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A buyer representation agreement is a formal legal instrument establishing a working connection between a prospective home buyer and a real estate brokerage. It specifies the services to which the buyer is entitled and their obligations towards the brokerage. This document is an important document for laying down expectations concisely and clearly. It helps improve the quality of service the buyers wish to receive from the real estate brokerage. This blog discusses the benefits and types of the agreement mentioned above.

Benefits of a Buyer Representation Agreement

  • Being a Client and Not a Customer: One key distinction between clients and customers is a contractual arrangement. One becomes the realtor's customer and is obligated by contract to behave in their best interest when they sign a buyer's representation agreement with them. Without it, the realtor's legal responsibility would be to the seller. The realtors have a greater ethical duty to promote and protect the buyers' interests. Even if the realtor agent wants to help the buyer, they are not authorized to divulge certain information to the buyer unless the buyers turn into their clients instead of just a customer. It can be attributed to the complex laws in the real estate sector. Besides, the broker will be able to better represent the buyer in rounds of negotiations during the time of purchase if they have an agreement in place. The same and other services like broker’s price opinion cannot be legally offered to a mere customer. The contrast between a client and customer is so nuanced that the impact cannot be gauged from a macroscopic perspective, but it can have a major effect on the buyer’s real estate transaction.
  • Clear Outlining of Expectations: A buyer's representation agreement provides peace of mind by establishing the expectations the buyer and the realtor have for one another throughout the home-buying process. The chosen realtor will review the contract with the prospective buyer and all the duties they will carry out in that capacity. This easy step will eliminate potential misconceptions, allowing the buyer to move forward confidently. An explicit buyer's representation agreement sets out what a buyer can and cannot expect from the buyer's representative and what they anticipate from the buyer, which typically revolves around loyalty.
  • Streamlining of Service: Talking to five different persons about five different properties can be complicated, and if the buyer is unfamiliar with real estate jargon, comparing homes listed by various brokerages can be challenging. With a buyer's representation agreement, the buyer has a single point of contact for all inquiries. Your real estate agent will be able to help the buyer with their years of experience, thanks to the rapport you two have built. Before signing the contract, the buyer must meet their realtor in person. Like buyers, realtors will want to ensure a good fit exists before continuing.
  • Protection of Rights: The ethical standards laid down in various real estate laws hold the realtors to the highest standards of conduct through every step and process of the real estate transaction to protect the buyer's interest. While acting as the agent for the buyer, the realtor promises to prioritize and advance the buyer's interest as per the code of ethics. As the buyers are legally tied to the agents, they will have access to all the legal recourse that won’t be available to customers if they feel their rights were violated during the transaction. Even though these occurrences are uncommon, buyers will feel more secure knowing these regulations cover them.
  • Payment Guarantees for Agents: Realtors are compensated by the seller when a home is sold and only take commission-based jobs. The buyer should sign a buyer's representation agreement if they are dealing with an agent and are satisfied with their hard work to guarantee payment from the selling broker. If the realtor doesn't have a signed buyer's representation agreement after all their work, the listing business could decide not to pay them. It is the sole legal document that ensures a buyer's agent will receive payment. An agent will spend hours assisting the buyer and feel much more comfortable doing so if there is a contract in place so that they can be paid for their efforts, even though it may not impact the buyer's bottom line. The listing broker has often committed to paying the buyer's broker's commission. If not, the buyer can request that the broker not show them any such properties. Alternatively, buyers can still see the house, knowing that any offer must account for their broker's commission.

Types of Buyer Representation Agreements

  • Non-Exclusive Not-for-Compensation Contract: It is the least common and restrictive of all the buyer representation agreements. If the agent is a friend of the buyer or provides the service as a favor, this arrangement may be used. Both parties might still like a record of their union. The agreement states that the agent won’t be entitled to any compensation, allows the buyer to engage with another realtor while working with the first realtor, and permits both the buyer and the realtor to terminate the agreement as per their requirement.
  • Non-Exclusive Right-to-Represent Contract: This contract entails the payment of the agent; it ensures that the agent receives a commission for the brokering service provided and other compensation for the representation given to the buyer during the purchase, the buyer is free to engage with another agent and specific termination clauses.
  • Exclusive Right-to-Represent Contract: The most typical buyer representation contract offers the agent the most protection. Buyer's agents commit a lot of time and resources. This agreement aids in ensuring that the agent is paid for their efforts. In this kind of agreement, the buyer is prohibited from working with another agency while the agreement is in effect. Besides, it states that the agent will receive compensation despite the buyer finding a house on their own or by working with another brokerage firm, and it precludes the buyer from terminating the agent without a valid and justified reason. These agreements can be valid for a few months or a year.
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Key Terms for Buyer Representation Agreements

  • Realtor: One of the parties to the buyer representation agreement, which is usually a brokerage firm, a realtor acts as the agent for buyers by showing them properties for buying.
  • Buyer: Another party to the buyer representation agreement is interested in buying a property or house and takes the broker's help to secure a property without being duped.
  • Compensation: The amount mentioned in the contract as a payment to the realtor from the buyer.
  • Exclusivity: The degree of exclusivity can be established by both parties depending on the type of contract to ensure that there is no breach of the contract if the realtor or the buyer interacts with other realtors or buyers, respectively.
  • Termination: The conditions for terminating the agreement, like a breach of contract or mutual agreement, by either of the parties before the contract comes to a formal end must be entailed in the contract.

Final Thoughts on Buyer Representation Agreements

The buyer representation agreement must be approached with caution as it is drafted specifically for the security of the homebuyers. The terms and conditions of the agreement should be carefully constructed and reviewed before signing to prevent either of the parties from being bereft of their rights and obligations and eventually establish a strong connection with the agent. The essence of this document lies in the loyalty of both parties towards each other and provides an effective way for the buyer to communicate their needs to the realtor.

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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