What is a Buyer Representation Agreement?

Recent industry changes in how commissions work have created a fair amount of confusion for aspiring home buyers and their real estate professionals.

On the surface, a new set of rules and guidelines from the National Association of Realtors (NAR) may make it seem as if everything has changed, but take one look under the hood, and you’ll still find the same engine of old, albeit with an oil change and a few new parts.

One of those parts is the buyer representation agreement. Though it has always been present and encouraged within real estate transactions, the buyer representation form is now thrust into a new spotlight as a requirement for local realtors, highlighting just how important this document can be if you seek professional buyer’s agent representation.

Like all legal documents, the buyer rep form can be overwhelming at first glance. However, getting familiar with it is not much of a challenge if you have experts to guide you. 

Below, the Prevu team will guide you on the most important terms and clauses, what you should know before signing a representation agreement, the different types of agreements you can encounter, and the key items you should be aware of as you prepare to buy a home with the assistance of a local buyer’s agent. 

Buyer representation agreements

• What is a buyer representation agreement?
• What are the different types of buyer rep agreements?
• How is agent compensation defined in a buyer rep agreement?
• What are the key terms of a buyer representation agreement?
• What are the pros and cons of a buyer representation form?
• What are the obligations of a buyer rep agreement?
• How to cancel a buyer representation agreement
• What are the legal implications of entering into an agreement?
• Compensation under a buyer rep agreement
• Common misconceptions of buyer agency agreements
• When should you sign a buyer representation agreement?

What is a buyer representation agreement?

A buyer representation agreement is a formal contract that establishes a relationship between the buyer and their real estate agent. 

It’s a written agreement that outlines the agent’s responsibilities to you and details how they will help you find and purchase your home. Think of it as a legally binding document, setting expectations, amount of compensation, and ensuring that both parties are on the same page throughout the home-buying process.

This agreement isn't just a formality; it’s a commitment from your agent to provide their best efforts in helping you secure the right property while protecting your interests. It lays out the scope of services your buyer’s agent will provide, from finding properties that meet your criteria to negotiating on your behalf and guiding you through the closing process. With this agreement in place, you’re not just another client but a priority.

Buyer representation agreements have gained even more significance in today’s rapidly changing real estate landscape, especially with recent updates following a very public court settlement by the National Association of Realtors (NAR). 

These agreements ensure transparency and trust between buyers and their agents, fostering a cooperative relationship where your agent works diligently to find a property that meets your needs while safeguarding your rights.

In addition, these agreements are now strongly encouraged, and in many markets required, to be signed before a listing agent schedules a private property tour for you and your buyer’s agent.

What are the different types of buyer rep agreements?

Buyer representation agreements aren’t one-size-fits-all; they come in various forms, each tailored to different needs and levels of commitment. The most common types include the Exclusive Right to Represent, the Exclusive Buyer Agency Agreement, and the Non-Exclusive Buyer Agency Agreement.

• Exclusive Right to Represent: This is the most common type of agreement and offers the highest level of commitment from the buyer and the agent. Under this agreement, you agree to work exclusively with one agent, and in return, the agent commits to representing your best interests throughout the buying process. This type of agreement is ideal for buyers who want full, dedicated support from their agent.
• Exclusive Buyer Agency Agreement: Similar to the Exclusive Right to Represent, this agreement gives the agent the right to represent the buyer exclusively. However, if the buyer finds a property independently, the agent may not be entitled to a commission. This agreement may offer more flexibility for buyers.
• Non-Exclusive Buyer Agency Agreement: This agreement allows buyers to work with multiple agents and explore a broader range of properties. While it offers flexibility, it might not provide the same level of commitment from agents, as they know you may be working with others simultaneously.

Each type of agreement has its pros and cons, depending on how much support you want from your agent and how actively you plan to search for properties on your own.

How is agent compensation defined in a buyer rep agreement?

In a buyer representation agreement, the compensation section will clearly define the buyer agent's commission and how it will be handled. 

Some agreements may specify that the buyer will be responsible for paying the difference if the seller’s offered commission is lower than what is agreed upon in the contract. For example, if the buyer’s agent is entitled to a 3% commission based on the agreement but the seller only offers to cover 2.5%, the buyer might need to cover the remaining 0.5%.

Moreover, the agreement also likely addresses what happens if you find a property on your own. In some cases, the agent may still be entitled to compensation, even if they didn’t directly assist in securing that property. This is why it's essential to fully understand the compensation terms before signing a buyer representation agreement. This clarity will help avoid any surprises and ensure that you and your agent have aligned expectations.

The recent NAR guiedline changes have prompted increased transparency in how these commissions are structured and communicated to clients via written agreements. As a result, it's more important than ever for buyers to be informed about the compensation terms laid out in their agreement. 

Before signing, you should discuss all possible scenarios with your agent to ensure you understand the full scope of the financial obligations and the services you’ll receive in return.

What are the key terms of a buyer representation agreement?

• Term Length
• Scope of Work
• Agent Compensation
• Commission Rebates
• Exclusivity
• Cancellation Terms
• Protection Period

Term Length: This clause specifies the duration of the agreement, typically ranging from a few months to a year. Agreeing on a time frame that aligns with your home-buying goals is essential.

Scope of Work: This outlines the agent's services, from searching for homes to negotiating the purchase price and handling the paperwork. Ensure this section clearly states all the tasks you expect your agent to perform.

Agent Compensation: This details how the agent will be compensated, including a scenario where a seller concession covers the buyer’s agent fee. However, if the seller doesn’t offer a commission or offers less than the agreed-upon amount, the agreement will outline the buyer’s responsibilities to cover the buyer’s agent commission.

Commission Rebates: Some brokerages offer buyers a portion of any seller-paid buyer’s agent commission as an incentive for being represented by them. A representation agreement will outline how these rebates are calculated, if applicable. For example, Prevu Real Estate offers commission rebates in the markets they service.

Exclusivity: This clause indicates whether the agreement is exclusive or non-exclusive, dictating whether you can work with other agents during the term.

Cancellation Terms: This specifies the conditions under which either party can terminate the agreement before the end of the term, including any penalties or obligations.

Protection Period: In the event of mutually agreeable cancellation or expiration of the agreement, many agreements will outline a specific time period during which specific properties are still eligible for agent compensation if the buyer enters into a purchase agreement.

Buyer representation agreements are packed with key terms and clauses that outline the specifics of the relationship between the buyer and the agent. Understanding these terms is crucial to ensure you know what you’re signing up for.

What are the pros and cons of a buyer representation form?

Like any legal contract, a buyer representation agreement comes with its own set of advantages and disadvantages. Knowing both sides can help you decide whether signing one is right for you.

Pros of a buyer rep form

• Dedicated Service: With a signed agreement, your agent is legally bound to represent your best interests and offer you expert service and dedication.
• Market Expertise: Agents provide invaluable knowledge about the local market, helping you make informed decisions about offers and negotiations.
• Streamlined Process: Having an agent manage the paperwork, communication, and logistics can simplify the buying process, reducing stress and saving time.

Cons of a buyer rep form

• Commitment: Signing an exclusive agreement means you’re committed to working with one agent, which could limit your flexibility.
• Potential Costs: If the seller doesn’t offer a commission or if you break the agreement, you could be responsible for paying the agent’s commission out of pocket.

What are the obligations in a buyer rep agreement?

You and your agent meet specific obligations when you sign a buyer representation agreement. The agent's primary obligation is representing your interests throughout the home-buying process. This includes finding properties that meet your criteria, arranging showings, negotiating terms and offers, and guiding you through closing.

On the flip side, your obligation as the buyer is to work exclusively with your agent (if it’s an exclusive agreement) and to provide accurate and timely information about your needs, preferences, and financial situation. You’re also responsible for reviewing and understanding the terms of the buyer rep agreement in full, so take your time to read it thoroughly. 

The mutual obligations outlined in the agreement help establish a professional relationship built on trust and cooperation, which is essential for navigating the complex real estate market.

How to cancel a buyer representation agreement

Canceling a buyer representation agreement isn’t always straightforward, but it’s sometimes necessary if the relationship isn’t working. Most agreements include a cancellation clause that outlines the specific conditions under which the contract can be terminated.

If you’re dissatisfied with your agent’s performance, the first step is to communicate your concerns and allow them to address the issues. If the problems persist, review the cancellation terms in your agreement. Some agreements allow for termination without penalty, while others may require you to give notice or pay a fee.

If your agreement doesn’t include a cancellation clause, or if you’re unable to reach an amicable resolution, you may need to consult with a real estate attorney to explore your options. It’s important to handle the cancellation process carefully to avoid legal or financial repercussions.

What are the legal implications of entering into an agreement?

Signing a buyer representation agreement is a legally binding contract, so it’s important to understand the legal implications before you commit. The agreement establishes a fiduciary relationship between you and your agent, meaning your agent is legally obligated to act in your best interests.

There could be legal consequences if either party fails to uphold their end of the agreement. For example, if you break an exclusive agreement by working with another agent, you could be liable for the original agent’s commission. On the other hand, if your agent fails to perform their duties as outlined in the agreement, you may have grounds to terminate the contract or seek damages.

Because of the legal nature of these agreements, it’s crucial to read and understand all terms and conditions before signing. If you’re unsure about any aspect of the agreement, consider seeking legal advice to ensure you’re fully informed before signing one.

Common misconceptions of buyer agency agreements

Buyer agency agreements can easily be misunderstood, leading to hesitation or confusion about whether to sign one. 

One common misconception is that signing an agreement will lock you into working with an agent, even if you’re unhappy with their service. In reality, most agreements include provisions for termination if the relationship isn’t working out.

Another misconception is that a buyer representation agreement will increase your costs. While the agreement outlines how the agent will be compensated, it doesn’t necessarily mean you’ll pay more. In some cases, the seller may offer to cover the buyer’s agent fee, so the agreement simply formalizes this arrangement without adding extra costs for the buyer.

Lastly, some buyers believe they don’t need an agreement because they can find properties independently. While it’s true that you can search for homes online, a buyer representation agreement ensures you have professional support throughout the entire process, from negotiations to closing.

When should you sign a buyer representation agreement?

Ideally, you should sign the agreement once you’ve decided to work with a particular agent and are ready to start your home search in earnest. This ensures that your agent is fully committed to helping you find and purchase a property and clarifies the services they’ll provide.

If you’re still in the early stages of your home search and haven’t yet decided on an agent, it’s perfectly acceptable to interview multiple agents before signing an agreement. This allows you to find the right fit and ensure you’re comfortable with the terms of the agreement.

Remember, signing a buyer representation agreement is a significant step in the home-buying process, so take the time to consider your options and choose the agent and agreement that best meets your needs.