What’s a Buyer Broker Agreement, And What Should You Know Before Signing One?

In the past, a simple handshake could solidify a working agreement between a buyer and their real estate agent. Today, however, buyer's agents present homebuyers with a "buyer broker agreement," a document that formalizes this relationship.

If you're new to home buying, the buyer-broker agreement is just one of many documents you'll encounter. For those who purchased homes before the 1990s, this document may seem unfamiliar. Let's break down its importance and the role of a buyer’s agent.

The Role of a Buyer’s Agent

A buyer’s agent is a real estate professional dedicated to assisting you throughout the home buying process. They have a fiduciary responsibility to ensure you understand the contract language, choose the right contingencies, and avoid being taken advantage of. They also help determine if the home is worth the asking price and assist in making offers.

What is a Buyer-Broker Agreement?

A buyer-broker agreement is a legally binding document that protects both the buyer and the buyer’s agent. It outlines the agent's duties, the terms of the agreement, and how the agent will be compensated. There are different types of buyer-broker agreements, each with specific terms:

• Exclusive Right-to-Represent Contracts: The most common type, where you agree to work exclusively with one agent for a specified period. You may be responsible for the agent's commission, although sellers often cover this.

• Nonexclusive Not-for-Compensation Contracts: These can be terminated at any time and allow you to work with multiple agents without owing compensation.

• Nonexclusive Right-to-Represent Contracts: These state that you will compensate the agent if the seller doesn't, but you can still work with other agents for properties they haven't shown you.

Key Components of a Buyer-Broker Agreement

1. Duties: Specifies the responsibilities of your agent, including showing properties, explaining documents, helping with offers, monitoring contingencies, and supporting you on closing day.

2. Term Length: Defines how long the agreement lasts, typically six months but can vary. This is a negotiable term.

3. Termination: Outlines how either party can terminate the agreement and any required notice or fees.

4. Compensation: Details any retainer fees and the commission structure. The seller usually pays the agent's commission, but in some cases, you may be responsible.

5. Representation: Clarifies the type of representation, whether designated or dual agency. Dual agency, where the agent represents both buyer and seller, is not legal in all states.

6. Exclusivity: States whether you will work exclusively with one agent or have the flexibility to work with others.

7. Property Description: Defines the type of property and price range you're seeking, potentially allowing you to work with another agent for different property types.

Conclusion

Understanding the buyer-broker agreement is crucial for a smooth home-buying experience. This document ensures that both you and your agent are clear on each other's roles and responsibilities, providing a structured framework for a successful partnership.