More than ever before, real estate brokers are promoting the use of buyer agency agreements — a contract stating that the broker will represent the buyer as his agent and that the broker’s job is to find a suitable property for the buyer.
Because these agreements are legally binding and give the broker specific authority, buyers should fully understand their rights and responsibilities before signing on the dotted line.
These agreements are promoted as giving buyers a stronger level of representation due to the fiduciary relationship they create. Once the agreement is signed, the broker must champion the buyer’s interest every step of the way.
Three types of buyer agency agreements are used by today’s realtors:
1.Exclusive buyer agency agreement (or exclusive right to represent)
With this completely exclusive agency agreement, the buyer is legally bound to compensate the agent at the time when the buyer purchases any property of the same type as described in the contract. Regardless of whether he or she locates the property, the broker is entitled to payment. Even if the buyer finds the property on is own, the agent is still owed payment.
2.Exclusive-agency buyer agency agreement
Similar to an exclusive buyer agency agreement, this exclusive contract is between the agent and the buyer. But with this type of agreement, a limit is placed on the broker’s right to payment; the broker is entitled to payment only if he or she actually finds the property that the buyer purchases. Therefore, the buyer is free to locate a suitable property with no obligation to pay the agent.
3.Open buyer agency agreement
This is a nonexclusive agency contract between a buyer and a broker permitting the buyer to enter into similar agreements with an unlimited number of other brokers. Only the broker who actually locates the property that the buyer eventually purchases is entitled to compensation.
Before entering into a buyer agency agreement, there are some important considerations for the broker and buyer to discuss. First of all, the broker should make the same disclosures to the buyer that he or she would make to a seller in a listing agreement. The buyer should fully understand the three types of agency available and the parties rights and responsibilities under each of them. This means that the broker should clearly explain the specific services provided to a buyer-client entering into each type of agreement.
In addition, the matter of compensation must be discussed in detail. For instance, buyer’s agents may be paid a flat fee for services, an hourly rate, or a percentage of the final purchase price. In some cases, an agent may request a retainer fee upon signing the agreement, in order to cover the initial listing and promotional expenses. This retainer fee may be applied as a credit toward any fees due at the time of closing. A buyer’s agent also may be compensated by sharing the commission that the seller pays.
Buyer agency agreements provide agents a comforting level of reassurance that their efforts will not go unrewarded, motivating them to work even harder for the buyer. Of course, for buyers they must balance provide financial guarantees to agents against the risk of limited or poor performance.