Unrepresented Buyers in Real Estate: What Agents Need to Know in a Post-Settlement World

Unrepresented Buyers in a Post-Settlement World

Since the implementation of the new Multiple Listing Service (“MLS”) rules arising from the National Association of Realtors® (“N.A.R.”) Sitzer-Burnett settlement on August 17, 2024, and the corresponding new and revised forms published by the California Association of Realtors® (“C.A.R.”), John has had the opportunity to teach multiple classes, legal seminars, and conduct trainings for real estate offices and Realtors® across California. One of the oft repeated questions from Realtors® has been: how do the new rules and practice changes impact transactions that involve unrepresented buyers? Short answer: practice concerns related to unrepresented buyers remain relatively the same as before Sitzer Burnett, although, there could be an increase in buyers who do not want to pay for representation. The questions we have received highlight the need for further nuance on this topic.

Depending on the audience, the iteration of the question varies. For example, some brokers have asked whether maintaining a policy that outright rejects any and all offers that come from unrepresented buyers is legal. Others want to know how their agents can be compensated adequately for taking on the additional work and responsibilities that comes with dealing with unrepresented buyers. To answer these questions (and address other issues), this article will first outline the practical consequences of sellers and seller agents dealing with unrepresented buyers in a transaction. Second, we will discuss the general legal issues at play to provide a legal framework to analyze the potential courses of conduct agents and brokerages can take. To conclude, there will be a discussion of various steps agents can take to decrease their risk in this area and receive just compensation for their work.

For the purposes of this article, an unrepresented buyer will be defined as a purchaser who does not have any legal or broker representation related to purchasing residential real estate. These unrepresented buyers are touring homes, researching markets, negotiating with potential sellers and seller agents, and initiating offers without an agent or a brokerage acting on their behalf. Additionally, all scenarios discussed herein will assume that the seller is represented by an agent or a brokerage. Please remember, every transaction is unique. You should contact a lawyer to guide you, or at a minimum, speak to your broker.  

How Unrepresented Buyers Affect Seller’s Agents: Legal Risks and Practical Implications

This is a good question to start with, especially if you may be new to the real estate industry or do not work with unrepresented buyers on a regular basis. Why is working with unrepresented buyers different than any other transaction? Practically speaking, working with unrepresented buyers places a burden on the seller and the seller’s agent from the perspective of performing more work and potentially incurring more liability and risk in the process. Unrepresented buyers are unlikely to have access to standard forms used in real estate actions and are less likely to know the contents and nuances of those forms in the same way as an experienced agent. Moreover, generally speaking, unrepresented buyers also rely on the seller’s agent for access to the property to facilitate inspections as well as facilitating relationships with title companies and escrow offices. Also, unrepresented buyers generally do not have the same access to information about the market or how to interpret that data. All of this means the seller’s agent or brokerage will most likely be doing the lion’s share of the work—and assuming a lion’s share of the potential liability—since there is not an experienced and knowledgeable agent on the other side of the transaction.

Moreover, with more work, comes more responsibility. This is true not only from the aspect of there being more to do in a practical sense, it is also true when analyzing the transaction from legal and risk management perspectives. Think about it. The seller’s agent is a fiduciary to the seller and owes specific and lofty duties to the seller as their authorized agent related to the transaction. On the other side, with the unrepresented buyer, you have someone who may be less experienced and less sophisticated when it comes to real estate transactions. How does the seller’s agent navigate informing and guiding the unrepresented buyer on the important aspects of the transaction, while at the same time leveraging the negotiations for the benefit of their ultimate client—the seller? Further, how does the seller’s agent go about educating or providing information to the unrepresented buyer without assuming fiduciary responsibilities to the buyer either intentionally or unintentionally?

There can be a critically fine line between merely providing information to an unrepresented buyer as opposed to interacting with them in such a way that it may reasonably appear that the seller’s agent is assuming representation of the unrepresented buyer and the buyer may believe that this is the case. Simple conduct such as providing forms, access to the property, or information needs to be considered thoughtfully when dealing with unrepresented buyers because it may not be clear to the unrepresented buyer that the seller’s agent is acting on behalf of their principal and not the unrepresented buyer when engaging in such conduct.  In summary, not only is there more work to be done from a practical perspective, there is also an increased risk assumed by the seller’s agent in navigating the transaction related to unintentionally establishing fiduciary duties with the unrepresented buyer. And, with increased risk, comes increased potential costs if the seller’s agent were to somehow slip up.

Why Does it Matter – Unrepresented Buyers Generally

Ok, so there are real implications for engaging with unrepresented buyers from the perspective of the listing agent or brokerage. Perhaps even more fundamental, however, is looking at the transaction from the perspective of the unrepresented buyer. Who are they, why are they unrepresented, and why does it matter? Note: there are limited studies and authority examining the statistical make up of unrepresented buyers as a class (more studies have been conducted on “for sale by owner” (“FSBO”) properties and sellers). Several studies conducted by the National Association of Realtors® (“N.A.R.”), however, can help illustrate additional concerns raised by unrepresented buyers from a legal perspective.

For example, according to the National Association of Realtors® (“N.A.R.”), in terms of demographics, in 2023: 81% of homebuyers were White/Caucasian, 7% were Black/African-American, 7% were Hispanic/Latino, 6% were Asian/Pacific Islander, and 6% identified as something else. (N.A.R., 2023 PROFILE OF HOME BUYER AND SELLERS, 2023-profile-of-home-buyers-and-sellers-highlights-11-13-2023.pdf (nar.realtor).) For Black/African-American, Hispanic/Latino, and Asian/Pacific Islander homebuyers, N.A.R. has identified several obstacles in the homebuying process that exist and are manifested when it comes to home affordability and access to credit. ¹

When it comes to income gaps, Black/African Americans’ median household income was $47,800 while White/Caucasian Americans’ median household income sits $75,700. (N.A.R., 2024 SNAPSHOT OF RACE AND HOME BUYING IN AMERICA, https://www.nar.realtor/sites/default/files/documents/2024-snapshot-of-race-and-home-buying-in-america-02-20-2024.pdf, at 15.) Additionally, the income gap between Black/African American Households and White/Caucasian households as of 2022, was $27,840 while the gap between Hispanic/Latino and White/Caucasian households was $13,000. (Ibid.)

Moreover, the data suggests that minority groups, especially Black/African American and Hispanic/Latino homebuyers also face increased obstacles to accessing credit compared to similarly situated White/Caucasian and Asian/Pacific Islander buyers. For Black/African American buyers, mortgage applications were denied at a rate of 26% while Hispanic/Latino buyers were denied at a rate of 22%. (Id. at 30.) This is compared to denial rates of 16% and 15% for White/Caucasian and Asian/Pacific Islander applicants respectively. (Ibid.)

Despite there being no direct data connecting unrepresented buyers to communities facing greater obstacles to home buying in the first place, it stands to reason that some unrepresented buyers may be unrepresented because similar barriers exist when it comes to accessing an agent or brokerage. Again, there is not a definitive link in terms of data, but the existence of the barriers when it comes to affordability and financing access, warrants a word of caution for brokerages and listing agents who would seek to deny offers from unrepresented buyers. Simply put, you may not know why the unrepresented buyer is unrepresented. With the increased volume of fair housing litigation, it is prudent to maintain a well-thought-out policy when it comes to unrepresented buyers.

In summary, do not assume you know the reason an unrepresented buyer is unrepresented in the transaction. You should ask and document the conversation. It may be because they are experienced in real estate or otherwise view themselves as able to represent themselves. It could be, however, that they are a member of a class of people with less access to the financial resources and networks necessary to facilitate real estate transactions. If the reason for them being unrepresented is the latter, refusing to consider their offer could carry risks related to fair housing litigation.

Common Questions and Practical Considerations

1. How does the N.A.R./Sitzer-Burnett settlement impact transactions with unrepresented buyers?

Answer: It is hard to say at this point, but several issues raised by the Sitzer-Burnett litigation bear keeping in mind. First, the Department of Justice (the “DOJ”) has repeatedly stated its position that it views the Settlement (and potentially additional changes) as necessary to ensure competitive marketplaces and transparent real estate transactions where consumers understand exactly what they are paying for and where fees are being allocated. Listing brokers should always be fully transparent with their sellers about the realities of working with unrepresented buyers. This includes conversations about the increased costs and work as well as the increased risk. Also, if you are a listing agent, keep in mind the C.A.R. Residential Listing Agreement (“RLA”) form provides a place for the listing agent and seller to agree to an increase commission percentage for working with unrepresented buyers.

Second, the listing agent should exercise dutiful caution in their interactions with unrepresented buyers. It is advisable at all steps of the real estate transaction to communicate and document that you, as the listing agent, only hold fiduciary duties to the seller and are only acting in the seller’s best interest, not the buyer. To this end, a wise practical step a listing agent can take is to have the unrepresented buyer sign the standard C.A.R. Buyer Non-Agency Agreement (“BNA”) form when providing information or relevant forms. Using the BNA will help establish that in the context of the sale, the unrepresented buyer has been informed and understands the seller’s agents is not acting on their behalf.

Moreover, in any communications with the unrepresented buyer, it would be good practice for the listing agent to carefully document and discuss the fact they act only in the interest of the seller. If those conversations happen to be verbal, i.e., over the phone or in-person, it would be good practice to develop the habit of immediately following up with written correspondence to the unrepresented buyer recapping the conversations and reiterating that the listing agent works on behalf of the seller only and the parties discussed this during their verbal conversation.

In a similar vein, when it comes to incomplete forms submitted to the seller from the unrepresented buyer, purchase offers with unacceptable terms, or providing the relevant forms to the buyer to protect their own client, listing agents should not fill in any of the substantial terms of the forms on behalf of or to the benefit of the buyer. Listing agents should limit the scope of their conduct related to the forms to providing those necessary to complete the transaction. This will reduce the risk of creating an unintentional agency relationship with the buyer.

2. Can a listing agent refuse to present an offer from an unrepresented buyer?

No. Agency law requires the listing agent to present all offers to the buyer unless there is an agreement in writing with the seller that provides otherwise. Further, if a listing agent refuses to provide an offer from an unrepresented buyer merely because they are unrepresented, the listing agent is arguably in violation of the N.A.R. Code of Ethics and Standards of Practice, Article I. (See Standards of Practice 1-6–1-8 [providing particular guidance related to submitting offers to principals].) Given the increased risks and costs associated with unrepresented buyers, how should agents address this situation?

Be proactive. Listing agents should discuss transactions with unrepresented buyers before entering into a listing agreement with their seller. Remember, commissions are negotiable and the listing agent is free to negotiate increased commissions for transactions that involve unrepresented buyers. While it is not certain a seller will receive offers from unrepresented buyers, preempting such a scenario through contract in the listing agreement can help set appropriate seller expectations on the front end of the sale process. The C.A.R. Residential Purchase Agreement (“RPA”) form allows for this specific scenario.

3. Can sellers outright refuse to receive offers from unrepresented buyers?

Technically, yes. But it is not advisable. This is especially true given that typically, before offers come in, sellers will not know whether they are dealing with an unrepresented buyer who is sophisticated or novice. On the one hand, a sophisticated unrepresented buyer may provide a competitive and well-written offer from the outset. Refusing to even receive such an offer hurts the buyer by limiting their options and taking away the leverage a legitimate offer creates related to other offers received.

Further, as discussed above, the seller will usually not know why a specific unrepresented buyer is unrepresented to begin with. The risks of a policy that will not consider offers from unrepresented buyers opens the seller to unnecessary risk from a fair housing perspective. Assuming a seller does not want to consider offers from unrepresented buyers, they better not consider any offers from unrepresented buyers at all. A blanket policy of not accepting offers from unrepresented buyers ought to remain a blanket policy at all times to avoid implicating fair housing laws. Making one exception for one unrepresented buyer, opens the door for challenging the rejection of other offers from unrepresented buyers on grounds of discrimination based on age, race, sexual preference, or any other protected characteristic where the offer was otherwise similar to the one for which the exception was made.

Protecting Your Client While Navigating Unrepresented Buyer Transactions

When it comes to offers from unrepresented buyers, the best course of action as a listing agent is to first be proactive in discussing potential issues with your seller and then to draw up the terms of the listing contract to address the increased costs and risks that may arise from transactions with unrepresented buyers. This creates transparency and helps set expectations early on.

As a seller’s agent, agency law and the N.A.R. Code of Ethics also impose a duty on seller agents to provide all offers to their clients—not just those that require less work or carry less risk for the agent. Therefore, as a listing agent, provide your principal all offers you receive, and discuss them. If the risks and increased costs render the offer non-beneficial to your client after an open and transparent discussion with them, then at that point, it can simply be rejected so long as rejecting the offer is otherwise consistent with principals directions and benefit. The key here is to not unilaterally deny offers from unrepresented buyers without informing your principal of the offer.

When it comes to actually dealing with unrepresented buyers in a given transaction, the listing agent should be careful to make sure their conduct cannot be reasonably interpreted as providing advice to the unrepresented buyer. Appropriate steps to this end include: documenting in writing any conversations the seller agent has with the unrepresented buyer and being sure to communicate to the unrepresented buyer that the seller agent acts only for their principal. If a seller agent provides forms to an unrepresented buyer, it is also good practice to not fill in any substantial terms of those forms, but to leave that to the buyer.

When it comes to sellers, a blanket policy of not receiving offers from unrepresented buyers are not illegal per se, the listing agent and seller could run a significant risk of running afoul of fair housing laws if any exceptions are made for an offer. It is likely less risky in the long run (and more cost effective) to consider all offers on their merits and then reject and/or accept them based upon the same.

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¹ Given the limited scope of this article, the discussion will focus on the racial demographics of homebuyers to illustrate issues with unrepresented buyers. It is worth noting, N.A.R. also captured data related to other groups and minorities based on different characteristics. (See, N.A.R., 2023 Profile of Home Buyers and Sellers, at 7 [discussing homebuyers based on sex, age, marriage status, and other characteristics].)