Buyer-broker Agreements: are They Right for You?

by : Robert Nachman

In any real estate transaction, buyers are wise to obtain representation via a buyer's agent. This agent works for you, and will do their best to go you a great deal on a house. The listing agent on the other hand, is working for the seller, and will therefore work to get the highest price possible for the home. If you work with the listing agent, your interests will not be the agent's first priority. They are paid by the seller, so that is where their loyalties lie.

If you decide to get representation, your agent may ask you to sign a buyer-broker agreement. This is a legal document which outlines the expectations and responsibilities of both the agent and the buyer. Not everyone requires these agreements, and not all buyers are happy to sign them. Whether you are a real estate agent or a buyer, there will come a time when you need to ask yourself: are buyer-broker agreements right for me?

A buyer-broker agreement is an exclusivity accord between a real estate agent and a buyer. It is a written agreement whereby the real estate agent agrees to work solely for the buyer, and the buyer agrees to not work with any other agents.

Why would a buyer want to sign a form like this? Once the contract is signed, the real estate agent becomes the buyer's employee. It is their job to serve you to the best of their abilities, unlike listing agents, who represent the seller's best interests. Having an agreement like this in place protects the buyer and makes certain that he or she will not be ignored by the agent. The buyer will know what to expect, and will legally be entitled to get what has been promised. If no contract has been signed, then both parties are free to jump ship at any time, thereby leaving the other on the lurch.

A well constructed buyer-broker agreement ensures that both parties know what is expected, and prevents costly misunderstandings.

For the real estate agent, one benefit of having this document is that they and the buyer are on the same page in terms of expectations and compensation. The contract should state clearly whether the seller will be responsible for the entirety of the agent's commission, just a part of it, and if there is any room for negotiation. Again, this prevents both parties from being surprised at the end of the transaction, and guarantees the agent payment for their services.

Some agents feel that exclusive buyer-broker agreements are bad for business because some clients are leery of committing to one agent. Many agents also believe in the value of referrals. They have faith that if you work hard for a client, they will be loyal to you, thus negating the need for a contract. While this is the case a lot of the time, there are many buyers who shop around and talk to multiple agents in order to find the best service and best price available. Interviewing multiple agents is perfectly fine, but viewing properties and getting information from a broker without signing with them, is unethical. An agent's time and resources can be wasted if they do work for a client, but he ends up purchasing a house from another agent or buys a 'For Sale By Owner' property. These agreements can keep an agent from getting burned. As for buyers, having a buyer-broker agreement means that they will get the best representation possible, and that their satisfaction is the agent's number one priority.