What Is A Buyer Agency Agreement?
Carey Chesney5-Minute Read
December 11, 2020
If you've made the decision to look for a new home, you’re probably thinking about interviewing real estate agents. Smart move! Having an experienced professional guide you through this exciting but complicated process is the best way to make sure you get the home you’re looking for at a fair price.
As you speak to agents, you will probably hear them mention a "buyer agency agreement" and begin to wonder what exactly that is. As with any agreement you’re thinking of entering, an in-depth understanding of what it means is critical. So, let’s make sure you’re well informed before you sign on the dotted line.
Buyer Agency Agreement, Explained
A buyer agency agreement is essentially what “marries” you to an agent. It allows them to inquire about properties on your behalf and represent you as you get into negotiations and move along the path toward closing on your new home.
This isn't just about one agent, though. The agreement has a number of real estate professionals involved, including your agent’s broker and other agents who are listing the homes you are interested in. It’s a mutually beneficial agreement. The real estate agent is given the security that you’ll use them when you buy a home, and you’re given the peace of mind that your agent has your best interests at heart.
Once you sign the agreement, your agent has a fiduciary responsibility to represent you and only you as they acquire information and negotiate terms. Agreements differ by market, so make sure your agent explains the specifics for your area. However, the general tenants of a buyer agency agreement are pretty universal, so let's take a deeper dive into those.
The Terms Of The Contract
With the basics out of the way, the next step is to understand the specific terms of a buyer agency contract so you won't be surprised when you start to read the fine print – which you should always do when signing anything. Here are a few of the things you might see and what they mean.
A term that can throw buyers for a loop is dual agency. This often begs the question what is it? Dual agency is when the agent represents both you and the seller.
At first glance, this can seem like a conflict of interest. You can imagine that this could create some tough decisions for the agent, as they now have a fiduciary responsibility to represent the interests of both you and the person selling your new home. What happens when those interests conflict? It presents the agent with a delicate balance to achieve.
Some states do not allow dual agency for this reason, but others do. While it can be tricky, an honest and capable agent can make dual agency work for both parties involved. In fact, sometimes it can eliminate the potential for contentious negotiations between agents. After all, it can be easier to find a compromise mutually beneficial to both parties when you’re representing both of their interests.
Buyer agreements come in all shapes and sizes, and one of the varying factors can be their exclusivity. Most contracts have pretty complete exclusivity, meaning you can only buy a home with the agent you have signed with (unless the contract expires). But they can also be related to only one specific property or geographical area if you want a little more freedom in your home search and don't want to be completely tied to just one agent.
Though typically lasting for a year, buyer agency agreements can range widely in their duration. This is a point you can discuss and negotiate with your agent based on your specific needs.
You may hear potential buyer agents say that working with them is free. This isn't entirely true, as they’re usually compensated by the seller of the home through the commission offered by their listing agent. So you may not pay for them, but someone is.
In addition, some buyer’s agents may have their broker charge a transaction fee to the buyer or have language in the contract that you will cover the difference in commission if the listing agent doesn't offer enough. Make sure you always read the fine print.
Tips For Buyers
Is that fine print rubbing you the wrong way? Fear not, as there is always room to negotiate. Here are the aspects of the contract you may consider asking your agent to modify so your specific needs are met.
Negotiate For Shorter Term Length
Not sure you want to be “married” to an agent for a full year or even 2? Ask for a 6-month (or even shorter) contract to ensure that if they don't find you the home you want with the level of service you expect, you can cut ties and go in another direction.
Specify The Location And Type Of Property
If you just want to use a buyer’s agent to put an offer in on one specific house, you can write the agreement to only pertain to that address. More broadly, you can specify only one city or one state.
Note that the geographical restriction around one state may already be incorporated into the first draft of the contract to account for the real estate agent only being licensed in one state (most are).
Specify A Price Range
Make sure your agent understands the home price amount you are comfortable with and are preapproved for by your lender. You can ask that they incorporate that range into the contract.
Add A Guarantee Request
This part of the contract allows for you to get out of the contract if things aren't working out. Basically, if your agent is falling short of expectations and you want to find another agent, you can.
Keep in mind that this is usually a two-way guarantee that allows either the agent or the buyer to be released from the agreement.
How To Terminate A Buyer Agency Agreement
In most cases, you or your agent should be able to terminate the agreement with a letter of cancellation or termination. That said, read the fine print of your agreement to make sure this is the case.
Another option you have for ending a buyer agency agreement is simply waiting until the contract ends, and then signing with a different agent.
The Final Word
Read the fine print, negotiate the points important to you, and ask lots of questions of your potential real estate agent to ensure you’re comfortable with the buyer agency agreement before signing. This will cut down on the surprises or lack of options later in the game and put your mind at ease that you are making the right decision.
Not sure where to find an agent? Consider using Rocket HomesSM to find a Verified Partner Agent in your area.
Table of Contents
What Is A Buyer’s Agent And What Makes A Good One?
The home buying process can get complicated, and while you’re no expert, you want to make sure you do it right by turning to someone who is - like a buyer's agent!
Dual Agency: What Is It And Are Dual Agents Bad?
Nervous about working with a dual agent when buying or selling a house? Read Rocket Homes’ exploration of dual agency and whether or not it’s a bad thing.