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

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 aren’t comfortable with.

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 clarify the relationship between the 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, the real estate agent’s job is 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 only paid 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 offer that’s accepted. For this reason, it’s important that you understand how and when your agent will receive a commission and commit to respecting that process.

What Does The Buyer’s Agent Agree To?

Your agent can also be referred to as a broker, a REALTOR® or any of the several titles used to describe a licensed professional who handles real estate transactions. Regardless of their title, your agent is agreeing to solely represent you and your interests, without regard for their 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 you’re visiting homes and poring over listings with is your agent. Your agent probably works for a broker, and the broker may employ both listing and buyer’s agents. Brokers have met advanced education and licensing requirements that authorize 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 the terms, the more effectively you can negotiate the best deal for yourself. Let’s 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. With an exclusive buyer agency agreement, you pledge to work with only one buyer’s agent – the one offering you the buyer agency agreement.

If you don’t want to work with one agent exclusively, you can ask for a nonexclusive arrangement. You can 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 to call a client with a nonexclusive agreement first when they spot a new listing. Agents will likely call clients with an exclusive buyer’s agent agreement first because they’re more likely to earn a commission.

You may run into a problem if you sign an exclusive agency agreement with one agent but buy a house through another agent. For example, 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. In a case like this, 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.

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.

Here’s a situation where ethical problems may arise. Suppose a 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 lower offer. The listing agent will know this information but won’t be allowed to share it with the buyer. If both roles are being performed by the same agent, you, as the buyer, may run a slight risk of overpaying for the property.

The more common problem occurs when buyers and sellers are represented by two agents who work for the same brokerage. For example, let’s say your agent has a conflict of interest when it comes to the brokerage’s commission and the final purchase price of the home. It’s in the seller’s best interest, as well as the brokerage’s best interest, to settle on a higher purchase price. This can conflict with your agent’s fiduciary duty to get you the best possible deal from the seller – who is also represented by the same brokerage. In these situations, your agent should always alert you to these kinds of potential conflicts upfront.

Ideally, you’d have a choice among different brokerages. But many smaller markets simply can’t support multiple real estate brokerages. But sometimes, there are advantages to dual agency scenarios. For example, dual agents sometimes 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.

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 market forces. The seller pays this sum at closing (unless a special agreement is made to cover commissions differently). 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 where you’re looking for homes with the 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 maintenance and 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. A termination clause goes both ways, so be aware that brokers are also free to walk away from buyers who are difficult to reach or work with. Breaking the agreement usually requires written notice. 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 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 may be a good approach if you’re in no 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 to ask them to release you from the contract.

Buyer Agency Agreement FAQs

Signing the right buyer’s agreement for you is important for a smooth process and your peace of mind during the home buying process. Let’s take a look at some common questions that might come up when entering into a buyer’s agreement.

Should I sign an exclusive buyer’s agent agreement?

Signing an exclusive buyer’s agent agreement has a few benefits, including showing the agent you’re serious, which can mean they’ll prioritize showing you homes. That said, you should do what’s right for your situation. And remember, you can always walk away before signing a buyer’s agreement if the agreement makes you uncomfortable.

How long does a buyer agency agreement last?

The duration of buyers’ agency agreements can vary, but you may see agents ask for a 90-day commitment. You can negotiate the length of the agreement, especially in a buyer’s market.

The Bottom Line

Signing any contract means committing to a course of action – and a buyer’s agency agreement is no different. The key is to understand the agreement’s 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 to agents that you’re a serious buyer.

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