Some real estate consumers tend to underestimate the power of an agreement. Sharon, a buyer we previously talked with learned this the hard way. She hired a listing agent to help her sell a property before she could move forward with a new home purchase. Initially, their relationship was good until it wasn’t. So she was looking to hire another agent to work with for the purchase of her new home. We managed to connect her with one of Colorado Springs’ top buyers’ agents in the area. However, the agent soon found out that he can’t help Sharon. The signed representation agreement with the listing agent includes the home purchase after the sale of her property is made. Needless to say, Sharon was “legally trapped” with the listing agent. The good news is, this scenario can be prevented. Let’s find out how.
What is a Buyer Representation Agreement?
Buyer representation agreements exist and are comprehensive and powerful tools that consumers can utilize to their advantage along with a highly-skilled agent. So our focus today is on understanding the type of representation and the ideal length of the agreement. This understanding will help buyers take the lead towards a successful and satisfying home buying experience.
“A buyer’s agency agreement, also known as a buyer’s representation agreement, is an agreement signed by a prospective buyer that authorizes a licensed brokerage firm, and usually a specific real estate agent at the brokerage firm, to represent the buyer in buying a home. Different markets have different standard forms of agreement, as do many brokerage firms. Prospective buyers sign buyer’s agency agreements to confirm their commitment to working with a brokerage firm or an agent and to assure the firm or agent that they will be compensated if a sale occurs. The term of the agreement is negotiable.” -Redfin
The main host of the B&L Consumer Real Estate Radio Show, Barry Miller exchanged expert opinions with Kathleen Chiras and John Mandible on a live podcast that aired on October 17, 2020. The Colorado experts talked about the importance of establishing clear guidelines and why it matters to have control over the contract agreement.
Listen in to the full conversation here:
Types of Buyer Representation Agreement:
- Non-exclusive not-for-compensation contracts: This contract allows buyers to cancel the agreement at any time. They are also allowed to work with any other agent they like without compensation paid to the broker.
- Non-exclusive right-to-represent contracts: This agreement states that the buyer will compensate the broker if the buyer purchases a house their agent presents to them. The buyer is only relieved of paying the broker out of the proceeds of the sale if the seller agrees to pay a commission to the buyer’s agent. Also, under this contract, the buyer can purchase a home with another broker as long as their original agent did not propose it.
- Exclusive right-to-represent contracts: This agreement is the most common buyer-broker agreement. It outlines what the agent will do for you, the buyer, and It will describe the buyer’s obligations. The buyer may have to pay the commission detailed in the agreement, but if the seller’s listing agrees to pay the commission (very common), the buyer will not have any out of pocket costs. However, the included commissions are reflected in the overall cost of the property. What makes this agreement different than the others is that the buyer cannot work with another agent during the contract length.
Frequently Asked Questions on Buyer Representation Agreements:
* Should You Sign A Buyer Representation Agreement?
Yes! ONLY if you’re comfortable and happy with the terms indicated in the agreement.
Although signing an agreement with an agent is not required, buyers are encouraged to consider the benefits of having one. It puts in black and white what the agent must do in order to earn their commission. It prepares you for the upcoming negotiations. The agreement provides the opportunity for buyers to share their needs (even wants!) and expectations. And in turn, it gives the agents the chance to understand them and showcase their skills as they go through the process of drafting the terms. Also, finding gaps in a printed document is so much easier than trying to verbally sort things out.
As with any other documents that require your signature, take the time to read, and understand each clause of the agreement. Doing this will prevent complications to happen. If you are unsure about what the agreement includes, ask the agent or have another expert, such as a lawyer, to review the agreement on your behalf. That way, you can protect yourself from agreements that do not necessarily represent your best interest.
Whether you sign an agreement or not, the agent or brokerage is required to provide fair, conscientious, and competent services. However, also understand that a brokerage can choose to decline your business if you choose not to enter into a buyer representation agreement. Should you decide to sign one, remember to include a clause for a contract termination as a contingency. The buyer above could have taken advantage of this contingency before agreeing to sign the agreement. (See our other site’s article on How To Terminate Real Estate Agent Contract for more information.)
* What Should Be Included In A Buyer Representation Agreement?
A typical representation agreement will list the services that a buyer agent will provide throughout the home buying process. Buyers must also work with the agent in adding contingencies to the agreement. If you do this right from the beginning, it will certainly make a huge difference during the negotiations.
For example, the deadly coronavirus forced most buyers to do virtual tours and home showings. This change increased the risk of purchasing a money-pit property. To counter that risk, buyers are highly encouraged to add contingency clauses to secure and protect their investments. In this case, adding an inspection contingency will help prevent buyers from purchasing a property that they are not happy with. Many buyer agents will refuse to present an offer without an inspection contingency because they know how much that can protect their clients. The inspection clause almost guarantees that buyers will get their earnest money back if the purchase must be terminated. It also wards off unexpected financial hardships after the sale.
A contingency clause defines a condition or action that must be met for a real estate contract to become binding. A contingency becomes part of a binding sales contract when both parties, the buyer and the seller, agree to the terms and sign the contract. -Investopedia
A good representation agreement typically includes the following: Agent’s Duties and Responsibilities, Length of Contract, Termination, Compensation, Representation, Exclusivity, and Property Description.
* How Long Should The Agreement Be?
The average length that most agents will offer is at least 6 months. Buyers though can decide the length, and reduce it to 3 months or even 30 or fewer days! It varies depending on a few factors. One factor may be how fast the buyers or sellers need to fulfill the transaction. Job relocation and the buyers’ financial status often dictate the length of the agreement. Therefore, the buyers or the sellers have the final say on how long the agreement should be.
John Mandible responded with a rhetorical question: Whose money is at stake, and therefore who should be in control?
Fiduciary agents will always make the commitment to get the job done in YOUR timeline. -Barry Miller
Barry strongly believes that 90 days should be enough to fulfill the agent’s duties and responsibilities. For him, lengthy contracts put both the consumers’ and agents’ motivations at risk of not fully committing to their obligations. And if the short contract expires, similar terms can be renewed. Furthermore, he urged consumers to watch out for agents who require longer than 3 months. Those agents may be considering their own time frames instead of prioritizing yours.
Benefits of Signing a Short Term Representation Agreement:
- Gives consumers control
- Helps maintain the right motivation and focus
- Fosters better communication between client and realtors
- Adds pressure to get a higher level of service from the realtors
- Processes and transactions meet their deadline or earlier
These are all valid points. As a reminder, only buy or sell when you have analyzed the benefits to you.
The key lies not in the length of the contract, but the careful assessment of your current needs. A contract may be short or lengthy, but as has been proven many times, a consumer who is knowledgeable and knows the right questions to ask will have the most control over the transaction and most likely have a happy outcome.Kathleen Chiras, association manager of Colorado buyer’s agent Association
Contact Your buyer’s agent Now!
Start your journey right and get top-rate fiduciary agent recommendations from the Colorado buyer’s agent Association. The association can connect you with top agents who can draft a buyer representation agreement that truly protects your best interest! Fill out our online form or call 303-671-1629 to talk with any of the staff or Kathleen Chiras, the association manager. The association provides assistance any time of the week from Monday to Sunday.