Should a Buyer Sign an Exclusive Contract With a Real Estate Agent?
Tips for Signing an Exclusive Contract with a Real Estate Agent
Having a buyer's broker agreement in place, sometimes referred to as a "buyer representation agreement" or a "buyer's agent agreement," can ensure that at least some payment is made to an agent if their buyer ends up making an offer on a property with a different agent. This can happen after the first agent has gone to a lot of time, effort, and expense to help that buyer get the house of their dreams.
It can be beneficial for everyone involved to have an exclusive contract with a real estate agent in place, particularly if you use these tips to negotiate the terms to your best advantage. You can put your expectations and the understanding between you in black and white writing.
Why Agents Want an Exclusive Buyer Agreement
An agent typically works with a buyer for a few weeks to several months, and sometimes even longer. The agent's efforts include introducing the buyer to potential lenders and obtaining loan pre-approval letters. Agents might email listings that fit the buyer's requirements, or call listing agents to determine the availability of properties.
They'll make appointments with sellers or their agents to show their homes, and they'll drive their buyers from one neighborhood to the next, sometimes touring up to 10 homes a day. They'll research comparable sales. It's a lot of work.
Then perhaps the buyer calls one day in breathless excitement to announce that they've made up their mind about a property they've previously seen with their agent, and they've signed a contract to buy the home right then and there, without their agent's knowledge or assistance. That's great . . . for the buyer. It's not so great for the agent who has put in months of work for no compensation.
Real estate agents work 100% on commission. An exclusive buyer agency agreement provides a measure of compensation if you switch agents midstream and buy a home that was introduced to you by the first agent. It protects the first agent by establishing a procuring cause. You're free to pursue other homes with other agents. You're just giving the first agent dibs on earning a commission for properties they've already shown you.
You could end up owing commissions to multiple agents if you sign this type of agreement with more than one.
How a Buyer’s Agent Agreement Benefits the Buyer
Your agent wants to ensure that they'll be paid if you end up purchasing a property that they've already put time and energy into showing to you, but there's something in it for you, too. Your agreement can provide when and how you can end your contractual relationship them if you're unhappy with their service for one reason or another.
Many agents will accommodate this type of guarantee request if you ask. You'd be released from the agreement if either of you were to decide that the relationship isn't working out, or that your personalities clash. You're not cemented to a business arrangement if the agent is too pushy or stubborn, or just doesn't seem to be hearing you when you try to explain the type of property you're looking for.
A Contract With a Real Estate Agent Should Be Bilateral
A buyer's agent will also want to feel that a good match is being made with the buyer. Like listing agreements, buyer's broker agreements are typically bilateral. They spell out the rights and duties of both parties. The buyer might have the right to fire the agent if the agent doesn't ultimately perform. It depends on the agreement's terms.
The agreement should spell out its duration, such as whether it will expire at the end of three months or automatically roll over into a new contract at that time. Buyers and agents can work out the period that works best for their expectations and needs. There's really no boilerplate contract for this situation. Each contract can be tailored to the needs and concerns of that particular agent and the buyer.
A buyer should not work with another agent to purchase a property during this timeframe.
Read the fine print carefully so you know what you're getting into, and take the agreement to an attorney for review if you have any questions and concerns. Don't make assumptions, because this is a legally binding contract.
Tips for Negotiating a Buyer's Agent Agreement
The duration of a buyer's broker agreement is negotiable. Many agents request a 90-day commitment at a minimum, but you're always free to ask for a 24-hour, seven-day, or even 30-day term. It's whatever you can negotiate.
Most of these contracts contain a description of the type of property you're looking to buy. You might want to specify both the terms and the areas you'd consider in the contract if you're undecided about areas or locations. This clause would allow you to work with other agents in other areas or at different terms.
For example, you might specify a certain price range. You can choose a different agent to show you homes in another price range if your contract includes this type of information.
Many agents will accommodate a guarantee request if you ask for one. You'd be released from the agreement if either of you were to decide that the relationship isn't working out or that your personalities clash. You're not bound to a business arrangement if the agent is too pushy, too argumentative, or too stubborn.
The rescission of the contract should be in writing and signed by both parties.
How to Find a Good Buyer's Agent
Finding someone you work well with can involve a little trial and error, but a referral is generally the best way to find an agent. Many buyers are referred to buyers' agents by family, friends, or co-workers, although those who are relocating to a new area don't typically have this option.
They can quickly figure out which agents list most of the homes in certain neighborhoods, however, if they go through online listings of properties for sale. But this would mean that those agents are likely to specialize in seller representation, not buyer representation, and this isn't always an ideal situation.
You might want to run keyword searches online instead, such as "downtown Denver buyer's agent." You can also search websites where agents maintain national profiles, such as Realtor.com or ActiveRain. You might be able to find exclusive buyer brokerages that specialize solely in buyer representation. These brokerages don't take listings from sellers at all.
Open houses provide excellent opportunities to interact with agents as well, but an agent who's hosting an open house might or might not be its listing agent. Ask for a business card if an agent appears knowledgeable, and your personalities seem to mesh. You can look up the agent's website later for more information.
It's often beneficial to lock in your arrangement when you finally do narrow your search down to the professional who's right for you and your needs, and when it's someone who's eager to work with you.
The Bottom Line
Any agreement you reach and sign is usually with with the broker, not the agent, although some contracts might be with a specific agent within a brokerage. You can often go to the broker and ask for a replacement agent in this case if you're unhappy with the individual you first selected.