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:
Services Provided by a Buyer Broker
The buyer’s broker provides the following services throughout the real estate transaction:
Case Studies/Scenarios/Role-playing #5
Agent Michelle is hosting an Open House on one of her listings. A potential buyer Sue attends the open house and doesn’t have a real estate agent with her. Buyer Sue says, “I want to buy this house.” The listing agent Michelle makes sure that the buyer Sue understands that broker Michelle represents the seller and not required to look out for the best interest and has Sue sign a Non-Agency Disclosure form. Buyer Sue signs the Non-Agency Disclosure form and the purchase agreement to buy the property. There is no inspection by the buyer, and the property closes. Soon after the closing, a structure problem came to Sue’s attention. The seller was not aware of any structure issue.
Instructor’s Note: break the students into groups of three for discussion. One will be Broker Michelle, one will be the buyer Sue, One will be the observer. Give them 5 minutes to discuss the options and then discuss them in class.
Buyers Representation/Agency Disclosures
Broker Vic was working with a buyer Sue and had the buyer sign an Exclusive Buyer Agency Agreement. After working with the buyer for a few months, showing the buyer many properties making sure the buyer was qualified by a lender, broker Vic went out of town for 3 days. While broker Vic was out of town, the buyer Sue visited an Open House. Buyer Sue told the listing agent that she didn’t have an agent representing her. The listing broker had Sue sign a non-agency disclosure form and purchased the property. When broker Vic returns from out of town, broker Vic told the listing agent Michelle that he has an exclusive buyer agency agreement and has been working with buyer Sue for many months.
What should Broker Vic do?
Instructors Note: Break up the students into groups of 3, one being Broker Vic, one being Broker Michelle, one observer. Give them 5 minutes to discuss among themselves and then discuss them in class.
