Buyer agency agreement: Definition and explanation

Shopping for a home is exciting. But the purchase process can be a long one. You have to find the right house, make a competitive offer the seller will accept, and work out a purchase agreement. That’s why it’s smart to have experienced representation in the form of a buyer’s agent and sign a non-exclusive or exclusive buyer agency agreement. This is a legal contract that should be reviewed carefully before committing.

We’ll walk you through how buyer representation agreements work, different types of buyer agency agreements, the legal terms involved, and more.

What is a buyer agency agreement?

Finding the real estate agent you want to work with is a big step. But it’s only the start of what should be a mutually beneficial relationship.

You’ll also need to have a buyer agency agreement, which is sometimes called a buyer representation agreement or buyer-broker agreement. This is a legal contract between you, the prospective home purchaser, and a real estate agent or real estate broker who will represent you during the home-buying process. This agreement spells out the services your agent or broker will provide to you and the terms involved. Among the benefits a buyer agency agreement provides are:

• Clear expectations. The responsibilities and roles of both the client and the agent are explicitly defined in the agreement. This ensures everyone knows which services will be provided.
• Defined compensation structures. Exactly how and when the agent will be paid is specified, which eliminates any financial uncertainty from the start.  This clarifies whether the fee is a flat rate or a percentage of the sale, safeguarding you from unanticipated expenses at the closing table.
• Outlined fiduciary duties. The agreement stipulates that the agent must act in your best financial interest, maintain strict confidentiality, and fully disclose all details. This provides peace of mind that the agent is a dedicated advocate for you, the buyer, not a neutral go-between or a seller representative.
• Less chance of misunderstandings. If questions surface about the scope of the agent’s authority or the search duration, all terms will be in writing for reference. This decreases the odds of verbal miscommunications, which could result in disputes or missed opportunities during negotiations.
• Exclusivity and commitment. This agreement commonly provides a greater level of priority from the agent, who can devote more resources and time with the assurance that this is a solid partnership.

Let’s dig deeper into what’s involved with this agreement.

How does a buyer agency agreement work?

Buyer agency agreements work differently, depending on what you’re contracting for. The agreement may stipulate that your agent or broker will guide you through the entire process, from defining your needs and house hunting to getting a mortgage and closing the deal. Or it may specify only particular steps in the process, such as creating the purchase agreement.

If it’s the former, the agent or broker is usually paid on commission. If it’s the latter, these specific steps might be handled on a fee basis. You can choose to pay your agent/broker yourself or negotiate with the seller. Sellers may offer buyer agent compensation through a commission split with the listing agent or use another arrangement if they want to attract a bigger market.

Note that there are also state-level regulations that govern these agreements. That’s why it’s important to carefully research your state’s laws before entering into a buyer agency agreement. For example, in some states dual agency is illegal.

Key components of buyer representation agreements

The most important points that should be spelled out in a buyer representation agreement are:

• Duration of agreement. “Most agreements run three to six months. Shorter terms protect you if the relationship is not working. It may be smart to push for a brief trial period before committing to anything long-term,” says personal finance expert Andrew Lokenauth.
• Scope of services.  “This outlines what the agent will do for the buyer and what they won’t. Different agents provide different mixes of services, and some buyers prefer to do some things themselves,” says Martin Orefice, CEO of Rent To Own Labs.
• Compensation. The agreement must state the agent’s fee or commission rate, and this can no longer be somewhere within MLS listings, per the NAR settlement. Although in the past the general rule has been that agents get a commission between 5% – 6%, everything is negotiable. You and/or the seller may pay when the sale is complete or with flat fees for specific services.
• Termination. If you are under an exclusive contract, you must abide by its terms. But if it’s not working out, you can always ask to terminate early, subject to the agreement of the real estate agent. “Look for a clause allowing either party to exit with reasonable notice, typically within three to 14 days. Without one, you could be stuck paying an agent who’s doing nothing for you,” Lokenauth adds.
• Exclusivity. Nonexclusive agreements allow you to work with anyone at any time. Exclusive agreements bind you to certain representation for a term, but agents may be more likely to give their exclusive clients first crack at new listings.
• Fiduciary duties. “This is an especially important term to look for in any buyer agency agreement. It refers to an agent’s duty to act in your financial best interests rather than their own,” Orefice continues. “This means they have to negotiate the best possible price on a new home, even if a higher price would net them a higher commission, for example.”

Types of buyer agency agreements

Buyer agency agreements differ from other types of agreements, including purchase agreements, listing agreements, and dual agency disclosures. Let’s take a closer look at the two main types of buyer agency agreements: exclusive and nonexclusive.

Exclusive buyer agency agreement

Exclusive buyer agency agreements mean you must work only with that agent for the term of your contract. The terms can vary, but if you work with another agent during that time, you may have to pay your agent their fee regardless of whether they were involved in the transaction. But working exclusively with one agent may motivate them to call you first when listings match your preferences.

Nonexclusive buyer agency agreement

A nonexclusive agreement allows you to work with as many agents as you like. There are a couple of different nonexclusive agreements. Initially, the agent may sign a not-for-profit agreement with you to establish a relationship. This way, they don’t get paid for house hunting, but the agreement specifies what they will get paid if the sale closes with their assistance.

The other nonexclusive-type agreement is a representative agreement, where someone is representing you, but you can work with whoever finds you a house first. This allows you a certain amount of flexibility and may widen your options.

What are the legal terms of a buyer agency agreement form?

It’s important to understand the terms of your buyer agency agreement before entering into it. Take the time to negotiate and compare terms prior to agreeing to anything. Here are some of the key provisions to consider.

Agent duties

One of the most important things to agree on is what you’re paying the agent for. An agent may help you with all the following or do things individually on a fee basis, depending on the terms of your contract:

• Determining your price range and desired features
• Comparing home loan options
• Searching for homes to buy
• Negotiating home offers
• Preparing purchase agreements
• Recommending home inspectors
• Attending closing

“The agent must represent your interests, not the seller’s. That means finding properties that fit your needs, sharing relevant information, and negotiating on your behalf throughout the process,” says Lokenauth.

Ethical duties

Real estate agents have professional associations that certify they meet educational and other professional requirements. The biggest professional association for real estate agents is the National Association of REALTORS®. However, you don’t have to be a REALTOR^® to be a real estate agent.

More important is that these associations have codes of ethics that require fair dealing. This means that an agent is required to treat all parties fairly, even though their first responsibility is to their client. In practice, ethical duties mean that:

• The agent makes all appropriate disclosures as to the condition of a home.
• The agent presents all offers.
• The agent doesn’t mislead clients in an attempt to win their business.

Fiduciary duties

Real estate agents have a fiduciary responsibility to you. This means that they must work to get you the best deal that aligns with your goals and budget. They must follow real estate law, specifically federal and state fair housing regulations. For example, they can’t refuse to show you a home based on the race of the owner. Understanding these legal responsibilities is critical to avoiding sticky, expensive situations.

“These are the highest standards the law places on your relationship with the agent,” Lokenauth says. “These duties include maintaining loyalty to you, ensuring your information stays protected, disclosing anything material to your decision, following your lawful instructions, executing reasonable care, and handling your funds with integrity.”

Term length

The term “length provision” outlines how long you’ll work with an agent. Like every other provision of your agreement, this is negotiable. They’re typically as short as three to six months and as long as a year. Work with your agent to determine how long your homebuying process may be.

Dual agency

Dual agency means representing both the buyer and seller. While some opt for dual agency to save money on fees or commission, it’s illegal in some states. Dual agency may create a conflict of interest, meaning an agent can’t effectively represent either the buyer or seller in a transaction. Agents acting in a dual capacity must disclose conflicts with their agreements.

FAQ

If you’re still unsure about some of the nuances related to buyer agency agreements, here’s a closer look at answers to some of the common remaining questions people have.

Can you negotiate the terms of a buyer agency agreement?

If the terms of the agreement are legal, everything is open to negotiation. That includes the fees paid, the term, and the services they provide.

Are real estate brokers’ fees included in this agreement?

Yes, broker compensation is typically covered in the buyer agency agreement, although the details can vary from one deal to another. The agreement typically explains how the agent will be paid and what commission they expect. In many cases, the seller can offer compensation to the buyer’s agent via the listing agreement, but the buyer agency agreement helps clarify what happens if that amount is different from what the agent and buyer originally discussed.

Do I have to pay if the seller pays the REALTOR’s® fees?

This depends on what gets negotiated in the purchase contract. If the seller agrees to cover your agent’s compensation as part of the deal, you pay nothing out-of-pocket. If the seller offers less than your agent’s agreed rate, or nothing at all, you are responsible for the difference. Your buyer agency agreement should spell out what happens in each scenario so that there’s no surprise waiting for you at closing.

What if I don’t like my agent?

If you feel uncomfortable with your agent, try talking about your concerns and see if the issue can be resolved. Many buyer agency agreements also include terms that allow the relationship to be ended under certain conditions. In some situations, the brokerage may even assign a different agent to step in if the partnership is not working the way it should.

What states require a buyer agency agreement?

Currently, 28 states have passed laws mandating a written buyer agency agreement. Regardless of specific state law, however, a signed agreement is now a functional requirement in all 50 states for any homebuyer working with a REALTOR^® who uses a Multiple Listing Service (MLS). Before an agent can take you to visit a home for sale – whether virtually or in person – you are required to have a written contract in place that specifically defines the agent’s services and how that agent will be paid.

The bottom line: Don’t fear negotiating with your buyer’s agent

A buyer agency agreement involves a buyer and their real estate agent or practicing broker regarding services provided to facilitate a home purchase and the related fees charged. Terms may involve exclusive or nonexclusive representation. Remember: Everything is negotiable. However, while you may be able to save money by having one agent represent both sides of the transaction in dual agency, this can create a conflict of interest.

When you are ready to buy or sell your home, you can consider partnering with Redfin and Rocket. This may save you money on several costs through exclusive benefits.