Real estate agents don’t just work for home sellers, they assist buyers too! Hiring an agent makes the process easier for a first time home buyer who doesn’t know what to do first. But if you are planning to hire a buyer’s agent, your agent may ask you to sign a buyer representation agreement or BRA.
Don’t be scared when your agent asks you to sign one but don’t be hasty either! A buyer’s rep agreement is common but before you pick up that pen, it pays to know what the agreement means.
Buyer Representation Agreement Explained
Also known as a buyer broker agreement, a buyer rep agreement is a contract between the buyer and the agent. This agreement details the role of your real estate agent and what he or she expects from you in return.
Like most contracts, buyer representation agreements can be full of legalese. So, you may want to consult your lawyer. But here’s a breakdown of the most common concerns buyers like you have about BRAs.
Why Do Buyer Agents Ask Clients To Sign A Buyer Rep Agreement?
It mainly boils down to an agent’s compensation.
Buyer agents are paid by commission. When they work buyers like you, they spend time and money in locating properties and negotiating transactions on your behalf. Without an agreement, you can chase agents as you please. The agent who worked the hardest may not receive his or her real estate commission.
Consider this scenario.
You have been working with Agent Anna for some time. Suddenly, you meet another agent and decide to ask for his assistance to buy a home introduced by Agent Anna. If this happens, Agent Anna’s efforts will go to waste.
At first glance, the buyer representation agreement seems to protect the interests of your agent. But you can also reap benefits from signing it.
How Does Signing A Buyer Rep Agreement Benefit The Buyer?
When you sign the buyer representation agreement, your agent would feel more confident about working with you. This means that he or she will put in more effort into helping you. You can receive a higher quality of service when you sign the agreement. The agreement also outlines your agent’s responsibility and your duties as a client. If you ever have any disagreement with your agent, you can refer to the agreement to settle the dispute.
What Does A Buyer Rep Agreement Cover?
Each buyer rep agreement is unique but they have the same elements. So, when you receive a BRA, pay extra attention to these five areas.
Most agreements specify if it is exclusive or not. A nonexclusive agreement allows you to hire as many agents as you want. Meanwhile, an exclusive agreement requires you to work with only one agent or broker. In some cases, you can change the agent but not the broker unless you terminate the agreement.
Are buyer broker agreements enforceable?
Yes! Buyer rep agreements are valid within the term specified. This leads to another major question – how long is a buyer’s agent contract valid?
Most contracts have a period of six months, but it can be as short as three months or span for more than a year.
Always pay attention to the term of the agreement. The period covered is usually in the first paragraph. Aside from the term, you also have to look out for the holdover clause.
A holdover clause extends your relationship with your agent after the term expires. The holdover clause will apply to properties introduced to you by your agent. If your BRA includes this clause, the holdover period should also be stated clearly.
For instance, your BRA has a term of 6 months and a holdover period of 60 days. You did not buy a home within those six months and your BRA has expired. Thirty days after your BRA expired you decide to buy one of the properties introduced by your agent. Since the holdover clause is in effect, your agent should still receive a commission even if the BRA had already expired.
Sellers usually pay the agent commission not the buyer. But your BRA might include a commission agreement that stipulates a minimum commission. This commission can be a flat rate or a percentage of the purchase price.
If there is a minimum commission, you have to pay your agent if the seller doesn’t offer a commission. Moreover, if the commission is lower than the minimum amount in the contract, you have to pay the difference.
Always pay attention to this section to avoid misunderstandings later. Take note that these minimum commissions are negotiable. It’s better to discuss this issue with your agent to know how much you’ll owe under different scenarios.
#4: Property Description
The property description in your buyer representation agreement refers to the type of property and price range you are looking for. This section matters because the description is part of the scope of the agreement.
For example, your BRA specifies that you agree to hire Agent James to help you find a single-unit family home. Based on this agreement, you can hire another agent to look for another type of property. So, if you’re interested in a 10-unit apartment, you’re free to hire Agent Kelly, for instance.
Some agreements also specify the location of the property. If the agreement specifies the location of the property as County X, you can hire another agent to help you find a home in County A.
When drafting agreements, it’s safer to be more specific about the property description.
Every buyer’s rep contract is different, and the wording may also vary by state. However, brokers are required to make certain disclosures relevant to the transaction.
Brokers should disclose if they are dual agents, for instance. Dual agency means that the broker represents both the buyer and the seller in the transaction. If your agent acts for both sides, he or she needs to make full disclosure. It also requires your consent.
Another case where your agent needs to make a disclosure is when the property comes with a net listing agreement. In a net listing agreement, the seller sets a net price for the property. If the property sells at a higher price, the agent can keep the excess over the net price as commission.
Net listing agreements are illegal in most states including New York, Georgia, Virginia, and New Jersey. In other states like California, this type of agreement is allowed but there are strict rules.
Do You Need To Sign A Buyer Representation Agreement?
It’s legal to hire an agent without an agreement but it is safer to have everything in writing.
You are not required to sign a buyer’s agreement. But if you do, it means that you agree to work only with the agent for a specified period. Remember that every buyer representation agreement is different, so always read the fine print.
On the upside, buying a home is not required within the said period.
What Are The Most Common Types Of Buyer Rep Agreements?
All buyer rep agreements outline the type of relationship between the buyer and the agent. It also includes the duties and obligations of both parties. But if your agent asks you to sign a BRA, you would most likely have to sign one of these agreements.
Nonexclusive, Not For Compensation
If your BRA is nonexclusive and not for compensation, you may hire more than one agent or brokerage.
Under the terms of this agreement, the buyer is not obligated to compensate the agent. However, the buyer can demand single agency. This means that the agent under contract should only represent one party in the transaction, who in this case is the buyer. This open buyer agency agreement can usually be revoked by either party at any time.
Nonexclusive, Right To Represent
A nonexclusive, right-to-represent agreement allows you to hire more than one agent. However, you have to pay the agent’s commission if you buy a property shown by the agent.
This agreement usually specifies that if the seller pays the agent commission, the buyer doesn’t have to compensate the agent. Since the agreement is non-exclusive, the buyer can purchase a property with another agent as long as the property was not shown by the agent under contract.
Like the non-exclusive, not-for-compensation contract, you can demand single agency. This way, your agent will only represent one party in the transaction. This type of agreement provides for cases for which you can terminate the agreement.
Exclusive, Right To Represent
Most brokers will request an exclusive buyer agency agreement. Under an exclusive buyer agency, you can only hire one broker.
An exclusive buyer broker agreement specifies the commission that should be paid to the broker within the specified term. This commission should be paid even if the buyer finds the property or if another broker introduces the property to the buyer. If another party pays the commission, the buyer doesn’t have to shoulder the agent’s compensation unless the agreement requires a minimum compensation and the commission is lower than the specified amount.
The term of an exclusive right to represent buyer agreement is usually three months to one year. Here’s a sample exclusive right to represent contract.
Should You Sign A Buyer Representation Agreement?
Signing a buyer’s representation agreement comes with obligations and responsibilities. Read the contract carefully and ask your agent if you have any questions. You can also consult a real estate attorney if you have other concerns. Never sign anything without reading the full document.
Some agents may agree to work with a buyer who is not willing to sign the agreement, but they may not give it their full effort. Since there’s no assurance that they’ll receive the commission, you may not receive top service.
Keep in mind that everything can be negotiated. If you are hesitating because of the term, request for a shorter term.
Don’t forget to study the grounds to terminate the contract. Check the consequences for early termination and the expiration date.
If you’re interested in receiving a cashback, it would be great to confirm and negotiate it at this point. Even after reviewing the contract and you’re still unsure, ask for a test run. Discuss this with the agent and ask him or her to show you some properties first. This way, you can get a better feel about the way the agent operates. This can also help you decide if you should sign a BRA with that agent or not.
Can I Terminate A Buyer Representation Agreement?
Yes, you can terminate a real estate agent contract. Ghosting your agent is never a good idea especially if you signed a buyer’s rep agreement.
Changing real estate agents as a buyer should be a formal process. Even if you never liked your agent, you should always do it right. Here are some things you can do if you are thinking about terminating the agreement.
Discuss Things With Your Agent And Broker
Take the time to sit down with your agent and his or her broker. Explain any concerns you have. If you can resolve the issues during this meeting, you may change your mind about ending the contract.
If you can’t have a reasonable conversation with your agent, talk to the broker. The BRA you signed is actually with the broker, not the agent. Going directly to the boss that your agent reports to might help you resolve the issue. Brokers also have more experience in real estate. So, they may help you address any problems you may have.
In some cases, the broker may assign you another agent. The broker may also agree to terminate the agreement without the approval of your agent.
Likewise, if your agent leaves the brokerage, your agreement may still be in force. If you like that agent, you have to terminate the old agreement. After ending the agreement, sign a new one with the agent under a new broker.
See What The Contract Has To Say
Your buyer’s rep agreement specifies situations that allow you to end the contract before the expiration. Most contracts require you to submit a termination of buyer agency form or letter. Most agreements may be terminated by either party.
Even when changing realtors, etiquette should still be observed. Be professional but diligent – get a signed copy of the termination form.
Consult A Legal Representative
If you’re not making any progress with the agent or the broker, you may have to seek legal help.
However, this should always be a last resort. It’s better to settle the issue without a third party since buyer agreements have a limited term. Most brokers will also agree to release you from the agreement.
Make Buyer Representation Agreements Work For You
Most real estate professionals prefer to have everything in writing and you should too!
Signing a buyer rep agreement with the right agent can be the right move. But when your agent gives you the agreement, don’t sign right away. Always comb through your BRA with the diligent eyes before signing and do the following:
- Understand what you’re agreeing to. If needed, ask the agent to give you more time to study the document. Go over the document with your lawyer if you have doubts.
- Negotiate terms. Getting stuck with a buyer’s representation agreement with unfavorable terms can be frustrating. If you think the term is too long or the description is too broad, raise these concerns with your agent.
- Ask for a test run. If you have never worked with the agent before, spend some time with him or her. Visit some properties and get to know how the agent during the process.
Hiring the right agent can make a big difference in your home buying journey. Your agent can provide advice on many things such as the contingencies to include in the real estate purchase agreement. Agents take care of the negotiation process and so much more.
Never sign a buyer representation agreement with an agent you have issues with. Hiring an agent requires trust. And, you have every right to choose someone you are comfortable with.
If you feel pressured about making it official with your agent, remember this –the right time to sign the buyer representation agreement is when you are confident about working with an agent.