More than ever, real estate brokers are promoting the use of buyer 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 the broker specific authority, buyers should fully understand their rights and responsibilities before signing on the dotted line.
These deals are touted to give buyers a higher level of representation due to the fiduciary relationship they create. Once the agreement is signed, the broker must defend the buyer’s interest every step of the way.
Today’s real estate agents use three types of buyer agency agreements:
Exclusive buyer agency agreement (or exclusive right of representation)
With this completely exclusive agency agreement, the buyer is legally obliged to compensate the agent at the time the buyer acquires any property of the same type as described in the contract. Regardless of whether he locates the property, the broker is entitled to payment. Even if the buyer finds the property on their own, the agent still has to pay the payment.
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 agreement, a limit is placed on the broker’s right to pay; the broker is entitled to payment only if he actually finds the property that the buyer buys. Therefore, the buyer is free to locate a suitable property without obligation to pay the agent.
3.Open buyer agency agreement
This is a non-exclusive agency contract 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 buys is entitled to compensation.
Before entering into a buyer’s agency contract, there are some important considerations that the broker and buyer should discuss. First, the broker must make the same disclosures to the buyer that it would make to a seller in a listing agreement. 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 who enters 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 an advance fee when signing the agreement, in order to cover the initial listing and promotional expenses. This retention fee can be applied as a credit to cover fees due at closing. A buyer’s agent can also be compensated by sharing the commission with the selling country.
Buyer agency agreements provide agents with a reassuring 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.
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