Buying Agency Agreements: Overview
More than ever before, real estate brokers are promoting the use of buyers’ agency agreements, a contract that states that the broker will represent the buyer as their agent and that the broker’s job is to find a suitable property for the buyer.
Because these agreements are legally binding and give specific authority to the broker, buyers should fully understand their rights and responsibilities before signing on the dotted line.
These agreements are promoted to give buyers a higher level of representation due to the fiduciary relationship they create. Once the deal is signed, the broker must advocate for the buyer’s interest every step of the way.
Today’s real estate agents use three types of buyer agency agreements:
1. Exclusive Buyer Agency Agreement (or Exclusive Right of Representation)
With this completely exclusive agency agreement, the buyer is legally obligated to compensate the agent at the time the buyer purchases any property of the same type as described in the contract. Regardless of whether he or she locates the property, the broker is entitled to payment. Even if the buyer finds the property on his behalf, the agent is still due to pay.
2. Exclusive Agency Buyer Agency Agreement
Similar to an exclusive buyer agency agreement, this exclusive contract is between the agent and the buyer. But with this type of contract, a limit is placed on the broker’s right to pay; the broker is entitled to payment only if he or she actually finds the property that the buyer purchases. Therefore, the buyer is free to locate a suitable property with no obligation to pay the agent.
3. Open Buyer Agency Agreement
This is a non-exclusive agency agreement between a buyer and a broker that allows the buyer to enter into similar agreements with an unlimited number of other brokers. Only the broker who actually locates the property that the buyer ultimately purchases is entitled to compensation.
Before entering into a buying agency agreement, there are some important considerations that the broker and buyer should discuss. First, the broker must make the same disclosures to the buyer that he would make to the seller in a listing contract. The buyer must fully understand the three types of agency available and the rights and responsibilities of the parties under each of them. This means that the broker must clearly explain the specific services provided to a buyer-client entering into each type of agreement.
Also, the issue of compensation should be discussed in detail. For example, buyer’s agents may be paid a flat fee for services, an hourly rate, or a percentage of the final purchase price. In some cases, an agent may request a retainer fee at the signing of the agreement, to cover initial listing and promotional expenses. This retainer fee can be applied as a credit to any fees due at closing. A buyer’s agent may also be compensated by sharing the commission paid by the seller.
Buyer’s agency agreements provide agents with a comforting level of assurance that their efforts will not go unrewarded, motivating them to work even harder for the buyer. Of course, buyers must balance providing financial guarantees to agents against the risk of limited or poor performance.