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What Is A Buyer’s Agency Agreement And Should You Sign One?

7-Minute Read
Published on November 23, 2020
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When you begin the home buying process, one of the first steps is to find a real estate agent. Upon doing this, the agent may offer you something called a buyer’s agency agreement. Before signing any kind of contract, though, it’s important to know exactly what you’re getting into.

Let’s take a look at the main purpose of a buyer’s agency agreement, how it benefits a buyer’s agent, and how to get out of a contract you’re not comfortable with.

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What Is A Buyer’s Agency Agreement?

A buyer’s agency agreement is a written contract that creates a working relationship between you, as a potential home buyer, and the buyer’s agent you’d like to work with. Sellers sign a similar contract, known as a listing agreement, with their listing agent. Buyer’s agency agreements are also known as buyer-broker agreements.

Written agreements can provide clarity to the relationship between two parties. A prospective home buyer agrees to work with an agent for a period of time, sometimes exclusively, culminating in the payment of a commission by the buyer or seller, as negotiated between the parties. In return, a real estate agent agrees to work solely in your best interests as the client.

What Does A Home Buyer Agree To?

It’s important to understand that real estate agents are paid only when a sale goes through to closing. This means that all the time spent researching, pulling listings and visiting homes goes uncompensated if you decide, for example, to visit a for sale by owner (FSBO) open house on a whim without them and end up making an accepted offer. For this reason, it’s important that you understand how and when your agent will receive commissions and commit to respecting that process.

What Does The Buyer’s Agent Agree To?

The agent, who could also be a broker, a REALTOR® or any one of several titles used to describe someone licensed to handle real estate transactions, is agreeing to solely represent you and your interests, without regard for their own financial interests. The agent is agreeing to disclose all relevant information, negotiate vigorously on your behalf and – in ways both large and small – prevent you from making costly mistakes when you purchase a home.

The Difference Between Agents And Brokers

While these terms are often used interchangeably, they’re not the same. The person with whom you’re visiting homes and poring over listings is your agent. Your agent probably works for a broker, and that broker may employ both listing and buyer’s agents. Brokers have met advanced education and licensing requirements, which in turn authorizes them to employ and manage agents. Your agent may also be a broker who chooses to continue working with buyers.

Understanding The Terms Of A Buyer Agency Agreement

As with any contract, the better you understand its terms, the more effectively you can negotiate the best deal for yourself. Let’s now take a look at some common terms in a buyer’s agency agreement.

Exclusivity

Exclusivity refers to whether you’ll be able to work with other buyer’s agents. In an exclusive buyer agency agreement, you pledge to work with only one buyer’s agent – the one offering you that buyer agency agreement.

If you don’t want to work with one agent exclusively, you can ask for a nonexclusive arrangement. You could sign nonexclusive arrangements with every buyer’s agent in town, if you wish. This means that if you buy a house you looked at with a particular agent, that agent gets paid. But if you look at another house with a different agent, this agent earns the commission. Of course, if you’re trying to buy in a seller’s market, neither agent is likely going to call you first when they spot a new listing. They’re going to call their exclusives first, as they’ll then be certain to earn the commission.

Problems may arise if you sign an exclusive agency agreement with one agent but then end up buying a house through another agent. This scenario could occur if you decide to check out some new construction in the area and end up signing a contract through the seller’s agent. It’s best to contact your agent first so they can negotiate the offer on your behalf. Otherwise, you might be on the hook for your agent’s commission while the seller’s agent gets the full commission paid by the seller or yourself.

Dual Agency

In the days before signing a buyer’s agency agreement became commonplace, agents often represented buyers and sellers in the same transaction. While consumer protection laws around the country have largely limited that practice, it still sometimes occurs, particularly in small towns or rural areas.

Dual agency raises a host of conflict-of-interest issues that you must disclose to both parties, who must then sign off on the arrangement. In some states, dual agency is illegal.

The more common problem occurs when the buyers and sellers are represented by agents working for the same brokerage. Because it’s often the sellers who pay real estate commissions at closing, and because that commission is based on the ultimate purchase price, your buyer’s agent has an inherent conflict, which they should discuss with you upfront. It’s worth noting that in a seller’s market, the seller may have more leverage to make the buyer pay the commission, so it really depends on conditions in your area.

Here’s a type of situation where ethical problems arise. Suppose the seller is selling in a soft market and is highly motivated to sell because of an impending divorce. A good buyer’s agent would get that information for you and use it to justify a lowball offer. The listing agent will know this information but won’t be allowed to share it with the buyer. If these roles were being performed by the same person, you, as the buyer, run the risk of overpaying for the property.

Ideally, you’d have a choice among different brokerages. But many smaller markets simply can’t support multiple real estate brokerages. Alternatively, dual agents can save sellers money because they may be more willing to take a cut in their commission since they won’t have to split it with another brokerage.

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Duration

The agreement will state whether, and for how long, any exclusive term exists. But everything in real estate is negotiable, including the term of a buyer’s agency agreement.

If the buyer’s agent insists on an exclusive working relationship, you’re free to walk away from the deal. Or you could counteroffer a shorter (or trial) period of exclusivity.

Depending on market conditions where you live, the buyer’s agent may not ask you for an exclusive especially if buyers are in short supply. Or you may believe that signing on the dotted line is your best bet to get an early line on listings in highly competitive seller’s markets. Just know that if you sign an exclusive deal and then work with another agent, your original agent could sue you for commissions.

Compensation

Buyer-broker compensation is handled through commission. The average commission paid to the real estate agents involved in the sale of a home is 5% – 6%, depending on the market forces. The buyer, seller or both – if they split it – pays this sum at closing. The listing brokerage immediately splits that with the buyer’s brokerage, and each brokerage pays its agents.

Terms

The typical buyer’s agency agreement will be a preprinted form. It usually features blanks that call for information that defines the type of relationship (exclusive or not), the type of property you’re looking for (single-family home or condo, for example) and the geographic area you’re looking for homes in with this agent.

This means that you may sign exclusive agreements with different agents who work in different areas, if you’ve narrowed your search to neighboring towns, for example. Or if you decide you just aren’t ready to take on the full maintenance responsibility of homeownership, you can make an offer on a condo instead of the single-family home you originally discussed with your agent.

Termination Clause

Most buyer’s agency agreements spell out how to break your agreement. Most of the time, no one’s trying to trap you into doing business with them if you aren’t satisfied. The break usually requires notice in writing and can come from either side, because brokers are also free to walk away from buyers who are difficult to contact or work with. You should never take it on a handshake that the deal is over.

How To Terminate A Buyer’s Agreement

As we all know, we enter exclusive relationships with the best of intentions, but sometimes agreements just don’t work out. Up next, find out how you can proceed when this happens.

Wait It Out

If you aren’t satisfied with the service you’re receiving or just feel like you need a fresh approach, your easiest and best bet might be to simply run out the exclusivity clause and start new with someone else. This is only wise if you’re not in a huge rush to move.

Get It In Writing

If you do want to buy a house relatively soon, you may have to terminate the contract in writing. This usually means writing a letter notifying the agent that you’re no longer interested in working with them and asking them to sign off on the termination. If your agent doesn’t respond, you’re free to write to the brokerage employing the agent and ask them to release you from the contract.

The Bottom Line

Signing any contract means you’re committing to some course of action, and a buyer’s agency agreement is no different. The key is to completely understand its terms and negotiate what’s important to you. Walk away from anything you find uncomfortable but know that your willingness to enter into a contract signals that you’re a serious buyer.

If you want to get the home buying process started, apply online today for prequalification from Rocket Mortgage®, sharing income and asset documentation so you know exactly how much you can afford. You can also speak with one of our Home Loan Experts at (833) 230-4553.

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Miranda Crace

The Quicken Loans blog is here to bring you all you need to know about buying, selling and making the most of your home. Whether you’re thinking about becoming a homeowner, selling your current home or looking to keep your place in tip-top shape, our writers and freelancers bring their experience and expertise to meet you right where you are.