What Is a Buyer’s Agent Agreement?
Browsing home listings, dreaming about life’s next chapter, finally reaching your homeownership goals—these are all the exciting things you look forward to when deciding to buy a house. And while all of that is definitely part of the fun and games, coming face to face with a real-life real estate agent and their buyer’s agent agreement might snap you out of home-buying dreamland for a second.
But don’t worry. When an agent you’re considering working with presents you with a buyer’s agent agreement, it’s not a sign that you’re in over your head. If you understand what’s in the contract, ask the right questions, and work with your agent to negotiate an agreement that works for you both, then you can have confidence you’re on the road to finding your new home.
Buyer’s Agent Agreement Defined
A buyer’s agent agreement is a contract between a home buyer and a real estate agent that defines how the two agree to work together. And that’s it! While an agent typically is the one who requests a buyer’s agent agreement, it’s meant to set expectations and protect both agent and buyer in case one party doesn’t hold up their end of the deal.
Think about it this way: If you were shopping at a store and a sales associate really took the time to help you find exactly what you were looking for, then they earned the commission for your sale. Well, let’s say after all the sales associate’s hard work, a different one swoops in right at the close, rings you up, and takes the first associate’s commission. Not okay, right? That’s the kind of funny business a buyer’s agent agreement protects a real estate agent from.
Likewise, if the sales associate you’re working with ends up doing an awful job, you’ll want to be able to find a better associate, maybe even a better store. Well, if the right conditions are outlined in a buyer’s agent agreement, that’s exactly what it empowers home buyers to do.
But before you sign anything, you need to make sure the right conditions are outlined—that’s the only way the buyer’s agent agreement will work for you. So how do you know good conditions versus bad ones? Check out our breakdown of what to look for and what it means for you.
What’s Included in a Buyer’s Agent Agreement?
Across the industry, different agents and brokerages have their own versions of buyer’s agent agreements—heck, they might even call them different things. But whether your agent presents you with a buyer’s agent agreement, buyer representation agreement or a buyer broker agreement, there’s really no difference between them. So, whichever version you come across, you just want to make sure to look out for these key details:
- Term Length: The term length is the time period that your contract is active. A lot of contracts last around 90 days, but as long as you and your agent agree, they can be as long or as short as you want. Term length language may also include instructions for what happens when the contract ends in the event you haven’t found your new digs yet—whether to renew the agreement, renegotiate terms, part ways, etc. Keep in mind that waiting out the term length is the easiest way to get out of a contract you don’t want to be in, so think carefully about signing anything over six months.
- Termination Rights: No, we’re not talking about the rights of cyborg assassins from the future (that’d be terminator rights)—but this section is pretty crucial, so listen up. If either the agent or home buyer needs to end the working relationship, the termination rights basically spell out how you should break up. Expect to find language on things like: grounds for termination, how termination should occur, how much compensation (if any) the agent receives, or how much notice should be given beforehand. Termination tends to get sticky (one of the reasons you may want to think twice before hiring a friend or family member). In addition to knowing exactly what this section commits you to, make sure you know how to choose the right real estate agent to avoid this mess in the first place.
- Buyer Exclusivity and Representation: Consider this the “not seeing other people” section. This commits you to only work with the agent or the brokerage you’re signing with—at least until the term length is up. If this triggers commitment issues and you feel a cold sweat coming on, take a deep breath. You’re not locked in if things go south with your agent. Just talk to the agency’s broker about your situation. They’ll likely be able to find another agent at their brokerage that’s a better fit.
- Compensation: You’ve probably heard that the home seller normally pays both the sellers and buyers agents’ commissions (yay!). But that doesn’t mean you can just skim over the compensation section when you go to sign your buyer’s agent agreement. It’s very important to understand exactly what you’ll be on the hook for in the event a seller refuses to pay or you breach the terms in the buyer’s agent agreement.
- Property Description: Often times, the agent will outline the specs of the home you’re on the hunt for—things like price, neighborhood, type of property or size. Now, remember, this isn’t where you mention that you really want an at-home gym with east-facing windows for sunrise yoga. This is simply meant to set expectations and give you something to point back to if your agent misses the mark in a big way when they show you homes.
- Agent Duties: There will probably be a description of your agent’s duties somewhere in your buyer’s agent agreement. Expect to find responsibilities like: finding and showing you potential homes, writing and negotiating offers and addendums, or making sure everything happens within your contract’s terms. When reviewing this section with your agent, this is a good time to get on the same page about expectations—like scheduling preferences or communication style—for your home-buying experience.
Are Buyer’s Agent Agreements Normal?
Signing a buyer’s agent agreement is a totally routine part of agreeing to work with a real estate agent when buying a home. It’s just like signing a listing agreement with a listing agent when selling. While you do need to be careful and understand everything in your agreement before signing, it can be a good sign when an agent requests one. Because agents work on 100% commission, having your John Hancock on a buyer’s agent agreement lets them know you’re serious about buying a home—which in turn makes them serious about finding you one.
If you’re still not comfortable signing, ask yourself:
- Do you trust your real estate agent? Interviewing your real estate agent before you hire them is one of the best ways to gauge whether they’re there to serve you or there to collect a commission check. Use these questions during your agent interviews to weed out the agents who won’t have your back.
- Do you understand everything in your agreement? If it’s your first time buying a home, don’t let the paperwork and fancy lingo intimidate you. Get crystal clear on the agent’s compensation and your termination rights—and don’t be shy about negotiating if something doesn’t add up.
- If things went sour, how would you come out? If you’d be in serious trouble in the event you had to terminate—say, out a termination fee you can’t afford—you might want to hold off moving forward until things are more stable for you. Even though that type of situation is rare, you’ll want to be financially secure before you commit so that you’re not screwed if something goes haywire.
Article courtesy of Daveramsey.com