A Brief Introduction About the Buyer Broker Agreement
Buying a home or any other property can be a tedious job. It requires a lot of decision making and responsibility. It is suggested that all buyers should have a real estate agent or broker to work with them and to represent them in a fairway. Such agents are called Buyer’s Brokers.
So, what would be a buyer broker agreement? The agreement signed between both these parties is called the Buyer Broker Agreement.
In the absence of any agreement, the broker can choose who he wants to favor more. In most cases, the owners of the properties pay brokers agency fees, and thus, the brokers tend to work in favor of the owner. This whole process puts a buyer in a very uncomfortable position, and considering buying property and investing in it is not an easy job; the buyer often ends up agitated and confused.
Buyer Broker Agreement legally binds both the parties into following certain rules and promises. There are different kinds of Buyer Broker Agreement, depending on which it is deciding whether the buyer can get involved with other brokers or not.
Another name for a Buyer Broker Agreement is Buyer’s Representation Agreement.
Who Takes the Buyer Broker Agreement? – People Involved
Any person who is looking to buy a real estate property can have a buyer’s real estate agent. Once the buyer finds such an agent that can be relied on and he can work with, both the parties get into a Buyer Broker Agreement.
Brokers are also always on the lookout for genuine clients. An agreement such as this makes the work more professional, and the broker might want to invest properly in finding a suitable property for the buyer and also provide the buyer with an inspection advisor.
Purpose of the Buyer Broker Agreement – Why Do You Need?
Before the final purchasing agreement, there requires an agreement between the agent and buyer to make the buyer obligated to the realtor/agent. Such an agreement also protects the buyer throughout the process of buying. The buyer definitely needs an agent in his favor instead of the seller.
Brokers or agents are the most important people when it comes to property purchase because of their knowledge about the properties, the area, neighborhood, and fair rates. When the buyer doesn’t want to involve in risks by making decisions himself, he can rely on the broker by signing a Buyer’s Representation Agreement or a Buyer Broker Agreement.
The brokers also tend to know most owners for a long time and, thus, about the property, and it’s good and bad features. As per your requirement, the broker can share all such crucial details with you so that there are no surprises after the final purchase.
Purpose Of The Buyer Broker Agreement:
- To make the relationship between the broker and the buyer legally bound
- To make the broker obliged and think only in the interest of the buyer
- To learn about all the pertinent information about buying from the broker
- To specify all the requirements of the buyer at once place and to one broker exclusively
- Disclosure of all the crucial information by the broker to the buyer
- To bring professionalism in the buyer broker partnership
Contents of the Buyer Broker Agreement – Inclusions
Before we talk about the inclusions in the Buyer Broker Agreement, buyers must understand that there are many types of this agreement, such as exclusive and non-exclusive Buyer Broker Agreement.
In the case of exclusive, the buyer will exclusively work with the broker. Further, the non-exclusive agreement can be of two types. One that includes compensation and one that doesn’t. In non-exclusive agreements, the buyer can take the help of more than one broker.
The common inclusions for both kinds of the agreement are duties of the buyer and duties of the broker. The agreement will also include the time period of their partnership and compensation details. The buyer also specifies their requirements in the agreement so that the broker can find it easy to offer a suitable property.
The Buyer Broker agreement must also have a termination clause in case both the parties decide to part away. It is very common to see the buyer and broker start an agreement, but it stops working out for both of them. Hence, the buyer should be extremely cautious in finding a suitable broker. Hiring the first agent or the broker you meet is not a suggested way of going about it.
As a buyer, you must get into the specifics of things such as where do you want to rent out the property, which are your most preferred areas, what size of house you are looking for, etc. Once you answer all these specifics for yourself, then you must start talking to as many brokers or agents you can. Do not take recommendations from your friends blindly. Every time you talk to a new broker, you must ask them a few questions such as is this area your specialized area, how many houses you have sold here, etc. You should choose a preferable experience broker to avoid unnecessary hassle.
How to Draft the Buyer Broker Agreement?
It is very important for the buyer to choose the right kind of Buyer Broker Agreement. The buyer always has the option to choose for exclusivity or non-exclusivity. Further, the buyer should specify his requirements very precisely to the broker and then in the agreement to avoid any future confusion and conflict.
In addition, the buyer should also make sure that your broker is not doing a hundred other projects at the same time. As a buyer, you would definitely want your broker to give you enough time and that he should be available when you require him.
The broker and the buyer should get absolute clarity about the compensation involved. In a non-exclusive agreement, there is a possibility that the buyer finds more than one broker, but he might have to compensate both the brokers as per the agreement.
After signing the Buyer Broker Agreement, the broker has a fiduciary duty to the buyer, which makes the agreement an extremely important piece of document. Thus, before signing the agreement, both the broker and the buyer should ask each other questions to avoid future conflicts and confusion.
It is the buyer’s responsibility to negotiate with the broker; after all, the buyer has to save money while making a huge investment on a property. Even though the Buyer Broker Agreement between both the parties ensures that the broker works in favor of the buyer and not the seller, the buyer should make a healthy off papers relationship with the broker to get a reasonable deal.
The buyer should do his research well in advance and make sure he knows the rates of a particular location and buildings.
Benefits & Drawbacks of the Buyer Broker Agreement
There are many ways in which the Buyer Broker Agreement helps both the broker and the buyer.
Here are some –
- Ensures best deal for the buyer
- The reasonable purchase price for the buyer
- Provides flexibility for the buyer
- Puts forward more options for the buyer
- Professionalism by the broker
- Disclosure of crucial information
- Buyers get to utilize expert’s skillset
- fiduciary duty offered to the buyer by a broker
- A broker can further recommend other key professionals
While at first, signing an agreement with the broker may seem like a daunting task, but it has many hidden benefits. Brokers know many professionals such as mortgage brokers, real estate attorneys, home inspectors, movers, etc. So if you establish a good rapport with the broker, you may get more favors than mentioned in the agreement.
The Buyer Broker Agreement doesn’t harm either of the parties. But, it sometimes can be binding to stick around one broker or one client. So, the buyer and the broker should have a common understanding that when it doesn’t work out, they terminate the agreement.
What Happens in Case of Violation?
In case one of the involved parties is not satisfied with the other, the agreement can be terminated. However, it is highly suggested that both parties talk about termination rules before signing the agreement.
Termination terms and conditions are one of the most crucial inclusions in the Buyer Broker Agreement. Both parties can also mutually decide to break the agreement without any hassle.
Compensation can be another point of conflict for both parties. After promising an amount in the agreement, the buyer can’t back out. Both the parties can opt for a third party’s intervention upon an incident of breach and violation.
Some cases of breach tend to get complicated to the point that it requires a lawyer’s help(1). As a buyer, you must get in touch with a lawyer much before such a situation arises to save yourself from frustration and anger. Even some seemingly good relationships of the buyer and broker can turn nasty if both parties stop serving each other well.
The Buyer Broker Agreement or Buyer’s Representation Agreement makes things convenient for the buyer who plans to invest a huge amount in the housing property or any other real estate. This also protects the buyer from getting cheated by the broker who, without the agreement, might favor the seller.
However, both the parties still need to be careful of the kind of agreement they get into and the different details mentioned in the agreement. Here is a sample of the Buyer Broker Agreement drafted by our expert.