If you chat with anyone working in the real estate industry for awhile and you will hear some stories. Some good, some bad, some weird, some funny–they have seen it all. One of the terrible tales you might listen to is the story of an agent who wished they had signed a buyer to a buyer’s agreement. After a load of work, the buyer finally made an offer. Too bad it was with a different agent…
Can you believe that actually happens? Yes, the reality of that story is both shocking and real. It can also go the other way, where the buyer drops the client or gives the home up for sale, although that is less likely (since most agents work for commission). Even the smoothest of real estate transactions feel like an emotional roller coaster. Save yourself some of the drama and sign an exclusive contract with a real estate agent.
Why Does It Happen?
An agent works with a buyer for a few weeks to several months–or longer. The agent puts a lot of effort into including the buyer in every aspect, introducing the buyer to the lender and when obtaining loan or approval letters. The agent will regularly shoot some emails that fit the buyer’s requirement and call up listing agents to determine availability. So the agent is doing all the right things–it’s been a smooth ride for everyone involved.
Next, come the appointments and the showings, driving the buyer from one neighborhood to the next. The agent is feeling pretty good. But still–after all that work–the phone call comes. The buyer found a place on their own, and they’ve signed a contract.
Listing agents sign form listing agreements with sellers, so buying agents should expect formal contracts, too. Just like a listing agent, buyer’s broker agreement outlines the rights and responsibilities of both parties. This contract is basically a promise for a promise. If the agent isn’t serving the buyer, the buyer might have the right to fire the agent.
Finding a Buyer’s Agent
Many buyers refer to an agent by their friends, family, and co-workers. Also, referrals are often the best way to find an agent. But what if you’re moving to a different city? Look in certain neighborhoods to find listings for sale. You’ll likely see an agent who is representing most of these listings. Are there online reviews? What do people have to say?
You can also run some keyword searches. Type “top real estate agents/brokerages in my city,” or search websites where agents maintain a national profile. Even getting out into your neighborhood will help you meet realtors. Find an Open House and talk to the agent. If they appear knowledgeable and your personalities mesh, drop that you’re on the market for an agent. Odds are you will be leaving the Open House with a business card.
What is an Exclusive Contract?
Contracts are legal documents, typically bilateral agreements. When the buyer signs a purchase offer, the basic idea is that you are signing over a stated amount of money and the seller will hand over the deed. It is a promise for a promise, usually mediated by an agent.
Exclusive buyer broker contracts have the same idea. The broker will locate and identify potential properties for the buyer to consider, review paperwork, prepare purchase offers, and provide other services. The buyer needs to seriously consider the homes, qualify to purchase the property, read all the materials, and cooperate with the broker. It sounds nice, right? It actually works well for a lot of buyer-seller relationships. However, there are a few stipulations you should know about before you agree to enter the agreement.
Buyer Broker Exclusivity
The terrible situation mentioned earlier would not have occurred with a buyer broker agreement. The agreement states that solely the buyer and broker work together. The buyer cannot ask another broker to show you a property–the buyer and the agent remain a team. If the buyer does buy without an agent and opts for a For Sale By Owner, new construction, or a family member’s homes, the broker will also earn a commission.
Buyer Broker Compensation
The broker or agent will make a commission on the property at the time of closing. However, if a hardworking agent has a buyer trying to flake and trying to purchase a contract with another broker, the buyer may directly owe compensation. Remember, the agreement is bilateral, and one party cannot call it quits on their own.
Property Description and Location
Is there any way out of this agreement? Why yes, there is a way. Unfortunately for most buyers it only is possible if they jump ship and purchase a different type of property than the one stated in the contract. For example, if you wanted to buy a single-family home, you are free to buy an apartment complex with another broker. Also, perimeters are another fluid factor in the contract. You are free to buy as you please with whom you want outside of, say, a particular city or country.
Wait Out the Term
Lastly, all contracts are based on a particular term. Exclusive broker agreements last a period of three to six months–up to six years (this is not the norm, but still possible)! The stated amount of time in the contract is how long you are bound to the agreement. Most agents will agree to a contract of thirty days.
These four elements of the contract alone would have been enough to prevent the above example from being an agent’s reality. As with any type of contract, carefully read the agreement. Ask questions and get answers. You must consult a real estate lawyer or professional for specifics before you sign the dotted line.
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