If you’re buying a home and you’ve found a real estate agent you want to work with, you may be asked to sign a buyer-broker agreement that formalizes your working relationship. Here’s a closer look at how buyer-broker agreements work and why they’re used in real estate transactions.
What Is a Buyer-Broker Agreement?
A buyer-broker agreement is a contract between you and the real estate broker who by law supervises the real estate agent or Realtor you want to work with. The agreement outlines each party’s responsibilities and duties during the homebuying process, as well as how long you’ll be working together and how the arrangement may be canceled.
Types of Buyer-Broker Agreements
There are a few different types of buyer-broker agreements:
- Nonexclusive not-for-compensation agreements are the simplest type of agreement. It’s sort of like an open relationship — the buyer and broker don’t have to work together exclusively, and both parties are free to walk away at any time. The broker isn’t compensated if either party bails.
- Nonexclusive right-to-represent agreements mean that the buyer can work with other brokers, but the broker is compensated if they find the home the buyer purchases. This type of agreement typically has more requirements to cancel it without penalty.
- Exclusive right-to-represent agreements are the most common type of buyer-broker agreement, where the buyer commits to working exclusively with the broker and their agent. The agreement also will stipulate the compensation the broker will receive — even if the buyer doesn’t purchase a home with them.
Some of the details of the different agreements may vary depending on the state where you live.
Terms of a Buyer-Broker Agreement
The terms of your buyer-broker agreement will outline what each party is responsible for and how your relationship will be structured. Here are common terms you can expect to see listed on the contract.
Broker’s duties
When you put together the agreement, you and your broker can decide on their specific responsibilities to you. This can vary depending on the broker, but most agreements require the broker to:
- Help the buyer find the right home to buy.
- Advocate for the buyer during negotiations with the seller.
- Close the real estate transaction according to laws and regulations.
Buyer’s duties
The agreement also outlines the buyer’s responsibilities, which may include:
- Working exclusively with the broker.
- Responding in a timely fashion when the broker contacts you.
- Being ready to begin touring properties.
- Doing your own research on the properties you’re eyeing.
- Giving the broker accurate information and documents about your finances.
- Thoroughly reviewing all closing documents before signing.
Contract term
Exclusive agreements often come with a time limit on the contract — typically three to six months. After that, the buyer can work with other brokers if they still haven’t found a home.
Representation
There are two ways a broker can represent you:
- Single representation means the broker is representing only the buyer or the seller in a sale.
- Dual representation means the broker is representing both the buyer and seller.
The trouble with dual representation is that it may pose a conflict of interest. You can’t be sure the broker is getting you a great deal if they are helping the seller get as much money for their home as they can. As a result, some states have made dual representation illegal.
Compensation
The agreement includes how much commission the broker will be paid. In most cases, the buyer’s agent and seller’s agent split a commission of 5% to 6% of the home’s purchase price. The commission is typically paid by the seller at closing.
Termination
A termination clause in a buyer-broker agreement stipulates how either party can cancel the contract before its expiration date. The clause will note acceptable reasons for canceling the contract. For example, if a broker doesn’t show their client enough properties, the buyer can choose to work with someone else. The termination clause will specify how much notice must be given and if there will be any fees incurred.
Benefits of a Buyer-Broker Agreement
- You’re protected legally. A buyer-broker agreement stipulates the broker’s responsibility and legally ensures that they are advocating for your best interests.
- Your agent is motivated. If your agreement is exclusive, then your agent knows you can’t ghost them and buy a home with a different broker. As a result, they may be more motivated to find you a home and earn a commission.
- Access to more listings. A well-networked broker can often find listings that aren’t available to the general public.
Drawbacks to a Buyer-Broker Agreement
- You may have to pay their commission regardless. Some buyer-broker agreements stipulate that the broker gets paid even if you find a home without their help.
- You could have a broker you clash with. If you and the broker don’t work well together, but your agreement is exclusive, then you won’t be able to hire another until your contract expires.
When Is It a Good Idea To Sign a Buyer-Broker Agreement?
According to Adie Kriegstein, a real estate agent and founder of the NYC Experience Team at Compass in New York, buyer-broker agreements can be helpful for homebuyers.
“If you’re a serious homebuyer looking for a dedicated agent to help you navigate the complex process of finding and purchasing a property, it can provide you with a level of protection and assurance,” Kriegstein says. “By signing an agreement, you’ll establish a formal relationship with your agent, who will be legally obligated to act in your best interests. This means they’ll work to find you the best deals, negotiate on your behalf, and provide you with expert advice throughout the process.”
Kriegstein also says that buyer-broker agreements can prevent you from having to pay out of pocket if the deal falls through.
“However, it’s important to read the agreement carefully before signing and to make sure you understand all of the terms and conditions,” Kriegstein says.
FAQ
Here are answers to some frequently asked questions about buyer-broker agreements.
