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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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If you’re even entertaining the notion of buying a house, you might feel like you can’t wait to start looking at homes. As with any journey, you feel enthusiastic and hopeful in those early days.

The process hasn’t gotten old yet, and you haven’t made a few too-late or too-low offers. It’s during those initial happy days that you'll first start meeting agents, who will ask you to sign buyer agency agreements. They might even ask for exclusivity. Before you sign, though, make sure you understand what you and your future agent are agreeing to do.

What Is A Buyer’s Agency Agreement?

A buyer’s agency agreement is a written contract that creates an agency (more on that below) 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. These agreements are also known as buyer’s agency agreements, buyer-broker agreements, or exclusive buyer agency agreements.

Don’t let the term “contract” scare you off. Written agreements 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 seller. In return, a real estate agent agrees to work solely in the best interests of 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. That 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 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 a number of titles used to describe those licensed by the state in which you’re looking to sell real estate, is agreeing to solely represent you and your interests, without regard to their own financial interests. That’s what the term “agency” means in law –that the agent is working as you would, representing your interests. The agent is an extension of you. They’re agreeing to disclose all relevant information, to negotiate vigorously on your behalf and – in ways both large and small – to prevent you from making costly mistakes when you purchase a home.

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Understanding The Terms Of The Contract

As with any contract, the better you understand its terms, the more effectively you can negotiate on your behalf.

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.

Exclusivity

Exclusivity refers to whether you'll be able to work with other buyer’s agents. In an exclusive arrangement, you agree to work only with this buyer’s agent. If you work exclusively with Agent Michael, they know you’re serious about the relationship and promise top-notch service.

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. That means that if you look at a house with Agent Dwight, and buy that house, Dwight gets paid, but if you look at another house with Agent Jim, Jim earns the commission. Of course, if you’re trying to buy in a seller’s market, neither Dwight nor Jim 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 arise when buyers sign an exclusive deal with Michael but then end up buying a house through Agent Pam. These situations arise when buyers decide often on the spur of the moment, to check out some new construction in the area, and end up signing a contract through the seller’s agent. You should contact Michael first so that they can negotiate the offer on your behalf. If you don’t, you might be on the hook for Michael’s commission while the seller’s agent gets the full commission paid by the seller.

Dual Agency

In the days before signing a buyer’s agency agreement became commonplace, agents often represented both 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.

Conflict-Of-Interest Issues

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

The more common problem occurs when both the buyers and sellers are represented by agents working for the same brokerage. Because it's 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.

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, let’s say 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.

Now think if both the listing and buyer’s agent work for the same broker. Would you feel satisfied that your buyer’s agent didn’t tell you because they didn’t know, or would you always wonder if they kept that information from you to maximize the broker’s profits? And if it’s the latter, would that bother you? Or are you the type of person who would simply be glad to have the deal done as simply as possible?

The Pros And Cons Of Dual Agency

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

Duration

The agreement will state whether, and for how long, any exclusive term exists. Remember: in real estate, everything is negotiable.

If the buyer’s agent insists on an exclusive working relationship, you’re free to walk away from the deal altogether. You’re probably better off learning about their high-pressure tactics earlier rather than later. Or you could counteroffer a shorter (or trial) period of exclusivity.

Depending on market conditions where you live, you may not be asked for an exclusive, if buyers are in short supply. Or you may feel as if your best bet to get an early line on listings in highly competitive seller’s markets is by signing on the dotted line. Just know that if you do sign an exclusive deal, and then work with another agent, you could be sued for commissions by your jilted agent.

Compensation

The average commission paid to the real estate agents involved in the sale of a home is 5% – 6%, depending on the market forces. That sum is paid by the seller 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 vs. 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’d originally discussed with your agent.

Termination Clause

Most buyer-broker agreements spell out how to break your agreement. Remember that no one’s trying to trap you into doing business with anyone you aren’t satisfied with. The break can come from either side, because brokers are also free to walk away from buyers who are difficult to contact or work with. Usually, it requires notice in writing. 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 things just don’t work out. When that happens, you need to figure out how best to proceed.

Wait It Out

If you aren’t satisfied with the service you’re receiving or you 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. Of course, this is only good advice if you’re not in a huge rush to move.

Get It In Writing

If you need to buy a house pronto, you may have to terminate the contract in writing. That 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.

Commit To Your Buyer-Broker Contract

Signing any contract means you’re committing to some course of action, and a buyer’s agreement is no different. The key is to completely understand its terms and to negotiate those that are important to you. Walk away from anything you find uncomfortable, but know that your willingness to enter into a contract signals your seriousness of purpose. In the meantime, learn more about the home buying process in our Learning Center.

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