The Broker-Buyer Agreement And Why You’ll be Hearing More About Them

For years in this country, working agreements between a buyer and a real estate agent amounted to a handshake agreement, and sellers have been the ones to pay both sides of a transaction through the commission portion of a listing agreement. More and more, however, buyer’s agents are routinely asking for a document known as a buyer-broker agreement to be signed upon developing a working relationship. Below is a description of the buyer-broker agreement, why things have recently changed, and how to navigate your own buyer-broker agreement. 

What is a Broker-Buyer Agreement?

This formal agreement is between a buyer—the person, people or entity purchasing a property—and the real estate professional helping them do just that. Among other things,  it includes a guarantee of payment to the buyer’s agent should the seller not offer compensation. Like all contracts, the document outlines the fiduciary responsibility (AKA the legal responsibility to put their client’s needs above their own) of the buyer’s agent to help the signer find a home that meets their need, ensure they understand what’s in the property contract, and help them draft, present and navigate that until the contract is fulfilled. 

It is the agent’s responsibility to advise their client of appropriate contingencies within that document to:

  • have a good working knowledge of standard language within that contract (while being careful to not overstep into legal advice)
  • advise of the dangers of keeping or dropping certain contingencies
  • do their best to make sure they buyer is not being taken advantage of and understands what they are signing
  • help ascertain that the home is worth what the buyer is offering
  • work with the buyer on making an offer and navigating the transaction with all parties involved, which includes but is not limited to title officers, lenders, other agents to the transaction, inspectors (multiple), insurance agents and attorneys if one is needed

The buyer-broker agreement, then, is a legally-binding document designed to protect both parties. It’s an outline of the agent’s responsibilities, the terms of the agreement between agent and buyer, and it clarifies how the agent will be compensated, which can vary depending on the type of agreement you have:

  • Exclusive right-to-represent contracts are the most common. This document specifies what the agent will do for the buyer and clarifies obligations. The biggest takeaway for this type of contract is that once you’ve signed, you’re no longer permitted to work with another agent during the time specified in the contract.
  • Non-exclusive right-to-represent contracts, on the other hand, can be broken by either party. You’re free to work with any agent of your choosing. You’ll still benefit from the fiduciary privileges of agent representation when you see homes with that particular agent, but you aren’t exclusively tied to working with him or her. In the event of a purchase, you won’t have to make up any compensation not paid by the seller, either.

Buyer-broker agreements are full of legalese, and regardless of the type of agreement you sign, they share similar components:

  • Duties. This section outlines the broker’s responsibilities, which can include showing your properties that meet your needs, explaining documents, procedures and disclosures, helping you write and submit your offer, monitoring contingency time limits and supporting you on closing day.
  • Term length. This is one of the first details laid out in the contract. Generally, they last six months, though some agents might request a full year or just 30 days. It’s a negotiable term, so you’re welcome to talk it over with your agent.
  • Termination. So, what happens if something goes wrong, and you’re no longer happy with the agent with whom you signed the agreement? It’s usually possible to terminate the agreement if either party is unsatisfied with the arrangement, and how you’ll do this is outlined in this section of the contract.
  • Compensation. There are generally two items listed in this section: retainer fee and payment. Retainers compensate agents for their time and expenses incurred looking for a buyer’s dream home. Payments will vary, because commission rates likewise vary. But buyers are rarely responsible for real estate commissions. Instead, sellers pay their agent (the listing agency) all commission costs upon a finalized transaction, and the listing agency pays the buyer agency. That will vary if you’re buying a home that’s for sale by owner, of course. And actually, recent settled lawsuits have changed the landscape as we practice it in the U.S.—more on that below.
  • Representation. This section clarifies the type of representation you have. It could be designated, which means your agent can show homes listed by other agents from their agency. It could also be dual, which means you’re agreeing to see properties that your agent has listed with other sellers, in which case your agent will represent both sides of the transaction. 
  • Exclusivity. This section covers any exclusivity rights to which the buyer agrees.
  • Property description. This outlines the type of property you want to buy,  along with the price range.

Why Broker-Buyer Agreements Now?

A recent set of antitrust lawsuits with some of the country’s largest brokerages have made their way through the courts and are in the process of being settled. The argument focused on collaboration to fix real estate commissions. Whether true or not, the net is this: “The settlement agreement also commits RE/MAX to making ‘certain changes to its business practices,’ ” according to the SEC document filed Monday. Among the changes is to no longer require sellers to pay buyer’s agents’ commission, clarifies Michael Ketchmark, one of the lead attorneys in the Sitzer/Burnett case. Without getting too far into the weeds, this means there is no longer any guarantee the work a real estate agent puts in for their buyer will be paid by the seller. 

My Take on Broker-Buyer Agreements

Full disclosure—I’ve never had a buyer sign a buyer-broker agreement, primarily because I’ve never had to. I’ve always operated under the premise that if I was providing value, my clients wouldn’t feel the need to look elsewhere. The sellers pay the commissions anyway and I wanted my buyers to feel that working with me was a choice, not an obligation. By and large, that has served me well over my 29-year career. But with the recent lawsuits, using a buyer-broker agreement is going to prove necessary for most agents who represent buyers—myself included. 

Personally, I don’t think it’s good for the industry as a whole. This is the way real estate is transacted in Australia and France, where only the listing agents are guaranteed payment. But what ends up happening is buyers who are unsure of who to trust and loathe to sign a binding commitment while they are figuring it all out end up with no one protecting their interests. Listing agents end up ruling the world and offering less and less information to buyers because, quite frankly, they don’t have to. As I’ve also seen, buyers may be coerced into signing a binding working relationship with a newer agent or real estate teams that rely on a fresh cadre of agents to be ‘showing agents,’ a scenario in which where the senior agent who typically hasn’t seen a property navigates the offer. That is not a good way, in my opinion, to catch little things an experienced agent would notice, like a garage that is too narrow to fit a normal sized car (as happened recently but wasn’t specifically disclosed or obvious until you measured!).

That said, the broker-buyer agreement is here, so now more so than ever getting a referral for an agent from someone you know is going to be key. Need a good agent in your area where I don’t work? Call me, I can help! There’s much to be said about a referring agent keeping an eye out for you.

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