WHAT IS THE BUYER BROKER AGREEMENT?
If you are looking to buy a home, your chosen Realtor will ask you to sign a “Buyer Broker Agreement” or as it is more formally known, the “Buyer Agency Agreement” in Collier County and “Exclusive Right To Represent Buyer Agreement” is used. Potential clients often ask us several excellent questions about this agreement, so we thought we’d break them all down for you.
In Florida, until a buyer signs a buyer broker agreement, the agent they are working with is legally committed to representing the seller of a home. Buyers and agents who have agreed to work together must outline the terms of their agreement in a formal written document.
Enter the Buyer Broker Agreement
Signing this agreement ensures that you have a Realtor legally committed to representing you. With this representation, an agent looking out for YOUR best interests, not the sellers. Additionally, with the buyer broker agreement in place, your agent cannot share any of your information with the seller, it binds them to confidentiality. For example, your agent could never divulge that while you offered $450,000 for a property, you really are willing and able to go up to $500,000. Real estate agents must always disclose which party they represent in any transaction. This document clarifies for all involved parties who is representing whom in a deal.
KEY TERMS OF THE BUYER BROKER AGREEMENT
Here is the breakdown on the key sections of the agreement:
Length of Term - The buyer broker agreement is most often drawn up for six months or a year. If your agent is committed to you and your househunt, he or she will want you to be committed in return.
Early Termination / Advanced Notice - This section outlines how the early termination of the agreement is handled. It outlines the number of days’ notice needed to end the agreement early. It will also include a dollar amount that a buyer will owe the agent if the required notice is not given.
Compensation - There are two main components of the compensation section: the retainer fee and payment.
Retainer Fee - While common in other parts of the country, retainer fees are not usually part of the agreement in our area. We do not charge a retainer fee for our time. The retainer fee is used to compensate Realtors for their time and related expenses (fun fact: in addition to all of the time spent searching for and showing homes and getting a buyer to closing, each offer a Realtor makes for a buyer takes many hours to write, submit, negotiate, etc.). The retainer fee also serves as a way for agents to differentiate casual “lookers” and serious homebuyers.
Payment - Perhaps the most misunderstood section of the buyer broker agreement, the payment section, often gives buyers pause. In most cases, 3% commission, plus a few hundred dollars (the amount varies depending on the company and situation), are listed as payment. If the home is entered into the MLS database, the listing agent and brokerage are offering to pay the commission to the buyer agent and brokerage. In other words, the seller pays all commission costs to the listing brokerage, who then pays the buyer brokerage their share. You, as the buyer, are only responsible for the additional fee at settlement. This fee covers the brokerage’s back-end expenses related to the processing of the contract, paperwork, etc. There could be a rare occurrence when you might need to pay the buyer agent commission but that would be fully disclosed to you up front — long before seeing a home in which this would be the case. Rarely have we ever seen this happen.
Dual and Designated Representation - Designated representation means that you approve being shown properties listed by the brokerage. In other words, if you sign with an agent of a specific brokerage, your agent is allowed to show you other properties from that brokerage. Dual representation means that you agree to see properties that your agent has listed. In Florida, a Dual Agency is illegal, although we are able to facilitate both the sale and purchase of a home as a Transaction Agency. You, as the buyer, choose to accept or decline these options. You can also agree to see the properties in the buyer broker agreement and decide later if you will agree to that form of representation when you are ready to put an offer in on a property. It will require a separate agreement at the time of the contract.
WHAT DOES A BUYER’S AGENT DO ANYWAY
Of course, a buyer’s agent will help you search for and tour homes and neighborhoods. However, they do far more than most people realize! They will work hard to find properties before they hit the market and will walk you through the process step by step. Your agent will also connect you with experienced lenders (if need be). A side note: be sure to use a lender your agent recommends. These lenders have proven themselves over the years and have a vested interest in keeping buyers’ agents happy. It’s important to note here that our recommended lenders do not offer us any special perks or kickbacks! Unfortunately, we’ve seen our share of troubles in deals with an unproven lender. Our agency uses only tried and true lenders with stellar reputations.
When you find “the home,” your agent will research the comparable sales (or “comps”) and recommend an offer price and strategy on the other terms of the contract. Your agent will also do any needed negotiating on your behalf. Negotiations include the price as well as all of the other terms of the contract such as the home inspection, appraisal, rent backs, closing costs, etc.
Once you are officially under contract on your new home, your agent will help you through all of the necessary steps to ensure a successful settlement. This is a critical period in which a buyer’s agent is invaluable. Your agent will ensure you understand and comply with all terms of the contract such as contingencies (home inspection, financing, appraisal, and more). The agent will stay on top of the details and deadlines to ensure you (and the seller) do not inadvertently default on the contract. The agent will likely recommend a home inspector, movers, and more. Your buyer’s agent will attend the final walk through and settlement with you to ensure that everything goes smoothly and that there are no last-minute surprises.
The Bottom Line
Buyers sign the buyer broker agreement in order to establish a working relationship with their Realtor. It’s not intended to scare anyone. In fact, it protects buyers and ensures their Realtor is working in their best interests, not those of the seller. Talk with your Realtor if you have concerns or questions, be sure to discuss any concerns with the agent.
Our guarantee to you, is “beyond care and competence”.
Allow us the opportunity to prove ourselves and earn your business. Contact us and let us show you how we can help.
Agents can save sellers time, money, liability and hassle
Frank, a smart and tech-savvy Denver homeowner, thought he’d skip the agent commission and sell his house himself. He researched his home’s property value, found a buyer and got the house under contract. It seemed like a done deal. Until he realized in a panic that he had seriously undervalued the property — by more than $100,000. Frank had misunderstood the report he’d pulled and incorrectly valued the house. The error cost him $30,000 to get out of the contract. In your dealings with potential sellers, you’re going to run into people who will question the worth of an agent. Or you’ll come across a smug homeowner who’s got it figured out and listed his or her home for sale by owner (FSBO).
How do you turn these sellers into a client? Let them know that you’re saving them time, money, liability and downright hassle.
Let sellers know that you’re saving them time, money, liability and downright hassle.
1. Scams happen
Judy (not her real name) in Raleigh, North Carolina, fell in love with a FSBO home. She agreed not to use an agent and paid the homeowner $3,000 in earnest money.
Then the homeowner changed his mind. With no contract signed and no receipt, Judy lost all her earnest money. She trusted the homeowner when she should have trusted an agent.
FSBO scams happen to both buyers and sellers with little recourse besides hiring an attorney.
Common scams include fraudulent papers (appraisals, loan documentation), foreign buyer deposits (scammer sends too much in a bad check and then requests a refund), purchases through a third-party (a fake attorney, etc.) and asking for personal information.
2. Liability is all on the seller
Everyone makes mistakes. A seller (or buyer) who doesn’t have the representation of a licensed agent pays for those mistakes. Attorneys can close a real estate transaction, but they don’t carry errors and omissions (E&O) insurance. So if homeowner Sandy lists “hardwood floors” as a feature and the buyer discovers it’s just a wood veneer, chances are Sandy is going to pay for that mistake. An agent would have either caught the mistake or covered it with E&O insurance. Let’s face it: this is a litigious society, so what homeowner wants to be a target for lawsuits?
3. Paperwork is daunting
The 2015 National Association of Realtors’ Profile of Home Buyers and Sellers showed that understanding paperwork was one of the most difficult tasks for FSBOs. Depending on the state, there are a variety of legal forms that are needed, including but not limited to a sales contract, property disclosures, occupancy agreements and lead paint records.
Sure, ready-made contracts can be downloaded easily enough. But does an untrained seller understand what all that means? Would the seller know how to customize that one-size-fits-all contract?
4. Sellers can get stuck in a bad deal
Like Frank, FSBOs who sign on the dotted line and then realize an error are stuck. They have to pay the buyer (if they’re willing) to get out of or just take the deal. Let potential clients know you can save them from that headache.
5. FSBOs sell for less
In 2015, FSBOs lost about 16 percent of the sales price with a median selling price of $210,000 (agent-assisted homes sold for $249,000). Homeowners selling by themselves simply don’t have the time to devote to the process, don’t know the market value, don’t understand market reports and don’t properly market the property. If the FSBO seller sold to someone he or she knew, the median dropped to $151,900 (because cousin Sue is doing them a favor and expects a deal).
6. FSBOs spend more time on the market
Unless the seller knows someone who wants to buy the home, FSBOs take longer to sell than homes listed with an agent. For the same reasons, they can’t get the right selling price. No one is “behind the curtain” running the marketing show. On average, 18 percent of FSBOs were unable to sell within their chosen time frame last year.
7. FSBOs lack representation
There’s no one looking out for the homeowners who sell on their own. They have no one to call if they have a problem or a question.
Dave found this out when he sold his Morrison, Colorado, home himself. Studying for his real estate license, Dave felt confident he could handle the contracts. Then the unexpected happened. When his house was under contract, a state patrol car pursuing a speeding motorist crashed into a downstairs bedroom. Repairs threatened to push back closing, and suddenly, the buyer was asking for a storage unit, the cost of temporary housing and more. He was lucky enough to have an agent friend who could step in, but a homeowner with no representation could have been out thousands of dollars unnecessarily.
8. Inspections are problematic
Sellers who don’t know the rules can get stuck with unnecessary and costly repairs. When Sue sold her 10-year-old Highlands Ranch, Colorado, home, after the inspection, the inspector said she needed to change the stairs from the garage to the house because the code had changed. He listed other code changes, and the buyer began to demand these be done. Surprisingly, the inspector didn’t know that because these items were to code when the house was built, the seller wasn’t responsible for these changes.
9. Marketing is limited
FSBOs have limited resources to market their home. The 2015 NAR Profile of Home Buyers and Sellers showed 42 percent rely on a yard sign, 32 percent rely on friends and family, and about 15 percent use social media. Relying on the neighbors and Uncle Bob’s second cousin has its limitations. Even paying for the MLS listing won’t be enough because there’s no incentive for an agent to bring a buyer to a FSBO.
10. Hidden costs add up
The mindset for most FSBOs is saving money. Chances are, these sellers are being nickeled and dimed into a pretty big chunk of change. They’re paying for a lot of extras: signage, flyers, photography, MLS listing, attorney (required in multiple states for FSBOs), home warranty (optional but hard to sell without one), home inspection, a wood destroying pest inspection, credit report for buyers (if applicable), contracts and the list goes on.
11. Time costs the seller money
The biggest cost to a homeowner is their time. You might hear the argument that it doesn’t take an agent that much time to sell a house. And honestly, given the technology at our disposal, that’s true — to an extent. But it will take a homeowner a whole lot longer. They don’t have the expertise or the access to the resources agents have. What is their own time worth to them? How much time will the seller spend researching the market and contracts? Is the seller going to leave work to unlock the house each time there’s a showing?
If you’ve been in real estate for a while, you probably have some FSBO nightmare stories of your own. Share them with facts backed with real statistics to help FSBOs make an informed decision to use an agent instead.
Article by: CHRIS REDIGER Inman News
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