What Is a Buyer Broker Agreement
Buyer Broker Agreements are contracts in which you agree to hire a broker for a period of time to help you buy real estate. These agreements are typically set up for three, six or 12 months. The second part of the agreement outlines what commission will be paid to the broker if and when a purchase agreement is signed by all parties (you the buyer and seller of the real estate). In California, a real estate broker receives their commission from the sale of the property. If you want to buy or sell real estate, you can expect to pay commissions if you work with a real estate broker. This is how brokers make a living and we expect you know this going into the process.
Often single agents that represent one party in a transaction, the listing agent or sales agent, receive half of the commission and another half goes to the listing agent. So let’s say a property sales price is $500,000 and the total commission is 5%. Half of the total commission goes to the listing agent and half to the buyer’s agent. In this case, if the buyer has a buyer broker agreement to pay 3% commission, then the listing agent would get 2%, the buyers agent would get 3% and the sellers pays a total of 5% commission . Many buyers have a fear of paying commission to their buyer agent, but this is how agents get paid. Buyers and sellers are smart and know this is what is expected in the real estate profession.
The purpose of a buyer broker agreement is to make sure the buyer pays a commission to the broker if the agent shows you a property, provides counsel to you reference a property, or you decide to negotiate a deal on a property the agent showed you. The buyer broker agreement protects the agent and gives the agent incentive to work smart and hard to find you the right property. Without a buyer broker agreement, you could use the agent inappropriately, ask them to show you properties over and over, not make an offer for weeks and months. The buyer broker agreement is not an excuse for the agent to treat you poorly, they work for you and do what you ask them to do, within reason.
If the agent knows they have something to lose, they will treat the relationship like a two-way agreement. If you don’t like how the agent works with you, you are always free to hire another agent and ask the first agent to drop out of the agreement. The agent does not have say if you no longer want to work with them. You have the right to change your mind about who you work with. This is America baby!
Different Types of Buyer Broker Agreements
The law in California allows for three types of buyer broker agreements. It is important to become familiar with each of them and how they differ.
First, you can enter into an "exclusive right to represent" agreement with your buyer’s agent. Under such an agreement, you are agreeing to work exclusively with the agent for a certain period of time. Typically, this type of agreement is for one year. By employing an exclusive right to represent agreement, you are assured that your agent will be motivated to find the right property for you because you represent their livelihood.
Second, there is an "exclusive agency" agreement for buyers. Under this type of agreement, the agent is basically making the same commitment and providing the same services as an "exclusive right to represent" agreement except that the agent is not entitled to their commission if you find the right property on your own and purchase it without the agent’s help. If you purchase a property with the help of your agent and the seller offers a commission to the buyer’s agent, an exclusive agency agreement would guarantee that your agent would receive that commission.
A "non-exclusive buyer representation agreement" the third type of buyer broker agreement, will allow you the freedom to search for a property on your own while at the same time designating your agent as your buyer’s agent. This type of agreement pretty much has no benefits for you so I do not recommend entering into this type of agreement with your agent.
What Should Be Included in A Buyer Broker Agreement
The terms and elements of this agreement can vary significantly, but there are some basic components that are most commonly found in buyer broker agreements. These include:
• The definition of the broker’s commission
• The duration of the agreement
• The obligations of the client to pay the commission
• The obligations of the broker to represent the client’s best interests
• Conditions for the release of the buyer from the contract
• Conditions for the client to cancel the contract
• How disputes or claims will be handled
• The scope of the representation; for instance, it may be for a specific geographic area like Marin County California.
These are just some of the basics, there are other components that may be beneficial for both parties to the transaction to have in clear written language. If you are interested in having a licensed California real estate professional help you with the sale or renting of residential or commercial real estate property, we invite you to contact Bob D. Miller today.
Legal Responsibilities and Rights of The Parties
The buyer’s broker, as a real estate professional, has legal obligations to act in the best interests of their client, the buyer. The buyer, on the other hand, has obligations to pay the broker for the services rendered either in the form of a commission or a fee. Both the buyer and the buyer’s broker have rights surrounding the closing procedures. Regarding the closing procedures, both parties have rights to receive compensation or payment for any services that have been rendered. Furthermore, the buyer’s broker can participate in an open listing to secure property for the buyer. The open listing does not require the buyer’s broker to work for the seller. Legalities also address issues concerning compensation of the buyer’s broker in the event of a dispute. If the buyer does not compensate the buyer’s broker and then receives a "kickback" from the seller, the buyer’s broker could sue the buyer. The buyer can establish legal rights by signing the buyer broker agreement. The buyer broker agreement forms a contract with the buyer’s broker, granting them the authority to act on behalf of the buyer as an agent. During the period of signing the agreement, both the buyer and the buyer’s broker have fiduciary duties to one another. In return for payment, the buyer is granted a level of loyalty and confidentiality by their agent, the buyer’s broker. Throughout the course of the relationship, the buyer has the legal right to be informed of all the buyer’s broker activities.
How to Select The Right Buyer Broker
How to Choose the Right Buyer Broker in California
If you have decided to buy a home or investment property in California, chances are that you will hire a broker to assist you. Buyer broker is a term for a real estate licensee working as a representative for property buyers, whether homebuyers, investors in residential or commercial property, or developers. You would most likely want to find a buyer broker who has experience in the property type you are interested in purchasing. For instance, if you plan to buy a home, you might want to work with a residential real estate specialist. However, if you are planning to buy an office building, you would be better served by a commercial broker.
In addition to choosing a broker who specializes in the type of property you are considering , it is essential to choose a qualified and reliable buyer broker. Here are some tips for finding the right buyer broker to represent you:
The best way to find a qualified buyer broker is by asking trusted friends and business associates for the name of a highly recommended brokerage. It is always best to deal with a real estate brokerage company that has been established for a period of time and has a good reputation in the community. You can also find a qualified buyer broker by looking online for one near your area.
Once you have a qualified candidate, you can meet with him or her to ask questions and discuss your needs and how they can be met. A reliable buyer broker will be able to work with you in defining what your situation is and what kind of property might be needed to solve the issue. The broker should also be able to give you insight into whether the timing is right to make a purchase. After the meeting, you should be able to get a good sense of whether the buyer broker is someone you want to hire to work with you.
If you are planning to buy a home, you may also want to work with a home inspector. You can ask your buyer broker for a recommendation for one who specializes in home inspections.
Common Mistakes and How to Avoid Them
One of the more common mistakes is failing to disclose a buyer’s identity. A real estate agent may, for example, leave out a buyer’s phone number, email, and even their names so as not to leave a trail that can be followed by a former agent who is not happy that the buyer has now retained their competitor. Doing this both violates the contract and is considered unethical by the real estate industry code of ethics.
Another common error made by buyers and sellers alike in a buyer broker agreement is leaving your agent hanging if you end up purchasing a property on your own. If you don’t give your agent adequate notice of which direction your next move will be, you may be financially responsible for their services, even if they ultimately do not have a role to play in the transaction.
An area of confusion for many buyers is whether signing representation agreements with multiple brokers makes sense. Oftentimes, they can misunderstand a single signed agreement as being exclusive when it is merely non-exclusive. In California, it is not uncommon to have several brokers working with a single client on a multiple-offer situation. This is done because different buyers may be appealing to different sellers. One listing agent may fall in love with your buyer and enough to seek a bidding war, whereas another may simply be seeking a quick close, at any cost. In that situation, it can pay off to have multiple options available to you.
Other common pitfalls include:
• No expiry date or no signature: Leaving an expiry date blank may mean that the broker may present a demanding offer and you have no way out. Leaving a contract unsigned means you have no proof of your intention.
• Missing signatures: Failure to have proper signatures is one of the biggest mistakes selling agents make but also one of the easiest ways for buyers to get out of agreements. Failing to have all parties sign a real estate buyer broker agreement means that it is open to interpretation and thus could be challenged in the courts.
The Essential Role of Buyer Broker Agreements in Real Estate Transactions
A Buyer Broker Agreement is nothing more than a written agreement between a California licensed real estate agent (i.e., the buyer broker) and the buyer committing the buyer to use the buyer broker as their agent to buy a residential or commercial property. Generally, when a broker enters into a Buyer Broker Agreement with their client, they are entitled to be paid a commission by that client in the event that the broker is able to successfully procure a buyer for the property. In a commercial real estate transaction, this commission is commonly split between the buyer broker and the seller broker.
Under the California Department of Real Estate Bureau of Real Estate ("DRE") rules, the commission for the sale and/or purchase of commercial property is negotiable and there is no fixed rate. However, current practice remains that the commission is still around 5% of the purchase price of the property, with at least half of that amount going to the retailer broker on the other side of the deal. In addition, the commission is normally split evenly between the two brokers unless the Buyer Broker Agreement specifies otherwise.
Exclusivity clauses in the Buyer Broker Agreement are common and intended to ensure the buyer’s commitment to the buyer broker during the term of the agreement. Exclusive Buyer Broker Agreements are generally of limited duration, typically around 60 days to 90 days, but can be for a longer term. During the exclusive term, the buyer agrees not to enter into an agreement with another broker. In exchange, the buyer broker agrees to take reasonable steps to find a suitable property for the buyer, including sending notices to other brokers in the area. The buyer broker may also be responsible for putting together an offer and negotiating with the other broker(s) on behalf of the buyer.
The exclusive term of the Buyer Broker Agreement may expire or the buyer may unilaterally terminate the agreement. If this happens, and the buyer decides to work with another broker, both the buyer broker who originally represented the buyer and the new broker will receive a reduced commission.
It is critical that the buyer understand the terms of the Buyer Broker Agreement. As noted above, if the buyer wants to change brokers after the initial term of the Buyer Broker Agreement, he or she will have to split the commission with the first broker. To avoid this problem, the buyer should attempt to negotiate the exclusivity clause carefully. For example, the exclusivity clause could be made non-exclusive so that either broker would be entitled to a commission. This way, the buyer has flexibility to work with other broker(s) after the expiration of the exclusivity term whereas the broker would be entitled to a commission only if they find the buyer a property within the exclusivity term.
Frequently Asked Questions
Buyers in California often have common questions about broker agreements. These are a few of the questions and answers you are likely to come across.
Does my sales agent have to sign a buyer broker representation agreement? No. You are under no obligation to sign an agreement with your agent or with the office for which they work. Doing so is up to you, but is certainly not required for a sale to proceed. You will, however need to sign a purchase contract and an agency disclosure.
What are the benefits of being represented by a buyer’s agent? You have an advocate who is solely on your side and not sharing commission with the seller or their agent. Your agent is 100% on your side and it’s their job to educate you on your rights, other rights , responsibilities and all aspects of the real estate transaction.
Is the listing agent required to tell me everything about the listing? No. The listing agent represents the seller. While they should not lie to you (it’s illegal), they do not have to volunteer any information about the property. It is the seller and buyers agent’s job to ask for specifics regarding the condition of the property and whether or not there are any defects and problems with the house or neighborhood and they should advocate on your behalf to get any questions you may have answered.
Can I request that a certain seller pay the commission for my buyer’s agent? It is illegal for a seller to pay the commission for a buyer’s agent in California. A buyer can attempt to negotiate with a seller, but ultimately a seller can choose not to pay a commission which may result in a buyer assuming full responsibility for the buyer’s agent commission.