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're indicating that you've received a copy of that disclosure. Contracts, on the other hand, are legally binding bilateral (two-way) agreements.
A buyer-broker agreement is a contract. If you're buying a home, should you sign one? Here are the most important components of the contract you should keep in mind before signing.
What Is a Buyer-Broker Agreement?
A buyer-broker agreement is when you contract with a broker for assistance in buying a home. Signing an agreement means you can't use a broker to find a home, then work around them or sign with another broker.
Buyer-broker agreements differ in language from state to state, but the California Association of Realtors form offers an example of common language and stipulations. In this contract, 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 can't agree to the following, then you might not be ready to sign a buyer-broker agreement.
Brokers typically either own brokerages and employ agents or work independently. By signing, you agree that you will work solely with the broker and, by extension, the agent you have selected.
You shouldn't ask a different broker or agent to show you property or write a purchase offer for you because your broker is procuring cause. Procuring cause refers to which broker is directly responsible for the sale of the home. If, however, 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 the organization's code of ethics.
The Term of the Buyer-Broker Agreement
The term of your buyer-broker agreement refers to how long the contract will last. It's typically spelled out in the first paragraph of the contract, and you're 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.
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 listings also state that the seller will pay the buyer's broker. It's unusual for a buyer to pay an agent directly. However, if your agent performs and you try to break the agreement by contracting with another broker, you may directly owe the compensation 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 example, if the property to be acquired is described as a single-family home, you're free to pursue a 20-unit apartment building through another broker. If the acquisition parameters limit the contract to property 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.
Breaking the Buyer-Broker Agreement
The buyer-broker agreement is binding for both parties, so getting out of it might be difficult. You can ask to be released by the broker if you're dissatisfied. If you ask to be released and the broker doesn't agree to it, the next steps vary depending on your contract's terms.
The California standard buyer-broker agreement requires buyers and brokers to start with mediation if there's an issue 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. Since the agreement is a legal contract, if either party doesn't abide by the terms, the other party has the right to seek legal enforcement of the contract unless they've agreed to arbitration.