Buyers and sellers of real estate are often confused about the role of real estate agents, who the agents represent, and real estate agency relationships. Many states require that agents give buyers and sellers an agency disclosure form to sign.
The form used in California, for example, is not an agreement; it is a disclosure. It disclosures the various natures of possible agency relationships, and it is important that all parties read it to be better prepared to select the type of agency relationship desired.
Buying agents who represent buyers are working in a single agency capacity as a buyer’s agent. Seller’s agents, who represent, sellers are working in a single agency capacity as a listing agent.
Agents who represent clients under single agency owe a fiduciary responsibility to the client. They cannot share confidential information with the other party or the other party’s agent. Single agency agents must use care and due diligence to perform duties, disclose all material facts and be honest.
Buyer’s agents and the buyer generally sign a buyer’s broker agreement, which lays out the duties and obligations of the agent. In some states, if buyers do not sign a buyer’s broker agreement with the agent, that agent does not represent the buyer but instead becomes a sub-agent of the seller. Sub-agents owe the same duties to the seller as the listing agent.
Seller’s agents and the seller sign a listing agreement, which also lays out the duties and obligations of the agent. Listing agents and buyer’s agents each owes the client loyalty, confidentiality, and accountability.
Many agents work as a buyer’s agent with buyers and as a seller’s agent with sellers. However, some agents work solely as exclusive buyer’s agents and never, ever take a listing. Other agents work exclusively with sellers and never show a property. Dealing with specialized agents over general agents can provide clients with a more focused and cultivated point of view.
Because all real estate agents are licensed under a real estate broker, it is possible to work with one agent who is licensed by the same broker as the listing agent. This situation creates a dual agency. The agents could work at separate offices and be strangers to each other, but since they are licensed by the broker, they are still operating under dual agency when one agent represents the buyer and the other represents the seller.
Starting out, an agent may have created a single agency relationship with the buyer, but when the buyer chooses a home listed by that agent’s broker, the agent’s relationship with the buyer changes. Not all single agents note the distinction. In the real world, most of these dual agents talk the talk of dual agency, but continue to walk the walk of single-agency representation.
Dual agency must be agreed to in writing between the parties. Laws vary from state to state. In California, for example, exclusive buyer’s broker agreements contain verbiage that allows dual agency, so most buyers don’t realize their buyer’s broker could be subject to dual agency. Only exclusive buyer’s agents and listing agents whose practice focuses solely on listings are never dual agents.
A listing agent for a property who also represents the buyer is a dual agent. Dual agents cannot operate in a fiduciary relationship with either party and must treat both sellers and buyers equally. They cannot share confidential information but they cannot provide confidential advice.
A dual agent in California was sued by the seller because she told the buyer to ask for a carpet allowance from the seller. It is very difficult to obtain the highest and best price for the seller when the agent also represents the buyer. The dual agent cannot advise on home price nor terms nor negotiate on anyone’s behalf.
Some buyers say they prefer to work solely with listing agents because they know the agent is receiving both ends of the commission, that is the listing commission and the buyer’s agent commission. They feel the listing agent is “motivated” when a buyer makes a purchase offer to get that offer accepted. However, while some agents operate in that manner, the fact is most do not.
They might also ask the dual agent to further negotiate the real estate commission to increase the seller’s profit on a low-ball offer.
To avoid dual agency, some agents will work as transaction agents. Transaction agents do not represent either party and do not protect the interest of the seller nor the buyer. They simply facilitate the transaction.
A transaction agent helps to fulfill the obligations of the purchase contract and provides the necessary paperwork for each side. It relieves some of the responsibility incurred when agents take on dual agency and further removes the agent from loyalty.
You’ll be asked to sign many documents before buying a home. Some signatures will be more important than others.
Real estate agents will ask you to sign several disclosures, advisories, and contracts during the process. When you sign a disclosure, you’re simply agreeing that you’ve received a copy. Contracts, on the other hand, are legally binding agreements.
A buyer-broker agreement is a contract. It sets up the relationship between the buyer and the broker. If you’re buying a home, should you sign one? Here are the key parts of this contract. Keep these in mind before moving forward.
A buyer-broker agreement is used when you contract with a broker for help in buying a home. Signing the agreement means that you can’t use a broker to find a home and then work around them or sign with another broker.
These agreements differ from state to state. For example, the California Association of Realtors form uses more common language than legal terms and jargon. In this contract, the buyer-broker relationship is defined by duties:
Broker’s duties: The broker will (among other things) find properties for the buyer to consider, disclose material facts, review paperwork, prepare purchase offers, and conduct a visual inspection.
Buyer’s duties: The buyer will (among other things) consider the homes presented, act in good faith, qualify to purchase the property, read documents (especially the buyer inspection advisory), and cooperate with the broker.
Many brokers won’t work with someone unless they sign a contract. If you want to use a broker, then you’ll probably need to sign an agreement. Contracts also protect you. It’s usually in your best interest to write out all the details of the arrangement into a legal document.
If you can’t agree to these terms, you may not want to sign a buyer-broker agreement.
Buyer-Broker Exclusivity
Brokers either own brokerages and employ agents or work independently. By signing, you agree that you will work solely with the broker and the agent you’ve chosen.
You shouldn’t ask a different broker or agent to show you a home or write a purchase offer for you because your broker is the “procuring cause”—you’ve signed a legal agreement for them to initiate and follow through with the process from the beginning to end, that results in you purchasing a home.
If you clash with your agent, you have the right to ask the broker to assign a new agent to you. Your contract is with the broker, not the agent.
Note
Real estate agents are not Realtors, but Realtors are real estate agents. Realtors are real estate professionals, including agents and brokers, who are members of the National Association of Realtors. Realtors must abide by NAR’s code of ethics.
How Long Does a Buyer-Broker Agreement Last?
The buyer-broker agreement term is often spelled out in the first part of the contract. You are bound to the terms of the buyer-broker agreement for that length of time. There are no defined periods, so you can set the contract for as long as you think you might need it, as long as the agent agrees on the time frame.
Buyer-Broker Compensation
The buyer-broker agreement states the compensation that the broker and agent will earn from you. According to the NAR, all real estate commissions are negotiable.
The agreement clarifies that you are not obligated to pay if another party, such as the seller, pays it instead. Most listings also state that the seller will pay the buyer’s broker. It’s unusual for a buyer to pay an agent directly. However, if your agent performs and you try to break the agreement, you may owe them compensation. In addition, most states don’t allow you to cancel the contract without the broker’s agreement, a reasonable reason, and a written termination agreement.
The Property Description in the Buyer-Broker Agreement
The agreement should describe the type of property to be acquired and its price range. For instance, if the contract states that you are looking for a single-family home, you’re free to pursue a 20-unit apartment building through another broker. If the fine print limits the contract to homes in a specific county, and you decide to buy in an adjacent county, you are not bound to the terms of your agreement.
The buyer-broker agreement is binding for both parties because it is a contract. Getting out of it might be tricky, but you can always ask to be released by the broker if you’re not happy. If the broker disagrees, the next steps depend on your contract’s terms.
Many buyer-broker agreements state that buyers and brokers must start with mediation if there’s a problem with commissions. Any other issues can be settled by going to court. The buyer and broker can also agree to resolve other disputes through arbitration rather than court.
Are buyer-broker agreements enforceable?
The agreement is a legal contract. If either party fails to abide by the terms, the other party has the right to seek legal enforcement of the contract.
What can you do while under an exclusive contract with a real estate agent?
What’s allowed under a buyer-broker agreement will depend on the type of contract you have with your broker and agent. If you have an exclusive agency listing, you’re still free to market the property on your own and even sell it on your own. However, you can only use the agreed-upon broker if you engage the services of an agent. An exclusive right-to-sell agreement is more restrictive. Under such an agreement, your broker and agent will earn a commission on the sale regardless of whether you sell through them or on your own, and you may not work with other brokerages.
Can you have more than one real estate agent when buying a house?
There are no laws specifying that you can’t work with multiple agents. However, agents work by a code of ethics and are not permitted to interfere with other agents’ clients, so other agents will likely not want to work with you. If you sign an exclusive agreement, you are legally bound not to work with another agent.
A good listing agent tweaks the fine nuances that separate homes and neighborhoods from their identical counterparts. This is done using the science of comparative market analysis. It’s designed to compute an acceptable asking price.
These agents offer extensive marketing campaigns. These are comprised of a combination of direct mail, advertising, networking, and online publishing. These entice agents to show their properties and buyers to tour them.
They understand staging. They can advise sellers on how to prepare the home for sale. They also maintain a referral network of staging professionals and other contractors. They can showcase the home’s strengths while downplaying its weaknesses.
They maintain the upper hand during negotiations and protect their sellers’ interests while selling the home for the highest price possible in the shortest period of time.
This type of agent is ideally patient, compassionate, a good listener, and a problem solver. Buyers’ agents are dedicated to figuring out what the buyer wants and delivering it. They love to show homes. They understand how homes are constructed. And they know how to make improvements that will ultimately boost value in the event of resale.
Buyers’ agents are organized, detail-oriented, and they possess excellent follow-up skills. They tend to develop a keen insight into the rock-bottom prices that sellers might accept.
They’re gracious, polite, and professional, even under trying circumstances. Associates enjoy working with them. They know the neighborhoods, and they always have a solid grip on what’s available now, as well as what was available yesterday.
It would probably be beneficial for you to hire separate agents who each specialize in one area if your present home and your potential new neighborhood are located in different cities. Ask your listing agent for a referral to another agent in the other location.
You’ll be paying only for the expertise you require.
Agents who specialize in neighborhoods tend to maintain a backlog of clients who are interested in buying or selling as well, so they might already have a buyer or seller for you.
Your listing agent heads a team and wouldn’t necessarily be the primary agent working with you on the buying side of things.
Homebuyers typically sign buyer broker agreements, also known as “buyer representation agreements,” with their real estate brokers and/or agents before writing a purchase agreement on a property they want to buy. Buyer broker agreements spell out precisely who represents the buyer and how the broker/agent is compensated.
A variety of buyer broker agreements are used throughout the United States, but three are more common than others in California. Here’s a look at them.
Key Takeaways
> A buyer broker agreement establishes the relationship between homebuyers and their real estate agent.
> A non-exclusive agreement means that the buyer can work with other agents.
> An exclusive agreement means the buyer will work exclusively with that real estate agent.
> Exclusive agreements are typically in force for 30 days to one year.
> Clarify how to terminate the relationship before you sign.
This agreement outlines the broker’s/agent’s duties and obligations to the buyer. It defines agency relationships, the broker’s scope of duty, and buyer obligations. It doesn’t provide for compensation.
> The buyer can hire more than one broker/agent to locate a suitable property.
> The buyer isn’t obligated to compensate the broker/agent.
> The buyer has the right to demand single agency sole representation.
Note
“Single agency” means that the agent will represent either the buyer or the seller but not both. It’s referred to as “dual agency” when the agent serves both parties.
This type of non-exclusive agreement outlines the broker’s/agent’s duties and obligations to the buyer. It also defines agency relationships, the broker’s scope of duty, and buyer obligations, and it does provide for compensation. It also removes the buyer’s responsibility to pay a commission if the broker/agent is paid by another party, such as the seller. This is a portion of the contract that often confuses buyers. They don’t understand that they’re not paying the fee.
> The buyer can purchase a property through another broker/agent as long as the property isn’t a home introduced by the first broker/agent.
> The buyer has the right to reject dual agency and demand a single agency.
This form is similar in scope to the non-exclusive form except for one major distinction: The buyer has agreed to work exclusively with the broker/agent.
> The buyer cannot hire more than one broker/agent to represent them.
> The commission is negotiable.
> The buyer has the right to demand a single agency.
> The buyer isn’t responsible for the commission if another party (such as the seller) pays it.
Non-exclusive agreement terms might run for a month or two, while exclusive agreement terms typically range anywhere from 30 days to one year.
Note
Exclusive representation gives the broker/agent the ability to negotiate with unrepresented sellers (such as for-sale-by owners) on the buyer’s behalf.
The commission is usually paid by the seller, but it may be added to the sales price and eventually paid by the buyer. The broker/agent will have more than earned their fee if the buyer is able to purchase the property at a substantial discount through the power of the broker’s/agent’s negotiating ability. Exclusive representation means that the broker/agent is employed by the buyer and will work solely on their behalf.
The main benefit to a homebuyer in an exclusive-right-to-represent contract is that the buyer’s agent should be focused on the buyer and working diligently on finding that buyer a home. Buyers who operate under other agreements are effectively telling their agent not to work very hard for them, because they might not use that agent to buy a home.
Ask the broker/agent whether they’ll release you from the contract if you find that the relationship isn’t a good fit for you. However, agents aren’t required to release you from a binding contract just because you ask, so think twice before signing an exclusive agreement.
This is a two-way street. You might want to discuss with your agent how they’ll let you know if they feel that you’re not a good match. Parties might get along very well when they first agree to work together, but potential conflicts could appear later
The agreement will detail the length of the contract. It’s up to the buyer and the broker or agent to decide what works best for them. You might expect a standard contract to last about a month at a minimum.