What is an Exclusive Buyer Representation Agreement?
An exclusive buyer representation agreement is a legally binding contract between a real estate buyer and a licensed real estate broker. This contract obligates the real estate broker to represent the buyer’s interests in the purchase of real property and ensures that the buyer will work exclusively with that broker in the process of purchasing a property.
The purpose of an exclusive buyer representation agreement is to establish a formal relationship between the buyer and the broker, which in turn helps the broker to work more effectively for the buyer. Under the terms of the agreement, the buyer provides the broker with the authority to search for properties, make offers, and negotiate on the buyer’s behalf.
The exclusive buyer representation agreement differs from other types of real estate agreements primarily in the context of the relationship between the broker and the buyer . For example, a typical residential purchase and sale agreement is only in effect until the completion of the purchase of the property, whereas an exclusive buyer representation agreement can be in effect for a period of months or even years, while the buyer is looking for property.
Another difference between an exclusive buyer representation agreement and other types of real estate agreements is the level of obligation and commitment required on both sides. Both the buyer and the broker are committing to exclusive representation, which means that the broker is not obligated to help the buyer find a purchase and the buyer may not use another broker or agent. In contrast, other types of real estate agreements, such as a standard seller representation agreement, allow both parties to work with other agents and brokers.
In conclusion, an exclusive buyer representation agreement helps buyers to work with brokers more effectively and ensures that the buyer will be represented only by that broker during the search for a property and the purchase of real estate.
Advantages to Signing Exclusive Buyer Agreement
Exclusive Buyer Representation Agreements bestow some obvious advantages to both the buyer and the agent.
A real estate agent that is committed to the buyer, rather than a listing property owner, has a single focus. With no conflict of interest, the exclusive buyer agent knows that he/she is not sharing the commission with a seller’s agent, but is instead the only advocate for the buyer in the sale of the home.
This naturally means a stronger commitment. The buyer is not committed to the agent either, but signing an agreement ensures that the buyer will provide the agent a fair shot of loyalty. A non-exclusive relationship has no guarantee of loyalty coming either way.
The exclusive agreement between the buyer and the agent also creates a more fluent and less wasteful communication process. The buyer can talk with his/her representation about potential properties without constant interruptions from agents who will not get a commission unless they make a sale. The agent has a full commitment opened for service to the needs of the client.
Essential Terms to Include
At a minimum, an exclusive buyer representation agreement should contain the following terms:
Duration: The duration of the deed can vary between states, but a typical duration for an exclusive buyer representation agreement is the time period required under state law for the statute of frauds to form a binding real estate contract, or one year. Some states, such as Colorado, do not have a statute of frauds with respect to real estate so the statute of limitations on a claim for breach of contract governs.
Compensation: How much is the buyer’s agent going to be compensated? And by whom? A common approach is that the buyer’s broker is going to be compensated at 2.5% of the purchase price, and if the seller pays more, that amount is disclosed in the MLS listing. If the compensation to the buyer’s agent is less than 2.5%, the buyer pays the difference. This is not prohibited in some states and you need to be careful to comply with state law. In some states, such as Colorado, the agreement can provide that if the seller pays less, the buyer pays the agent the difference. In other states, because the agreement is not a contract for employment, a buyer’s agent may not ask the buyer to make up the difference.
Responsibilities of the Agent: You should list the primary duties of the agent to the client. For example, the contract could provide that the agent shall:
Responsibilities of the Client: Clients do not always perform their duties and obligations to the agent. It is important to enumerate those obligations and perhaps even provide for a "material breach" if the buyer fails to perform any of them. The expectations and obligations of the buyer should be clearly identified. For example, the Buyer shall be responsible for:
Compensation Over the MLS: For those agents who are paying commissions out of their own pocket, they will sometimes have a clause in the buyer representation agreement that requires the client if the client purchases an MLS listed property without further facilitation or promotion by their agent and the MLS listing shows a commission due the buyers agent who sells the property of less than ___%, then the seller shall pay such commission whichever is greater but in no event greater than what is owed to the buyers agent under the buyer representation agreement.
Termination: There needs to be a mechanism for terminating the agreement either completed or due to certain acts of the buyer.
Potential Cons and Considerations
Clients should be aware of some potential drawbacks of exclusive agreements. First of all, these agreements could be considered to be less flexible than a non-exclusive agreement. A non-exclusive buyer agreement allows a buyer to work with multiple agents and to follow different paths for comparison. If your search process is going to take an extended period of time, you may want flexibility to work with more than one agent. When your search is over a year, it may not be prudent to tie yourself to one firm for that entire period.
Secondly, if you sign an exclusive buyer agreement, by definition you are prohibited from working with another agent. So, if your personality does not fit with the agent, or if he or she cannot secure a property on your behalf, you may find you are stuck in that relationship for the shift of the agreement term.
A third consideration is that, in some cases, agents have found themselves in conflict while working with a seller and a buyer who are separately represented by the same agent. There are many ways that a conflict can arise. In New York City, a conflict can arise in a typical one-to-one exclusive relationship. A conflict can also arise if there is a multiple representation situation and an exclusive buyer is working with one of the firms involved in representing the buyer. If you are signing an exclusive buyer agreement, consider whose listings that agent has before proceeding.
Negotiating an Exclusive Buyer Agreement
An exclusive buyer representation agreement is a commitment between a buyer and a real estate agent for the agent to help find a property for sale that would meet the buyer’s needs. This is generally a preferred type of buyer representation for many individuals, as they can be assured that their agent will be focused solely on meeting their interests and goals. As with all contract agreements, it is essential for the buyer to understand the terms to ensure that neither party is disadvantaged.
There are several ways in which the buyer can negotiate this type of contract with an agent. First, it is advisable to fully understand the terms of the agreement. To this end, it is essential to have a discussion with the agent about any and all questions. These questions may include: Before asking for changes in the terms and conditions, it is essential to review them carefully and to determine what parts require negotiation. In some cases, it may not be necessary to change the terms of an exclusive buyer representation agreement at all, but the buyer has the option to do so . In fact, some real estate contract terms are negotiable by state law, regardless of whether or not these provisions would be included in an exclusive buyer representation agreement or not. These terms may include exclusivity of representation, the amount of the fee for services and the duration or expiration of the contract. Be clear about negotiating the terms that matter the most to you. There is no need to ask for changes to every term of the contract, especially if there are few that are particularly important. If the buyer can become educated about contract terms and issues beforehand, he or she can possibly make a better case for a change in terms. Consider the possibility of placing a provision in the contract that starts automatically – for instance, after a set number of days or weeks. This may allow the buyer the opportunity to rescind the contract before a large amount of time has elapsed. Be sure to include a provision for a refund on any retainer fee that is being paid before the end of the term if no property is located that satisfies the buyer’s demands. Finally, be willing to compromise. Negotiation is not about winning an exchange but rather finding common ground for both parties to agree upon.
Legal Protection and Legal Implications
When a consumer enters into an exclusive buyer representation agreement with a real estate agent, the consumer is agreeing to do business with the agent. However, both buyers and sellers must be aware of particular legal implications and protections involved with this arrangement. The Tennessee Residential Real Estate Broker Consumer Protection Act of 2005 defines an exclusive buyer representation agreement as "a written bilateral agreement between a real estate broker and a party to a proposed or existing real estate transaction which establishes the relationship of the parties and the compensation due the real estate broker." An exclusive buyer representation agreement must give notice to the party that they may present their mortgage pre-approval letters to the real estate agent for the purpose of determining their ability to pay the price of the property offered for purchase in the proposed transaction. The agreement must provide that it will be automatically terminated upon the expiration of the listing period or the sale that takes place during the term of that period, whichever first occurs. If you’re a consumer entering into such an agreement, it’s important to understand that you have the power to specify terms for any compensation due to your real estate agent. Under the exclusive buyer representation agreement, you have the right to assert how much you’re paying for their services. It’s not up to the agent to determine what they’re owed for finding a home for you. You need to specifically detail whether the full amount is due and payable under the agreement for all homes presented or only a certain percentage of this amount is due for certain homes or if the agent is not owed a commission if you purchase a new construction home. You also need to be aware that the time period for when the rights and responsibilities of each party under such an agreement begin and end are set by the provisions outlined in the contract itself. All terms and conditions of the agreement should be clearly defined. Even though you’re hiring a real estate agent who represents you, the contract you make with them is negotiable. Do not feel pressured to enter into an exclusive buyer representation agreement. Make sure you understand all provisions of such an agreement before signing. Be sure to test the waters with the agent you’re thinking of hiring to make sure you’re comfortable with how he or she works because once the agreement is signed, you will be entering into a legally binding situation.
Common Myths Busted
The most common myth about buyer representation agreements is that they are only for use with new construction. This is not true at all. These forms can be used for new and existing construction and are not limited to transactions that involve only new homes.
Another common misconception about buyer representation agreements is that no one follows them anyhow—they are just something instructional. This is also not true. Breach of contract claims are common with buyer representation agreements when buyers have agreed to work exclusively with one office or agent in a specific timeframe, only to later decide to work with someone else . Since these contracts are lawfully binding, the disappointed buyer will have a valid legal claim against the new agent and their brokerage firm to collect the commission for the sale from a different buyer.
Yet another common misconception about buyer representation agreements is that they are the same as listing agreements, which they are not. Listing agreements are for the purpose of hiring an agent to market and sell a property. Buyer representation agreements are different than listing agreements in that they concern a buyer hiring a licensed real estate professional to only represent their interests, not the seller’s.