Buyer-Broker Agreements & Contracts

Buyer-Broker Agreements & Contracts

Buying a home comes with a lot of responsibilities. You need to find the right home for you and your family, and figure out your ideal purchase price. To cut down on the time it takes to do this, you might want to hire a real estate broker, otherwise known as a buyer’s broker, to represent you. Home buyers typically sign buyer agreements with their real estate brokers before placing an offer on a home. The buyer-broker agreements spell out precisely who represents the buyer and how. It’s also known as buyer representation.

There are three commonly used types of buyer-broker agreements in California, with most weight given to Exclusive Right to Represent because it’s the preferred form. Here is what you need to know about each:

Non-Exclusive / Not for Compensation

This type of buyer-broker agreement describes the broker’s duties and obligations to the home buyer, generally to be performed by the broker’s agent. It also outlines the relationship between the agent and the broker and the buyer’s responsibilities. This contract specifies that the:

• Buyer may hire more than one broker/agent to locate property
• Buyer is not obligated to compensate the broker/agent
• Buyer has the right to demand single agency, where the agent cannot represent the seller as well
• Buyer or broker can revoke this contract at any time

Non-Exclusive, Right to Represent

This buyer agreement defines the broker’s responsibilities to the buyer, the relationship between the broker and the agent, and the buyer’s obligations. It provides for compensation to be paid to the broker if the broker presents the house the buyer decides to buy or otherwise represents the buyer. However, it does remove the buyer’s responsibility to pay a commission if the broker/agent is paid by another party such as the seller. Here:

• The buyer may purchase a property through another broker/agent, if the property is not a home introduced by the first broker
• The buyer has the right to demand a single agency
• The broker/agent can receive a higher commission than the negotiable fee stated in the agreement if the seller elects to pay more and it is disclosed

Exclusive Right to Represent

This is the most common buyer-broker agreement between home buyers and brokers. This agreement outlines the obligations of the broker, the broker-agent relationship, and the responsibilities of the buyer. It sets forth the commission amount to be paid to the broker, which is owed even if the buyer finds the house on their own or another broker does so. However:

• The buyer cannot hire more than one broker/agent to represent him or her
• The commission is negotiable
• The buyer has the right to demand a single agency
• The buyer is not responsible for the commission if another party (such as the seller) pays it
• The broker/agent can receive a higher commission than the negotiable fee stated in the agreement if the seller elects to pay more and it is disclosed

While non-exclusive agreement terms may run for a month or two, exclusive agreement terms are typically anywhere from 30 days to one year. If the buyer elects to subsequently purchase any property introduced to her by the agent, he or she will owe the agency a commission.

Unlike the other contracts, the main benefit to a home buyer to use an exclusive right to represent is the fact that the buyer’s agent knows you are working solely with them. They are not competing with anyone for commission and should thus be more focused and motivated on finding you a home.

Termination

Before signing, ask the broker/agent if they will release you from the contract if you find that the relationship is not a good fit for you or vice versa. While agents are not required to release you, if they won’t agree to this upfront, don’t sign the agreement with them. Professionals often guarantee that the customer will be satisfied. If an agent can’t give you that assurance, the agent does not deserve your business.