You’ve decided to search for a home and you’ve followed our tips for finding a good realtor – now the agent you have chosen is asking you to sign a Buyer’s Agreement: What do you do? Is it required to have a contract to work with them? Will you have to use that agent if you find out later you would prefer to use someone else? What if you decide not to buy a house after all – will you have to pay a fee?
First of all, let’s put your mind at ease: it is normal to have a real estate agent ask you to sign a Buyer Representation Agreement. Secondly, you can take some time to determine if you would like to use a realtor as an Agent that represents your interests and is your advocate. Finally, you can negotiate the terms of the contract.
A BUYER’S REPRESENTATION AGREEMENT IS NORMAL
Here’s the scoop: A realtor does not become your Agent until you sign a Buyer’s Agreement. The contract simply formalizes the working relationship between a client and a realtor and explains the specific details of what you can expect from your agent. Under Colorado Law, in the absence of an agreement, the real estate licensee can not be your Agent, but is a Transaction-Broker with limited responsibilities and duties. A Buyer’s Agreement specifically defines what type of relationship will be between you and the realtor and is there to protect both parties and set forth the expectations for everyone involved. Think of it as a way to communicate better and avoid any misunderstandings. If you would like your agent to represent YOU and stand up for your best interests (versus a Transaction-Broker), then an agreement is necessary. It builds trust between both parties as you can be certain that your agent is looking out for you and not the seller. That being said, it is VERY important that you take the time to read through the agreement before signing it.
YOU DON’T HAVE TO SIGN AN AGREEMENT IMMEDIATELY
Under Colorado Law the real estate licensee is required to disclose the nature of the working relationship (Transaction-Broker, Seller Agent, or Buyer Agent) and the level of service they will provide. That means that if you are not comfortable with signing any agreement right away, the realtor is required to provide you with a written document that clearly defines the roles of a Transaction-Broker versus an Agent. As a broker, their role will be limited to presenting you with facts and filling out forms.
On the other hand, a Buyer’s Agent relationship will provide you far more service and commitment. While most realtors prefer to be your Agent, as it formalizes the investment of time and resources and allows them to give you the best service, you can, and should, agree to spend a day visiting 2-3 homes to make sure that you are comfortable working with them and you feel like that person understands what you are looking for. It goes both ways, this also gives the realtor a chance to see what it is like working with you. Once you have looked at a few properties with the agent and you are convinced it is a good fit, then it is reasonable for the agent to ask you sign the Buyer Representation Agreement in order to continue working together. Both parties are investing quite a bit of time and energy and you should want to protect that as much as the agent does. Be respectful of the work that is put in for you by not delaying this process as the agent wants to know if you are serious about buying a home as much as you want to know if the agent is going to put their best foot forward for you. Remember, the agreement is mutually beneficial and the role of a Transaction-Broker does not have your best interests in mind. When you are making as important of a decision as buying (or selling) a home it is in your best interests to have an Agent who is vested in you and can give you recommendations and advice.
YOU CAN NEGOTIATE THE TERMS OF THE CONTRACT
The beauty of a Buyer’s Agreement is that you can work with the agent to set the parameters of the agreement. Your agent will have their normal terms they will request. Look through the agreement carefully and ask questions about anything you do not understand. However, a few things you will want to consider:
- What is the length of the contract?
- Will you be required to cover any additional commission fees?
- Under what conditions can either party terminate the contract? What is the hold-over period?
- Is it exclusive or non-exclusive? (Non-exclusive contract says you can use other brokers as long as it doesn’t include homes this agent has shown you. An Exclusive contract says you may not use any other broker/agent).
TERMS WE RECOMMEND
When it comes time to sign the Buyer Representation Agreement it will define what type of relationship it is, an Agent versus a Transaction-Broker, in addition to the specific services you can expect from your realtor. Remember that as an AGENT the real estate licensee is your ADVOCATE; a broker is just there to handle the transactions. The definitions of the different relationships are required by law to be in the contract, however, certain TERMS in the contract can be set forth by agreement between you and your agent. Below we have listed a few recommendations when considering what should be in your Buyer’s Agreement:
- Keep the length of the contract short. 3-6 months is a good time frame.
- Make sure there is a cancellation clause. Most good realtors realize that keeping a client is based on a good working relationship and will offer an easy termination clause.
- Expect a hold-over period that extends 3-6 months from the termination of the contract. Every cancellation option will come with a hold-over period. This basically says that if you cancel the agreement, the agent is entitled to commission from the purchase of any property already shown to you by the agent within a given number of days (as stated in your contract). For example, an agent shows you a home at 124 Main street but later you terminate the buyer’s agreement. The agent has a 6 month hold-over clause in the agreement. That means you can not go back and purchase the house on 124 Main street directly through the builder or with another agent during that 6 month time from when the contract expired. This is a fair and reasonable clause to expect.
- Do not agree to cover extra commission fees. This can surprise you at closing if you are not careful. A buying agent may charge a 3% commission fee but the sellers are only paying for a 5% total commission (2.5/2.5 commission split between the buying and selling agents). Make sure that you will not be paying the .5% difference out of your pocket. You can negotiate that the seller has to pay this or the agent agrees to not charge you the difference.
- Determine ahead of time if you are comfortable with an exclusive contract. Most agents will work only under an exclusive contract. Be aware of what that means for you. In an exclusive contract you have to use the agent with whom you have a buyer’s agreement and you may not purchase from another agent, even if they are your best friend or family member, during the term of the agreement. (An exclusive contract can come in handy if you know you will be approached by many people and you need an excuse to tell them you can’t use their services because you are in an exclusive contract! )
Bottom line: If you are serious about buying a home you most likely WILL have to sign a Buyer’s Agreement. The good news is that the contract works for YOU! Don’t be intimidated by the thought of being locked into a contract that you will regret. The best advice we can give is to find an agent who will allow you to cancel the contract for any reason – and it is clearly written in the agreement. Think of it as the formalizing of a professional working relationship that will detail the service to be received and lays the framework for clear communication and expectations. This will naturally result in a higher level of service, a deeper commitment on both sides and builds trust between you and your agent.
Here at Co-RE Group, LLC we offer a 100% satisfaction guarantee. If you are not satisfied with our service you may cancel your Buyer’s Agreement with us at any time for any reason, as long as we are not already under contract for a home. Contact me, Susanna, for more information on the excellent service we provide and our Risk-Free Guarantee!