After what seems like a lifetime of drooling over listing photos on Zillow, you’re finally ready to take the plunge. Instead of staring at your computer screen wishing you could buy a house, you’ve got a pocket for a cash for the down payment and ready to see every house in person. But how do you plan to get in? What are you going to do when you find the one you want? You decide to hire a buyer’s agent to make sure you do everything right.
After sufficient research, you plan to meet your new agent at Starbucks to start a day full of home shopping. But then, while taking a sip of your vanilla latte, he drops a contract in front of you and hands you a pen. You haven’t even seen a single house yet. Should you sign this thing called an exclusive buyer’s agent agreement?
What is an exclusive buyer’s agent agreement?
Sellers sign a listing agreement. Buyers sign a buyer’s agency agreement.
It’s pretty common practice for a buyer’s agent that you’re working with to ask you to sign a buyer representation agreement. It exists because an agent could spend hours, upon hours, working with a buyer only to have them go under contract with another agent. Real estate agents work on 100% commission, so when they spend their money, and more importantly their time, working with a buyer who changes their mind at the last minute, it hurts their bottom line. If a buyer were to work with Agent John for weeks, and then suddenly choose Agent Betty to help purchase a home simply because she is a friend of the family, then John really loses out.
Like many real estate terms, this one too goes by many names which are all basically the same type of agreement: Buyer Agent’s Agreement, Buyer’s-Broker’s Agreement, Exclusive Buyer Agent Agreement, etc. Regardless of the name, they all break down to a few key elements that state the rights of the buyer, duties of the agent, outlines compensation, and makes clear the relationship you have with the agent.
Elements of an Exclusive Buyer’s Agent Agreement
Typically, there are four key areas of an exclusive buyer’s agent agreement. Depending on when your agent is asking you to sign it, whether it be on that first day when you innocently show up at Starbucks and have no idea when you’ll find a house or the day you make an offer, there a portions that may apply more than others. Be sure to read the entire agreement in detail and ask the agent if you have any questions.
The buyer agrees to work only with the broker and the agent that you chose. The expectation is that you won’t be asking another broker, during the agreement timeline, to enter into a relationship with you to help you buy a home. By signing, you’re committing to paying that broker a commission if you purchase a home during the term of the contract. If you signed agreements with multiple agents, you would owe each of them an agreed upon commission, even if only one of those really helped you. No one wants to do that.
Term of the Buyer-Broker Contract
On the first page of your exclusive agreement with a buyer’s agent, typically in the first paragraph, you should see the length of time, or term, that indicates how long the agreement is in force. This might be weeks, months, or even years. Like most things in the real estate industry, the term length is negotiable.
Another element of the exclusive agreement with a buyer’s agent is the compensation. All commission percentages are negotiable. However, it is most likely, that the seller is going to ultimately pay the buyer’s agent for bringing them a qualified buyer. However, your contract could include a minimum commission amount that you may have to cover if the seller isn’t offering your agent a commission. Be sure to read this portion carefully.
Property Description in the Buyer-Broker Contract
The final key portion of a contract between a buyer and agent/broker is the description of what the buyer is looking for and the desired price range. For example: if you are looking for small condo to use as a primary residence with John again, then you are free to look at a multi-unit apartment complex with Betty. The more clear you can be on what you’re looking for upfront, the safer you’ll be. If you already have a property you’re under contract with, you could even negotiate the agreement to apply only to that property.
Should you sign?
First, read all the terms of the contract in detail and decide how serious you are about finding your dream home. If you choose not to sign, chances are the agent you’re talking with won’t give you their full effort, attention, or time of day. Can you blame them? Since agents work on 100% commission, it’s really a protection issue for them more than anything else. (That’s assuming they still choose to work with you at all)
Consider it this way- if you want someone to have your best interest in mind, you should probably consider signing it. If you call up the listing agent you met an an open house, they’ll help you, but likely with the seller’s best interest in mind. (Dual agency and other forms of agent representation are a story for another day) You want to know that there is someone looking out for you in this process, and that agent wants to know you’re committed to them as well- in the form of a buyer’s agency agreement.
Things to confirm before you sign:
1 – Can you shorten the contract?
As previously mentioned, everything in real estate is negotiable. Sure, an agent might want an agreement that covers four months, but you could do 12-hours if you really wanted to. If you’re not sure that this agent is a good fit for you, or you’re not committed to your home buying search, you might consider a lessened term.
2 – Ask for a test trial
There’s a saying that goes, “Why would you buy the cow before you drank the milk?” The same situation can be applied here. Don’t be afraid to ask for a trial run. Can you spend an afternoon with this person? Do they really have your best interest at heart? Ask if they’ll drive you around and show you a few places first. Can’t hurt to ask. Why would you sign an agreement with someone prior to knowing how diligent they will be in helping you? You should feel comfortable committing to them as your agent.
3 – Read the fine print
What happens if the buyer terminates the contract early? What is the expiration date? Is there a happiness guarantee? Am I getting cash back at closing? Each exclusive buyer’s agent agreement is different. Make sure you know what yours says before you put the pen to the paper.
When it comes down to it
Reading and negotiating the terms of your buyer’s agency agreement is key, but if you want someone to best represent your interests and you’re serious about about buying with the help of the agent, you should put down your latte and sign.