Should Buyers Sign Exclusive Agreements With an Agent?
A buyer's s agreement can help but be savvy before you sign
Ask any buyer's agent who has been practicing real estate for a while and you'll hear sad stories from those who wished they had signed a buyer to a buyer's broker agreement. When the buyer finally decided to make an offer, he ended up writing it with a different agent.
Why Does This Happen?
In defense of buyers, it's rarely their fault. It's often the agent's fault for not explaining how the business works.
An agent typically works with a buyer for a few weeks to several months or longer. His efforts include introducing the buyer to lenders and obtaining loan preapproval letters. He might email listings that fit the buyer's requirements and call listing agents to determine availability.
He'll make appointments with sellers to show homes and drive the buyer from one neighborhood to the next, sometimes touring up to 10 homes a day. He'll show potential homes to buyers and research comparable sales. It's a lot of work.
Then the buyer calls one day in breathless excitement to announce that he and his wife drove by a new subdivision, stopped to look at a model home, and signed a contract to buy a new home from the builder right then and there. Sometimes a buyer adds, "Isn't that fabulous?"
Sure...for the buyer. It's not so fabulous from the perspective of the agent who has just put in months of work he won't be paid for. But in all likelihood, he never explained the logistics of this to the buyer.
Buyer's Agents Expect Compensation
Just as listing agents sign formal listing agreements with sellers, buying agents should expect formal agreements, too. Like listing agreements, buyer's broker agreements are typically bilateral, spelling out the rights and duties of both parties. Bilateral contracts are essentially a promise in exchange for a promise. If the agent doesn't perform, the buyer might have the right to fire the agent.
Finding a Buyer's Agent
Many buyers are referred to buyer's agents by family, friends, or co-workers. In fact, a referral is the best way to find an agent. But buyers who are relocating to a new area don't usually have this option. They rarely have the luxury of building contacts quickly enough to trust a referral source. They need other alternatives.
A buyer can quickly figure out which agents in certain neighborhoods list most of the homes there if she can find online listings of homes for sale. But that would mean those agents are likely to specialize in seller representation, not buyer representation.
You might want to run keyword searches on a search engine instead, such as "downtown Denver buyer's agent". You can also search websites where agents maintain national profiles, such as Realtor.com or Active Rain. You might be able to find exclusive buyer brokerages that specialize solely in buyer representation. These brokerages don't take listings at all.
An agent hosting an open house might or might not be the listing agent so you should ask. Open houses provide excellent opportunities to interact with agents and to find out more about them. If an agent appears knowledgeable and your personalities mesh, ask for a business card. Then, later, you can look up the agent's website for more information.
Should You Sign an Exclusive Agreement?
Little turns buyers off faster than an agent who emails a buyer's broker agreement before they even meet in person. Most buyers need to feel comfortable with an agent before signing. A buyer's agent will also want to feel that a good match is being made with the buyer.
Interviewing a real estate agent can help to ease a buyer's uncertainty, but many buyers are leery of signing agreements. They're concerned that the relationship might not work out. They don't want to be stuck with a crummy agent and that's perfectly understandable. You can take a few precautions to relieve that anxiety.
Some Tips for the Buyer
The term 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 30-day term. It's whatever you can negotiate.
These agreements provide compensation to the agent if you switch agents midstream but end up buying a home that was actually introduced to you by the first agent. It protects the agent by establishing a procuring cause, but you're free to pursue other homes with another agent.
You can tell the agent that you'd prefer to spend a little time getting to know her before signing an exclusive agreement. It's perfectly reasonable to say, "Let's spend an afternoon looking at homes and if I think we can work together, I'll sign an agreement with you before we go out again."
Specify Areas and Terms
Most of these contracts contain a description of the property you're looking for. If you're undecided about areas or locations, you might want to specify the terms and the areas you'd consider in the contract. This will allow you to work with other agents in other areas or at different terms.
For example, you might specify a price range or a neighborhood. If you later decide that you don't want to buy a home in that price range or in that neighborhood, you can choose a different agent to show you homes in another price range or in a new area if your contract includes this type of information.
Ask for a Guarantee
Many agents will accommodate a guarantee request if you ask for it. If either of you decides that the relationship isn't working out or that your personalities clash, you're released from the agreement. You're not cemented to a business arrangement if the agent is too pushy, too argumentative, or too stubborn. The recision of the contract should be in writing and signed by both parties.
The Bottom Line
It's important to understand that any agreement you reach and sign is actually with the broker. Real estate agreements are always made between the broker and the client, not the agent and the client. If you're unhappy with the agent you've selected, you can generally go to the broker and ask for a replacement.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.