Before You Sign a Buyer-Broker Agreement
Should you sign a buyer-broker agreement with the first agent you meet? Good question. Real estate agents give home buyers tons of documents to sign before buying a home. Some of these documents are not contracts nor agreements, but are disclosures and advisories. Others are actual contracts, to which you may be legally bound.
First, figure out which are disclosures and which are contracts. By signing a disclosure such as a real estate agency disclosure, you are basically indicating that you have received a copy of the disclosure. Remember to read your disclosures and ask questions if you do not understand the content. An agency disclosure is not a buyer-broker agreement.
Contracts, on the other hand, are legal documents—typically bilateral agreements. When you sign a purchase offer, the basic premise is you will give the seller X amount of dollars and the seller will give you the deed. It's a promise for a promise.
Exclusive Buyer-Broker Agreements are Bilateral Contracts
Exclusive buyer-broker contracts differ in language from state to state. Since I am most familiar with the California Association of REALTORS® (CAR) contract, I will use the CAR form for the basis of this discussion. Many other states eventually tend to look at California practices.
- Broker Duties: The broker will locate and identify potential properties for the buyer to consider; disclose material facts, review paperwork, prepare purchase offers, conduct a visual inspection, among other obligations.
- Buyer Duties: The buyer will consider the homes presented, act in good faith, qualify to purchase the property, read documents—especially the buyer inspection advisory—and cooperate with the broker, among other obligations.
Essential Elements of Exclusive Buyer-Broker Contracts
The top four concerns of most home buyers are contained in the buyer-broker contract. Regardless of everything else in the contract, pay attention to the following four components, because these conditions will most dramatically affect you. If you cannot or will not agree to these stipulations, then you might not be ready to sign an exclusive buyer-broker contract.
- Buyer-Broker Exclusivity: You are agreeing to work solely with the broker and, by extension, the agent you have selected. This means you should not ask a different broker to show you property, nor write a purchase offer for you, because your broker is procuring cause. Moreover, your broker/agent will also earn a commission if you buy:
If you later clash with your agent, you are within your rights to ask the broker to assign a new agent to you. Your agreement is with the broker, not the agent.
- Term of the Buyer-Broker Contract: The term of your exclusive buyer-broker contract is spelled out on page one in the first paragraph. That period may be three months, six months, or even three years. This means you are bound to the contractual terms for that length of time. Depending on the proposed complexity and client needs, I might write my exclusive buyer-broker contracts for 360 days. But most agents will also agree to 30 days.
- Buyer Broker Compensation: The exclusive buyer-broker contract stipulates the amount of compensation the broker / agent will earn from you. All real estate commissions are negotiable. Language also clarifies that if another party such as the seller pays the compensation, you are not obligated to pay it yourself. Most MLS listings contain verbiage that says the seller will pay the buyer's broker, which means you will not pay the fee. It is unusual for a buyer to pay an agent directly.
However, if your agent is performing and you try to break the contract by writing a purchase contract with another broker, you may directly owe the compensation because you cannot cancel the contract by yourself (unilaterally).
- Property Description in Buyer-Broker Contract: Paragraph four describes the property to be acquired under the buyer broker contract and its price range. If the property description is a single-family home, for example, you are free to pursue a 20-unit apartment building through another broker. If the acquisition parameters limit the contract to property, say, in a certain county and you decide to buy in an adjacent county, you are not bound to the terms of your exclusive buyer-broker contract.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a broker-associate at Lyon Real Estate in Sacramento, California.