Like a listing agreement; a buyer agency agreement is an employment contract. In this case, the broker is employed as the buyer’s agent. The buyer, rather than the seller, is the principal. The purpose of the agreement is to find a suitable property. A buyer agency agreement gives the buyer a degree of representation possible only in a fiduciary relationship. A buyer’s broker must protect the buyer’s interests at all points in the transaction.
Types of Buyer Agency Agreements
Three basic types of buyer agency agreements exist:
Exclusive buyer agency agreement (Like an Exclusive Right to Sell Agreement for a Seller )
Also known as an exclusive right to represent, this is a true exclusive agency agreement. The buyer is legally bound to compensate the broker whenever the buyer purchases a property of the type described in the contract.
The broker is entitled to payment regardless of whether she or the buyer locates the property and signs a sales contract.
Exclusive-agency buyer agency agreement (Like an Exclusive Agency Agreement for a Seller)
Like an exclusive buyer agency agreement, this is an exclusive contract between the buyer and the broker. The buyer retains the right to locate and buy property without paying a commission to the broker. Buyer brokers end up “educating” buyers about the process and show many homes only to find that the buyers avoid compensation by working directly with an unlisted property owner, (For Sale By Owner FSBO).
Open buyer agency agreement (Like an open Listing Agreement with a Seller)
This agreement is a nonexclusive buyer representation agreement between a broker and a buyer.
It permits the buyer to enter into similar agreements with an unlimited number of brokers. The buyer is obligated to compensate only the broker who locates the property the buyer ultimately purchases.
Buyer Representation Issues
A broker and a buyer must discuss a number of issues after entering into a written buyer agency agreement. The broker should conduct a counseling session with the buyer to determine the buyer’s needs and goals, financial capabilities, and motivation. This session gives the broker the ability to educate the buyer on the buying process and market conditions and to formulate a strategy for finding the right property. In addition, compensation needs to be addressed and negotiated in the event there is no offer of cooperative compensation from the listing broker to the buyer’s broker.
The broker should make the same disclosures to the buyer that the broker would make in a listing agreement. The broker should explain the forms of agency available and the parties’ rights and responsibilities under each type of agreement. The specific services provided to a buyer-client need to be clearly explained.
A buyer’s broker may be compensated by either the buyer or the seller. Compensation is always negotiable.
In Illinois, it is common for the listing broker to split the listing fee with the buyer’s broker. Note that this is a clear case where commission does not equate to agency or representation. Discussions regarding a commission or fee provided by the buyer may still take place. A broker is free to negotiate for compensation from any buyer for whom service was provided in an agency capacity. However, if the broker receives compensation from more than one source in a transaction, it always needs to be disclosed in writing to the involved parties.
A buyer agent’s duties include:
- using the broker’s best efforts to identify properties listed in the MLS and in other databases that meet buyer’s criteria,
- arrange for property inspections identified by buyer as potentially appropriate for purchase,
- advise buyer as to the pricing of comparable properties,
- assist buyer in the negotiation of a sales contract acceptable to buyer, and
- to provide confidentiality on any information that buyer discloses to the broker.
Services Provided by a Buyer Broker
The buyer’s broker provides the following services throughout the real estate transaction:
- Needs assessment- Determine and evaluate the needs and wants of the buyer.
- Property selection – Locate the best property for the buyer by notifying buyers of new listings and for-sale-by-owner properties. Remember, property selection need not be limited by price. In today’s market, list prices can often be negotiated down.
- Viewing properties – Provide an objective evaluation of the property and show buyers how to compare properties. Disclose material facts that are pertinent to the property.
- Negotiate – Strategize with the buyer, suggesting techniques that strengthen the buyer’s position. Then, implement those strategies on the buyer’s behalf. Disclose any prior unsuccessful negotiations.
- Price – Provide price counseling and prepare a comparative market analysis (CMA) on the property the buyer is considering.
- Follow-up – Resolve any issues that could prevent a closing from occurring. Provide ongoing communications with the client, preferably by e-mail for maintaining records.
Short Sale – Explain the operation of a short sale, the time frame for a decision from the Seller’s lender, and other aspects of a Short Sale. Ask the Buyer’s Lender for a possible extension of the Commitment Letter is a Short Sale takes longer than anticipated.
