Buyer Broker Agreement: What is it? What to Include
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Buying a home isn't as simple as shopping for anything else; you'll be required to sign several agreements even to begin the process, such as the buyer broker agreement.
Whether you're a home buyer looking for a broker's help or a broker simply interested in knowing more about the agreement, this legal document is one of the essential steps of real estate.
It's worth noting for a buyer that a broker will ask you to sign several disclosures and contracts while you work with them. That's why it's important to know what you're getting into before signing away!
If you're curious about the importance and contents of a buyer broker agreement, keep reading.
Here is a complete guide to buyer broker agreements.
What is a Buyer Broker Agreement?
A buyer broker agreement is a contract that legalizes the relationship between a buyer and a broker. Furthermore, it is a legally binding contract that outlines the rights and responsibilities of both parties. This contract essentially details that the buyer is utilizing the help of a broker to search for and buy a home.
When a buyer signs the real estate contract, they legally agree not to work with any other broker to help them buy a home. The terminologies used in a buyer broker agreement differ from state to state, but they all require the same responsibilities.
In a buyer broker agreement, there are specific duties a broker must fulfill and certain duties for the buyer too. A refusal to fulfill these responsibilities will result in a contract breach and legal trouble.
Here are the duties of a broker in a buyer broker agreement.
- Finding properties for the buyer to consider
- Disclosing material facts
- Reviewing paperwork
- Preparing purchase offers
- Conducting visual inspections as required
- Fiduciary duty to act in the best interests of their clients and avoid conflict of interests
Here are the duties of a real estate broker in a buyer broker agreement.
- Considering the properties the broker presents
- Acting in good faith and trusting the broker to help them
- Qualifying the purchase of a property
- Reading documents, such as the buyer inspection advisory
- Cooperating with the broker
Buyer broker agreements sometimes go by other names even though they may mean different things, including:
- Buyers agreement. A contract that details the terms and condition of the working relationship between a real estate agent and home buyer.
- Buyer representation agreement. A contract that details the relationship with a buyer’s representative, such as what services they provide and what the buy can expect.
- Purchase agreement. A contract between the seller and buyer that details the sale of the property.
- Buying agency agreement. A contract that details the relationship between the home buyer and the buyer’s agent.
- Exclusive agency agreement. A contract where the broker acts as the agent and the sellers pay commission to the listing broker if the property is sold by any real estate broker. If the property is sold by the sellers, then the seller doesn’t have to pay commission to the broker.
- Exclusive listing agreement. A contract that specifies one real estate broker to act as the seller’s agent.
- Listing agreement. A contract that gives a real estate broker authority to find a buyer for the property owner.
- Mortgage broker fee agreement. A contract between a real estate property buyer and a mortgage broker. It outlines the terms and conditions of the fees the mortgage broker will receive.
- Mortgage agreement. A contract between a buyer and lender that gives the lender the right to take the property if the mortgage plus interest is not paid.
Here is an article about buyer broker agreements.
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What Should Be Included in a Buyer Broker Agreement?
Most buyer broker agreements include the following information at a minimum:
Duties
The real estate broker will detail their responsibilities in this agreement section while helping homebuyers. First, a realtor must find properties that the buyer can consider and disclose the necessary material facts.
They must also help buyers review paperwork and prepare purchase offers. Realtors are also responsible for conducting visual inspections as required.
Term Length
One of the essential details in a buyer broker agreement is the term length. This will determine the time frame to honor the agreement and its terms. This section of the contract is typically negotiable by both parties.
So, if you have concerns about the length of your term, you may discuss it with the other party and come to a mutual agreement.
Termination
If either party feels that the agreement isn't working out, they can terminate the contract. In this section of the agreement, you must detail a few elements, including:
- How either party can terminate the contract
- How much prior notice the terminating party needs to give
- How much the buyer will have to pay if they don't give prior notice
It's also worth noting that buyer broker agreements are typically between homebuyers and real estate brokerages, not specific brokers. This means the brokerage may try to help your case by offering you a different agent to work with. You'll directly communicate with an independent broker if you work with an independent broker.
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Representation
In this section of the agreement, you must detail the buyer's kind of representation. For example, a homebuyer can choose two types of representations: designated representation and dual representation.
Designated representation allows the broker to present properties other agents from their real estate agency have listed. In this case, the broker will only be representing you.
On the other hand, dual representation allows the broker to present properties that they have listed with sellers. In this case, the broker will be representing both you and the seller. However, dual representation is illegal in some states since there's a high potential for conflict of interest. The biggest conflict is the price. The selling agent is supposed to get the highest price for the seller, and the buyer’s agent is supposed to get the lowest price for the buyer. A dual agent cannot remain neutral in this situation.
Compensation
This section of the agreement is essential to detail the two types of compensation:
- Retainer fee: Retainer fees compensate brokers for the time, effort, and money spent helping the buyer pick a property. In addition, this fee allows brokers to recognize serious buyers.
- Payment: The payment will detail the commission rate for a house sale, ranging from 3% to 7%. This payment is between the listing agency and the buying agency, so a buyer doesn't have any involvement with this transaction.
Property Description
In this section of the agreement, the buyer may detail the property requirements they're looking for. Here are some of the elements they can include:
- Physical description of the property
- Price range
- Location
Exclusivity
There are two types of buyer broker agreements for exclusivity; exclusive agreements and non-exclusive agreements.
Some contracts require additional clauses and information. You can customize a buyer broker agreement to meet the specific requirements of each party.
Here is an article about the components of a buyer broker agreement.
Types of Buyer Broker Agreements
There are two types of buyer broker agreements that can be differentiated by exclusivity.
Exclusive buyer broker agreements
An exclusive buyer broker agreement details that the buyer may only work with the broker during the term length.
Non-exclusive buyer broker agreements
A non-exclusive buyer broker agreement allows the buyer to work with other brokers to help them purchase a home.
Here is an article about the different types of buyer broker agreements.
How Long Does a Buyer Broker Agreement Last?
The length of a buyer broker agreement depends on both parties' requirements and can be negotiated if necessary. Typically, a buyer broker agreement lasts six months. However, buyers may even find brokers willing to work with them for a year or just a month.
Here is an article about the term length of a buyer broker agreement.
Why Use a Buyer Broker Agreement?
The main reason to sign a buyer broker agreement is to protect the buyer and the broker if their working relationship goes sour. In addition, this exclusive agreement ensures that your client is working with you and only you as a broker.
As long as the correct terms and conditions are outlined, a buyer broker agreement is only in the best interest.
Who Writes a Buyer Broker Agreement?
Brokerages write buyer broker agreements, but the buyer may provide their input for terms and conditions they want to negotiate. Typically, a brokerage would hire a real estate lawyer to write their terms and conditions to offer to clients.
Buyer Broker Agreement and Real Estate
In real estate, buyer broker agreements guarantee the protection of both the broker and the buyer in case of legal trouble. This document ensures that both parties fulfill their responsibilities and follow the terms and conditions accordingly.
The agreement is in favor of both parties. That's because it details the expertise offered by the real estate agency while reassuring the buyer that their best interests are the end goal.
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