What You Need to Know Before You Sign a Buyer-Broker Agreement

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You'll be asked to sign a lot of documents before buying a home. But some signatures will be more important than others.

Real estate agents will ask you to sign a number of disclosures, advisories, and contracts during the process. When you sign a disclosure, you're simply agreeing that you've received a copy. But contracts, on the other hand, are legally binding agreements.

A buyer-broker agreement is a contract. It sets up the relationship between the buyer and the broker. If you're buying a home, should you sign one? Here are the key parts of this type of contract. Keep these in mind before moving forward.

What Is a Buyer-Broker Agreement?

A buyer-broker agreement is when you contract with a broker for help in buying a home. Signing one means that you can't use a broker to find a home, then work around them or sign with another broker.

These agreements differ from state to state. But the California Association of Realtors form offers an example of common language. In this contract, the buyer-broker relationship is defined by these duties:

  • Broker's duties: The broker will (among other things) find properties for the buyer to consider, disclose material facts, review paperwork, prepare purchase offers, and conduct a visual inspection.
  • Buyer's duties: The buyer will (among other things) 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.

Essential Elements of Buyer-Broker Agreements

If you can't agree to these terms, then you might not be ready to sign a buyer-broker agreement.

Buyer-Broker Exclusivity

Brokers either own brokerages and employ agents or work independently. By signing, you agree that you will work solely with the broker and the agent you have chosen.

You shouldn't ask a different broker or agent to show you a home or write a purchase offer for you. This is because your broker is the "procuring cause." This term refers to which broker is directly responsible for the sale of the home.

But, if you clash with your agent, you have the right to ask the broker to assign a new agent to you. Your contract is with the broker, not the agent.

Realtors are real estate professionals, including agents and brokers, who are members of the National Association of Realtors. Realtors must abide by NAR's code of ethics.

The Term of the Buyer-Broker Agreement

The term refers to how long the contract will last. It's often spelled out in the first part of the contract. You are bound to the terms of the buyer-broker agreement for that length of time. Depending on your needs, you may want a term as long as 360 days. But, most agents will agree to 30 days.

Buyer-Broker Compensation

The buyer-broker agreement states the amount of compensation the broker and agent will earn from you. That said, all real estate commissions are negotiable.

The agreement clarifies that you are not obligated to pay if another party, such as the seller, pays it instead. Most listings also state that the seller will pay the buyer's broker. It's unusual for a buyer to pay an agent directly. But, if your agent performs and you try to break the agreement, you may directly owe the compensation. This is because you can't cancel the contract by yourself.

The Property Description in the Buyer-Broker Agreement

The agreement should describe the type of property to be acquired and its price range. For instance, if the contract states that you are looking for a single-family home, you're free to pursue a 20-unit apartment building through another broker. If the fine print limits the contract to homes in a certain county and you decide to buy in an adjacent county, you are not bound to the terms of your agreement.

Breaking the Buyer-Broker Agreement

The buyer-broker agreement is binding for both parties. So, getting out of it might be tricky. You can ask to be released by the broker if you're not happy. If the broker doesn't agree to it, the next steps depend on your contract's terms.

Many buyer-broker agreements will say that buyers and brokers must start with mediation if there's a problem with commissions. Any other issues can be settled by going to court. The buyer and broker can also agree to resolve any other disputes through arbitration rather than court.

The agreement is a legal contract. If either party fails to abide by the terms, the other party has the right to seek legal enforcement of the contract.