(Caveat emptor – “Let the buyer beware”)
What is a Homeowner Benefit Agreement?
A Homeowner Benefit Agreement is where a homeowner receives a moderate cash payment in exchange for agreeing that, if the homeowner ever elects to sell its home during the term of the agreement, then the homeowner must enter into a separate listing agreement with that Realtor for the sale of the home. This concept is a relatively new marketing tool from a limited but growing number of Realtors. The payment is negotiable but believed to be in the range of $300.00 to as much as $5,000.00 and, in some instances, more.
What is the “Benefit” of a Homeowner Benefit Agreement?
The “benefit” that a homeowner receives is a cash payment that does not have to be paid back. Instead, the Realtor is paying it in exchange for a future listing agreement with THIS Realtor (and THIS Realtor only) if the homeowner ever decides to sell the property.
This sounds like free money; what is the downside of a Homeowner Benefit Agreement?
While the payment received does not have to be paid back (except in the event of an owner default), the agreements are typically for forty (40) years! Should a homeowner decide to change their mind and cancel the agreement, there is a termination fee that far exceeds the payment received. The actual termination fee will depend on the terms of the agreement, but it is typically in the several thousands of dollars.
What if the homeowner decides to sell its property on its own without an agent (FSBO)?
Under the terms of the Homeowner Benefit Agreement, the owner agrees to list the property with the Realtor when the owner is ready to sell. If the Realtor is not given the opportunity to sell the property as the owner’s agent, the full commission (typically 6%) would still be due to the Realtor when the property is sold. Often, this remains true even if the owner gifts the property, conveys the property for no consideration, or even if the owner dies. Depending on the terms of the agreement, some of these events may not trigger an immediate payment, but the new owner would still be subject to the terms of the agreement.
How can a Realtor enforce a Homeowner Benefit Agreement if it turns out the Owner has a change of heart?
These agreements appear to be valid, legal, and binding. Moreover, they are executed in the presence of a Notary Public and then recorded in the Clerk’s Office for the County where the property is located. This effectively encumbers the title to the property very much like a mortgage or other lien. In order to convey clear title, the Realtor must be paid its commission. Furthermore, unless the agreement is formally released and terminated, the agreement remains an encumbrance on the title binding any subsequent owner for the remainder of the 40-year term.
As a Real Estate Agent, what should I do before taking a listing on a property that might be affected by a Homeowner Benefit Agreement?
The first thing an agent needs to do when considering taking on a new listing is verify that the Sellers have not entered into any such agreement. Before you spend time, money, and marketing resources on a new listing, do your absolute best to confirm that the property you are listing is not subject to a Homeowner Benefit Agreement. You don’t want to do all the work and either not get paid or have to compromise your commission because another Realtor has a legal claim to a full commission.
As a Homeowner, what should I be mindful of before entering into a Homeowner Benefit Agreement?
Before focusing on the $$$ a Realtor might be offering in exchange for a future listing IF you ever decide to sell, READ THE AGREEMENT front to back. Better still, consult with an attorney. Be aware that these agreements are typically for 40 years and will be recorded with the County Clerk creating a lien or encumbrance against the title.
We take no position on the merits of a Homeowner Benefit Agreement; one might be a perfect fit for the right homeowner. However, it seems that many homeowners who have executed such agreements are not fully informed and are surprised – shocked even – when they learn that the choice of a real estate agent has been pre-determined and that there are significant termination fees if they wish to cancel the agreement.
Accordingly, should you have questions or concerns regarding the terms and provisions of a Homeowner Benefit Agreement, we urge you to contact or consult with your local real estate attorney for additional guidance.