Hey! Look Me Over!: The Buyer Broker Agreement

Earlier this week, I wrote Hey! Look Me Over! with advice on what to look for in a buyer broker.  So what happens after you interview a few agents and find one you think will be a good choice?

Most buyer brokers want you to sign some sort of agreement that formalizes your agreement - often it is a legal requirement of their jurisdiction.  And without a written agreement, there are no guarantees the agent who finds you your new home will get paid. 

Most buyer broker agreement say, in effect, that the agent will help you find a place, and you agree to forsake all other real estate agents during your search - actually, it's been described as asking a prospective buyer to get married before the first date. 

Now, at this point, you know enough to want to go out with this agent on at least one date (a home shopping excursion).  Still, you may feel uncomfortable signing a contract that obligates you to this agent until you buy or die. 

How can you handle it?

In most jurisdictions, licensing laws do require the agent to give you written explanations of how the brokerage thing works.  Who represents whom in the transaction?  And whether or not state regulators want you to sign an actual agreement, many agents will not show you a single house without one. 

Whatever the laws might be, I think that it's a very good thing to have your agreement reduced to writing.  I also think it's important that you understand whatever you sign, and that it be written in understandable English and in legible print.  And keep in mind, this form is usually written by the local Board of Realtors®, and there is a lot of language in there to ensure that when you buy a house that agent will get paid, either by you or by the seller.

Also, keep in mind that you are free to negotiate changes any of the boilerplate language if there are terms or conditions you can't live with.

Here are some of the major issues it will include:

• How much does the broker charge and how is that paid?  In the DC area, the sellers usually pay the brokerage fees, and I've even heard agents telling people that their services to buyers are "free".  Not quite.  If the listing company has negotiated a payment from the seller (called a "coop" commission) to your agent of less than the amount of the fee he charges, the agreement may say that you must make up the difference.  In other words, if your agreement calls for a 3% payment, and the coop commission is only 2.5%, you may have to write a check for the difference at settlement.
• Does the buyer broker charge an up-front contingency fee?  If so, how much is it?  Is it refundable under any circumstances?  Is it credited back to you at settlement toward your down payment and closing costs?  This is one way that an agent can help week out real buyers from tire kickers, and it's becoming more customary.
• How long is the term of the agreement?  If you are not sure you want to enter into something long-term, and if the agent insists that you have to sign something, make it a week or so.  You can extend your contract at the end of that time - assuming the agent is doing a good job and you both want to continue the relationship. 
  
• Is it possible for you to break up once you've signed on the dotted line?  If it turns out that you've made a mistake and don't want to work with this agent after all, how do you get out of it?  Most brokers will let you out, but they don't have to make it easy for you, unless you have included language that lets you terminate. 
  

Whenever I enter into a buyer brokerage agreement with a new client, I know that I'm going to have to earn the trust and loyalty that our buyer broker agreement represents.  But the agreement has got to be more than a piece of paper.  And there will be important elements of the relationship that can't be written into a boiler-plate contract.

Between the time we meet and the time we arrive at the settlement table, a lot can happen. 

• We have to be certain we are communicating clearly throughout the process, and we need some mechanism for making sure that we are all trying to find the same type of property.
• You might get out-bid a few times before you submit an offer that actually works.
• There might be issues with the home inspection, title search, or lender that can threaten the transaction once you think you have a deal. 
  
• The seller of your dream house could turn out to be a pill.
• Any one of the cast of characters involved, including me or even you, can make a mistake along the way.  And you have to have faith that we can fix whatever it is - we almost always can.

If you are buying a home in the Washington, DC metropolitan area, I can help. I'm licensed in DC, Maryland and Virginia, and I was one of the agents who pioneered buyer brokerage over 20 years ago.  Back then, some of my colleagues thought I was crazy.  Now it's the way almost all buyers purchase their homes.