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.
What Is a Buyer-Broker Agreement?
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.
Essential Elements of Buyer-Broker Agreements
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.
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.
Breaking the Buyer-Broker 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.
