What You Need to Know Before You Sign a Buyer-Broker Agreement
Real estate agents give home buyers many documents to sign before buying a home. These documents include disclosures, advisories, and contracts. When you sign a disclosure, you basically indicate that you have received a copy of that disclosure. Contracts, on the other hand, are bilateral agreements that are legally binding.
Contracts include buyer-broker agreements. Should you as a home buyer sign a buyer-broker agreement? Here are the most important components of the contract you should keep in mind before signing.
Buyer-Broker Agreements as Bilateral Contracts
Buyer-broker agreements 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.
Pursuant to the agreement, the buyer-broker relationship is defined by the following duties:
- Broker's Duties: The broker will (among other things) locate and identify potential 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 cannot or will not agree to the following, then you might not be ready to sign a buyer-broker agreement:
- Buyer-Broker Exclusivity: You will work solely with the broker and, by extension, the agent you have selected. You should therefore not ask a different broker to show you property, nor write a purchase offer for you, because your broker is procuring cause. If, however, you have clashes 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.
- Term of the Buyer-Broker Agreement: The term of your buyer-broker agreement is spelled out in the first paragraph on page one. You are bound to the contractual terms of the buyer-broker agreement for that length of time. Depending on the proposed complexity of the transaction and 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 stipulates the amount of compensation the broker and agent will earn from you. That said, all real estate commissions are negotiable. The language of the agreement clarifies that you are not obligated to pay compensation if another party, such as the seller, pays it instead. Most MLS listings also contain verbiage that says the seller will pay the buyer's broker. It is unusual for a buyer to pay an agent directly. However, if your agent performs and you try to break the agreement by writing a purchase contract with another broker, you may directly owe the compensation because you cannot cancel the contract by yourself.
- Property Description in Buyer-Broker Agreement: Paragraph one of the agreement should describe the property to be acquired and its price range. If, for instance, the property to be acquired is described as a single-family home, 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 buyer-broker agreement.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a broker-associate at Lyon Real Estate in Sacramento, California.
California Association of Realtors. "Buyer Representation Agreement - Exclusive." Accessed Feb. 10, 2020.