What is an Exclusive Buyer Broker Employment Contract?
A buyer broker exclusive employment agreement is a written contract between a homebuyer and a real estate broker. It designates that the buyer & the buyer’s broker are each representative for the other in any home purchase they agree to pursue together. The agreement also grants the buyer’s broker a commission , or sub-agent commission, when a sale occurs. Having an agreement up front is important to any deal you want to pursue, including house purchases. The agreement provides legal assurance for both parties involved in a sale.
Major Provisions of the Agreement
Buyer broker exclusive employment agreements generally contain the following key elements: (1) duration; (2) obligations of the buyer, (3) obligations of the broker, (4) buyer broker fee (and in some cases, a sliding scale of buyer broker fees); (5) confidentiality; and (6) how the buyer broker exclusive employment agreement can be terminated.
Duration can range from a specific period of time (e.g., six months or one year) to an unspecified period that ends when the services are no longer being provided to the buyer. Moreover, while in many cases the duration of the buyer broker exclusive employment agreement can be extended with the signed, written agreement of the parties, in some cases the duration is not subject to change unless the agreement is terminated.
During the time period covered by the buyer broker exclusive employment agreement, the obligations of the buyer may include: (a) providing information about the buyer’s financial situation and credit history to the buyer broker, so that the buyer broker can provide advice to the buyer regarding financing matters; (b) working exclusively with the buyer broker to buy property during the period of time specified in the buyer broker exclusive employment agreement, unless otherwise agreed; and (c) closing on all property found and negotiated by the buyer broker during the period of time specified in the buyer broker exclusive employment agreement.
The obligations of the buyer broker may include: (a) receiving compensation from the buyer in the amount specified in the buyer broker exclusive employment agreement for services rendered to the buyer as part of the parties’ respective obligations under the buyer broker exclusive employment agreement; and (b) alerting the buyer before a potentially unsuitable property is presented by the buyer broker to the buyer.
As mentioned above, the buyer broker fee that the buyer pays to the buyer broker for the services rendered to the buyer under the buyer broker exclusive employment agreement, generally is set at a specific amount, or a percentage of the purchase price of the property that the buyer buys. The buyer broker exclusive employment agreement also may contain a "sliding scale" of buyer broker fees, which means that the fee is increased the longer it takes the buyer broker to find a suitable property for the buyer.
The buyer broker fee that the buyer pays to the buyer broker for the services rendered to the buyer under the buyer broker exclusive employment agreement, generally is payable at the closing of the purchase of the property that the buyer buys as part of the parties’ respective obligations under the buyer broker exclusive employment agreement. If there is no closing, then the buyer broker fee that the buyer pays to the buyer broker for the services rendered to the buyer under the buyer broker exclusive employment agreement, generally is due and payable upon presentation of satisfactory evidence to the buyer of the fact that the buyer broker services rendered to the buyer were of no avail.
While the buyer may have to disclose certain financial and other assessments to the buyer broker, in most cases the buyer broker will have a duty of confidentiality against the disclosure of information to any third party without the buyer’s express permission or consent.
The buyer broker fee that the buyer pays to the buyer broker for the services rendered to the buyer under the buyer broker exclusive employment agreement, generally is not considered a retainer fee warranting repayment if the buyer does not buy a property. Instead because the buyer broker fee is only owed and only becomes payable when the buyer acquires property, if the buyer never acquires any property during the period of time covered by the buyer broker exclusive employment agreement, then the buyer broker fee does not become due or payable. In other words, if the buyer never buys a house, then the buyer does not owe the buyer for any services rendered under the buyer broker exclusive employment agreement and no buyer broker fee is owed to the buyer broker.
The buyer broker exclusive employment agreement can be terminated by the parties falling within three broad categories: (a) termination based on a specific occurrence or event; (b) termination based on the exercise of a right to termination by the buyer; and (c) termination based on the mutual waiver of the parties.
Advantages for the Buyer
When buyers enter into a buyer broker exclusive employment agreement with a qualified buyer agent (the one that signed the agreement), they enjoy certain advantages that are not available to prospective buyers who are not represented by an agent.
Although any agent may represent any buyer, those agents who have been "hired" by buyers through a written agreement, owe their clients utmost loyalty. Agents who are merely cooperating with another agent through compensation from another firm are not held as accountable to buyers (who have no other recourse) who seek recovery for the agent’s wrongdoing.
Buyers can expect prompt attention from their agent to their needs and concerns. An agent who has been hired by a buyer is expected to take particular care regarding any information the buyers wish kept confidential. Without such a relationship, an agent who is only a "subagent" or "team member" of another agent may release confidential information to the seller or his agent.
Role of a Buyer Broker
A good real estate broker will assume duties and responsibilities – including assumed fiduciary duties – for which he or she may be financially responsible under his Buyer Broker Exclusive Employment Agreement. A real estate professional (especially one seeking to serve as a buyer’s broker) must not confuse simple customer service with the fiduciary and statutory obligations of a broker or broker firm. Depending upon which broker (mandatory) duties are non-delegable to other parties, a broker employment agreement may require that a buyer’s broker must at a minimum: Duties Deemed Non-Delegable Generally speaking, a broker/firm’s good faith, honest, fair, firm, and competent agreement with a consumer for real estate brokerage services will be non-delegable, according to the Rules of the Texas Real Estate Commission. A buyer’s broker who attempts to delegate duties that are non-delegable to a third-party vendor or other party breaches his Buyer Broker Exclusive Employment Agreement. Buyer’s brokers are always asking me: how can I most simply define the concept of duty to assist? The answer is this: you must help them find what they are looking for and/or what they ask of you. If the property sought is destination-based such as a certain neighborhood, section of town, school district, etc., and the buyer makes no more specific request than, for instance, "find me a good investment property with great rental rates, low monthly dues, etc. quickly" (or some other request framed otherwise), you must use your knowledge of what they want – but do not necessarily fully articulate to you – and find it. Assuming a fiduciary relationship, if your buyer asks you to find multiple properties so that they can compare them all and choose the one they like best, you are bound to obtain and provide that information to your buyer. The exception, of course, being material information or information that is confidential if the buyer so instructs you.
Disadvantages
One of the most significant potential drawbacks is the commitment by the Buyer or Tenant to a Broker under the terms of such Agreement. It is similar conceptually to a marriage because early on if all proceeds according to plan, and there are not contentious things arising, there is little reason to think about termination. Over time, however, if there is bitterness and a lack of commonality in opinions about what is best for a client or customer, it can be hard to decide between putting up with the toxic situation or terminate the relationship, which would require finding a new Agent or Mortgage Broker and potentially reaccomplishing tasks that would have been necessary to get the transaction to closing.
However , it is more than just "bitterness" that you should be concerned about. The real issue is whether or not a conflict of interest may arise as a result of the provision in the Agreement that states that the Buyer/Tenant will only work with the signing Agent/Broker. If that Broker’s interests are not aligned with the client/customer, there can be a real problem in succeeding in getting the best possible results in the transaction. The most obvious example is a listing received from a party that needs a quick sale for personal or financial reasons. A Buyer/Tenant may be better suited to negotiate on behalf of the client/customer than simply forcing the listing to sell for a low price because they were "Locked-In" to working with only one agent or Broker.
Negotiating a Good Contract
Negotiating a favorable buyer broker exclusive employment agreement begins with an assessment of your home’s sales potential. Your professional guidance is the result of extensive market knowledge and experience. Factors that can minimize the marketing leverage your broker has to offer are a home that’s overpriced and one that’s too high maintenance.
Buyers who are driving the market are looking for new listings. It’s important for us to list your home when it has the highest potential to quickly attract a competitive offer on an offer and counteroffer basis. Each day your home is on the market, an opportunity for getting a top dollar offer is lost. Your objective is to get a mutually beneficial agreement as soon as you can. Every day after that is a missed opportunity for you.
To negotiate a favorable Exclusive Buyer/Broker Employment Agreement, you must be sure that all terms of the agreement are favorable to you.
Many of the terms of an exclusive agreement are favorable to a self-centered realtor looking out for their personal benefit, rather than providing value to you. One way that they can "help" you is by making the terms of "your" agreement favorable to them.
I have already mentioned one of those terms. The percentages that will be paid to the buyer’s agent, that sometimes are prescribed by the Multiple Listing Service as being what is typical for a seller to pay the buyer’s agent. You may not need to pay more. If, for example, the MLS reports show that 2.5% is the commission amount that a seller has recently paid the agent for the buyers, then this is what you will also pay.
Another example of a term that’s favorable to a self-centered realtor is the fee that the agent may stipulate to be paid for the "Negligence of the agent in an acknowledgement of the receipt of the ER disclosure notice (California Civil Code Section 2079.1) and the prospective buyer’s agency notice". The penalty for this failure can be as much as $100,000.
Many of these types of terms are essentially unenforceable, including the misrepresentation of the commission amount that will be paid to the buyers’ agent. In the event that you were to see any of these terms in the agreement, your objective is to always remove them from the agreement and have it rewritten to be clear in your favor.
Legal Issues and Consultations
As there are different forms of Buyer Broker Exclusive Employment Agreements, there are also different legal consequences inherent in these contracts. From a legal standpoint, it is always a good idea to have an attorney review your agreement before signing. This is especially so if it is your first time entering into an agreement, as a real estate attorney will be able to highlight certain issues of which you may not be aware. In addition, signing the Buyer Broker Agreement makes you legally bound to comply with its terms, including any obligations you owe the agent or brokerage you hire.
Next let’s look at the quality of legal services that can be provided by a brokerage. Although a brokerage may not be legally responsible for the type of services that are provided to you, theoretically, it is in the best position to ensure that its agent is providing you with good service. The brokerage theoretically has the ability to ensure that its agents and employees are adequately trained to effectively work with you. While the brokerage generally does not have to make ensure that its employees work specifically on your transaction (you are not signing a contract with the brokerage), the brokerage does have a good deal of control over your agent’s actions and thus some control over the quality of the professional services you are receiving. If your broker believes that the services provided were below the standard of professional care, then the broker will likely do what he or she can to make it right, or else take other appropriate measures.
After entering into a Buyer Broker Exclusive Employment Agreement, you are locked into the agreement for the duration of the term unless the contract is terminated by either party prior to that time. Hopefully such a situation would not arise, but contractual issues can and do happen from time to time. For example, if you receive an unsolicited offer to purchase your home for a substantial amount of money without your broker having sold it, or if you receive an unsolicited call from someone offering services you do not want, you may ask to be released from the agreement prior to its expiration. Keep in mind that even if you are released from the agreement, you may still owe your broker a commission if they were the cause of you selling your property within, say, one year of the termination of your agreement, depending on the terms set forth in that agreement. In addition, you will generally be required to sign other documents in order to remove your obligation to pay commissions. And just because your Buyer Broker has advised you that you can get out of the agreement, that does not mean that’s the case legally; only a court can truly relieve you of your obligations under an Exclusive Buyer Broker Agreement. Therefore, seeking legal counsel at this point is always advised.
Common Myths
The most common misconception that I encounter is that a buyer’s agent is free and non-binding. This is typically because the consumer believes that if the consumer pays no money directly to a buyer’s agent, it is free. In fact, the seller is typically paying the buyer’s agent fee if the buyer uses a broker. By signing a buyer broker exclusive employment agreement, the consumer is agreeing to pay the broker a set or calculated amount for his/her services . (2) It’s free to the consumer to use the services of a real estate agent (or a lawyer). That is not true. In Connecticut, when you purchase a home, the seller pays a real estate commission to the listing broker and the selling broker. If you as a consumer hire a real estate lawyer, you as the consumer pay the real estate lawyer’s legal fees.