So, a real estate agent has asked you to sign an “Exclusive Buyer Brokerage Agreement.” What does this mean and should you sign it? Read on for our opinion and the pros and cons of such an agreement.
First off, the agreement could be one that has been made available by the Florida Association of Realtors (FAR) or it could be an in-house agreement that the Broker has made available for agents to use. Since there could be great variations in agreements that are specific to individual brokerages we will hit the highlights of the FAR version in this discussion.
To begin, your agent has asked you to sign this form to protect their investment in you as their client. Your agent likely spends hours consulting with you, setting up searches, researching possible properties, scheduling and facilitating property visits, creating and negotiating offers, scheduling inspections and appraisals, negotiating repairs and/or credits due to inspections and the appraisal, collaborating with your lender to get to the closing table, scheduling and attending final walk-thru and closing, and many other tasks that help get you to a smooth closing. There is a lot of work that your agent must complete and they don’t get paid by the hour, they don’t get any type of salary or minimum wage. The only way your agent gets paid for all of the hard work they do on your behalf is to get the transaction completed at closing. Only then do they receive a hard-earned commission. That commission is then split with the agent’s broker, referrals are paid out of that commission if any are due, and then of course Uncle Sam takes a cut as well.
Many times, a deal does not work out due to no fault of the buyer and no fault of the buyer’s agent. Maybe the inspection proves that the house is not up to the condition you expected, maybe the appraisal comes in low, maybe financing can’t be worked out for some reason. Your agent still completed all of the same work and this time doesn’t earn a commission. They will be eager to help you find a different home that will work out. They will do the job a 2ndtime or maybe a 3rd time in this crazy hot market we are experiencing. Either way the agent will be looking forward to a paycheck once they help you close on your home.
This brings us to the need to sign an exclusive buyer brokerage agreement. Most agents are happy to complete all of the tasks mentioned above. Your agent is an ally in the process and wants to help you get the home and deal that you want. They are there to help you navigate the process and most do so very professionally. Once you find a professional agent that you get along with and you know has your best interests at heart and will help you get your next home you both invest a lot of time and work into each other. Your agent has asked you to sign this agreement to protect his or her investment in you.
Let’s talk about the agreement itself, what does it say? (Using the FAR version) First it lists the parties to the agreement, that would be you and the brokerage you have decided to work with, pretty simple. Then it lists the duration of the agreement. Finding and closing on your next home can be a lengthy process. At the time of writing, we are experiencing a very competitive market. It may take a several viewings and a few offers to finally execute a contract. The duration of the agreement should take this into account, at least 6 months should be allowed for. Next item on the agreement is the actual property you are interested in buying. This would normally be listed as a residential or commercial property for instance. A price range should be listed as well. A location should also be listed, in the event you need to change markets to an area your agent doesn’t serve then the agreement would not apply. The agreement then lists your agent’s and brokerage’s responsibilities to you and yours to them.
The most important part of the agreement that you must be aware of is sections 6 & 7. Section 6 talks about a retainer fee for the broker’s services. This fee would be paid at the time that this agreement is fully signed. Be aware that this fee could then be included in the total compensation to your agent or actually not included and be a fee on top of the compensation to the broker. Section 7 goes on to talk about the Broker’s compensation and when it is earned. Specifically, the compensation listed in the agreement is earned by the buyer’s broker when the buyer contracts to acquire real property as listed in the agreement.
So, finally how does this protect your agent? Your agent/broker would be due compensation whether they were paid by the seller/listing agent or not. So, in the event the seller or listing agent did not offer any compensation to a buyer’s broker it would be paid by you. It is standard, but not required, in the State of Florida for the seller’s agent to compensate the buyer’s agent at the time of closing through an offer of compensation via the Multiple Listing Service (MLS). There are times where this does not happen. One example would be a “For Sale By Owner” listing. If the seller won’t agree to pay a commission to your agent then you would be responsible via the terms of this agreement. Your agent has done the same, if not more work to make this transaction happen and is due a commission. Another example would be if you decided to work with another agent. Unfortunately, this does happen and the first agent does the lion’s share of the work and then doesn’t earn a paycheck. As a matter of fact, they spend a great deal of time and expense trying to find the perfect property for you only to be excluded from even a minimum wage living. Most agents have had this happen and it is heartbreaking. If you decide you would like to work with someone new just let the first agent know ahead of time and most are happy to part ways professionally. Most of us don’t want to work for someone that doesn’t think the agent is a good fit.
In closing, if your agent has asked you to sign and Exclusive Buyer Brokerage Agreement it is for your and their protection. The form we use was created and published by the Florida Association of Realtors and contains language for both parties. We love selling homes and would love to help you find your next home or maybe even your forever home.