section 54.1-2137, if you're curious, does require a written brokerage agreement be in place for buyer brokerage relationships. And there are three things that are really required to be in that written brokerage agreement. And then there are two additional items that are more circumstantial, but the three required elements are that you have a definitive firm, a definite termination date that you state the amount of the brokerage fee used to be paid, and that you specify how and when those fees are going to be paid.

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Brandon Allred
And then you have to state the services that are going to be rendered by the broker to the prospective buyer, in this case. And then you certainly are can specify any other salient terms and integrate agreements between the buyer and the broker. And if you're doing the brokerage agreement as a part of a dual representation, then you need to include the appropriate disclosures and obtain the appropriate consent.

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Brandon Allred
So REIN’s form is designed to meet all of those requirements. But again, it's optional, not mandatory. You're welcome to use your own terms, and many do.

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Andrea Rice
Great. Yes. Thank you. And, you know, we also received quite a few questions about the impact to VA borrowers. So let's address some of those questions. Is it true that the VA prohibits a buyer from paying buyer broker compensation?

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Brandon Allred
Yeah. So, Andrea, that is in fact, true. And I know there have been many, many questions. And this is a topic that's circling throughout the larger industry. I'll give you chapter and verse on this just for everybody listening. So if you want to go in and look at the actual VA regs, it is in title 38 of the Code of Federal Regulations, Part 36, Section 4313 And if you go and wade through the VA regs, you will find that the VA prohibits borrowers under the VA loan program.

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Brandon Allred
So buyers financing their real estate transactions through a VA loan, from paying brokerage or service charges. It is right there in black and white. You know, the VA has published some guidance with their general thinking on the policies and their explanations and basically their position is that VA borrowers cannot be charged a brokerage fee or a commission under any circumstances.

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Brandon Allred
And they think that there's plenty of information available in the market related to purchase options and financing options. And they don't think that preventing VA borrowers from paying brokerage commissions will bring any harm to their borrowers. It is something that is being widely discussed in the industry at the moment. We do know that any number of comments have been made to the VA about this issue, but so far there have been no changes to policy and certainly no changes to the regs from the VA.

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Andrea Rice
Right. Yes. A lot of people have had a lot of questions about it. And one of the questions when it comes to what VA borrowers are allowed to pay is retainer fees. So are retainer fees considered brokerage fees?

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Brandon Allred
Yeah, that's another great question. And again, I'll take us back to sort of the black letter law from the VA regs. What the regs say is that no brokerage or service charge or their equivalent may be charged against the VA borrower, either initially, periodically or otherwise. So just a great reading of the black letter law says that it is broad enough to pick up a retainer fee.

00:13:02:09 - 00:13:38:01
Brandon Allred
And, you know, basically a retainer fee paid if it's paid in exchange for services that are rendered by a broker as part of a real estate transaction that is being financed through a VA loan would be considered an equivalent, so to speak, within the meaning of these regs of a brokerage or service charge. So I think retainer fees for those services are going to be prohibited by the VA regs as well.

00:13:38:02 - 00:14:02:14
Andrea Rice
Okay. Yeah. Well, thank you, Brandon. I think all of this information is going to be really helpful for our members. And I would like to know that there is a resource page on REINMLS.com and it contains a video featuring Brandon and SMAC member Tanya Monroe where they cover the form changes in pretty good detail there. So if you have not seen that, I highly recommend it.

00:14:02:16 - 00:14:24:15
Andrea Rice
And then additionally a frequently asked questions section has been added to that resource page and you can go there. You'll find responses to the questions that we covered here today. We only covered really the top five, but there are other questions that we've received and they're there as well. On that frequently asked questions section, I do invite you to check that out

00:14:24:15 - 00:14:46:00
Andrea Rice
if you have not done so already and go back there periodically because as we get more questions from our members about anything with the February 12th forms release, we're going to go ahead and update that frequently as sections portion. So again, thank you. There are several resources out there for you. As always, check with your broker if you have any questions.

00:14:46:00 - 00:15:10:06
Andrea Rice
Your broker is going to be your best resource is they'll be able to, you know, offer guidance that is specific to your firm. So if you have any additional questions, though you can submit those to askrein@reininc.com. And there's an online form on the resource page to submit questions as well. Again, thank you, Brandon. There's a lot of great information and thank all of you for listening.

00:15:10:06 - 00:15:25:12
Andrea Rice
I hope you enjoyed this episode of REINCheck. If you missed any of the previous episodes, I do invite you to go to REINMLS.com to take a listen, and if you've not done so already, please make sure you subscribe to REINCheck so that you get new episodes delivered directly to you when they are released.

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Andrea Rice
Thank you and have a great rest of your day.

00:15:30:10 - 00:15:37:20
VO
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