Should Buyers Sign Exclusive Agreements With an Agent?
Some Tips for Signing an Exclusive Contract With a Real Estate Agent
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, sometimes referred to as a buyer representation agreement. When the buyer finally decided to make an offer, he ended up writing it with a different agent, leaving the agent unpaid.
It's rarely the buyer's fault because most don't totally understand how the business works and how an agent's compensation is managed. These agreements can be beneficial to everyone involved, putting expectations and an understanding in black and white.
When a Buyer Switches Agents
An agent typically works with a buyer for a few weeks to several months or even longer. The agent's efforts include introducing the buyer to lenders and obtaining loan preapproval letters. Agents might email listings that fit the buyer's requirements and call listing agents to determine availability of properties.
They'll make appointments with sellers to show 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 the buyer calls one day in breathless excitement to announce that they 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.
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 on 100% commission. If there's no sale, there's no pay.
How to Find a Buyer's Agent
A referral is the best way to find an agent. In fact, many buyers are referred to buyers' agents by family, friends, or co-workers. But buyers who are relocating to a new area don't usually have this option.
They can't quickly figure out which agents list most of the homes in certain neighborhoods by going through online listings of properties for sale. But that would mean those agents are likely to specialize in seller representation, not buyer representation, and this isn't always ideal.
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 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 and to find out more about them, but an agent hosting an open house might or might not be its listing agent, so you should ask. Ask for a business card if an agent appears knowledgeable and your personalities mesh, then you can look up the agent's website later for more information.
Agreements Should Be Bilateral
Finding someone you work well with can involve a little trial and error. Likewise, a buyer's agent will also want to feel that a good match is being made with the buyer.
It's often beneficial to lock in your arrangement when you do finally narrow your search down to the professional who's right for you and your needs, and it's someone who's eager to work with you.
Like listing agreements, buyer's broker agreements are typically bilateral. They spell out the rights and duties of both parties. They're essentially a promise in exchange for a promise. The buyer might have the right to fire the agent if the agent doesn't ultimately perform. It all depends on the agreement's terms.
The agreement should also 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 time period that works best for their expectations and needs.
The buyer should not work with another agent to purchase a property during this timeframe.
There's really no boilerplate contract for this situation. Each one can be different and tailored to the needs and concerns of that particular agent and the buyer. Read the fine print carefully so you know what you're getting into, and take it to an attorney if you have questions and concerns. Don't make assumptions.
Some Tips for Buyers
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 even a 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 other agents.
You could end up owing commissions to multiple agents if you sign this type of an agreement with more than one.
Most of these contracts contain a description of the type of property you're looking for. You might want to specify the terms and the areas you'd consider in the contract if you're undecided about areas or locations. This will 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 you later and your contract includes this type of information.
Many agents will accommodate a guarantee request if you ask for it. You'd be released from the agreement if either of you decides 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, too argumentative, or too stubborn.
The rescission 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 usually with the broker, not the agent (although some contracts may be with a specific agent within a brokerage). You can often go to the broker and ask for a replacement agent if you're unhappy with the individual you first selected.