Where are the best housing markets for 2021, especially for first time homebuyers? The year…
Buyer representation agreements exist and are comprehensive and powerful tools that consumers can utilize to their advantage along with a highly-skilled agent. So our focus today is on understanding the ideal length of a representation agreement. This understanding will help buyers take the lead towards a successful and satisfying home buying experience.
The main host of the B&L Consumer Real Estate Radio Show, Barry Miller exchanged expert opinions with Kathleen Chiras and John Mandible on a live podcast that aired on October 17, 2020. The Colorado experts talked about the importance of establishing clear guidelines and why it matters to have control over the contract agreement. Listen in to the full conversation here:
What is a Buyer Representation Agreement?
“A buyer’s agency agreement, also known as a buyer’s representation agreement, is an agreement signed by a prospective buyer that authorizes a licensed brokerage firm, and usually a specific real estate agent at the brokerage firm, to represent the buyer in buying a home. Different markets have different standard forms of agreement, as do many brokerage firms. Prospective buyers sign buyer’s agency agreements to confirm their commitment to working with a brokerage firm or an agent and to assure the firm or agent that they will be compensated if a sale occurs. The term of the agreement is negotiable.” -Redfin
Types of Buyer Representation Agreement
Nothing is more important to someone who is about to spend a large sum of his or her hard-earned money than to know that they have fiduciary representation throughout the entire home buying process. An agreement helps set proper expectations between the buyer and the agent. Currently, there are 3 different types of buyer-broker agreements. Buyers must carefully decide which type of agreement will work for them:
- Non-exclusive not-for-compensation contracts: This contract allows buyers to cancel the agreement at any time. They are also allowed to work with any other agent they like without compensation paid to the broker.
- Non-exclusive right-to-represent contracts: This agreement states that the buyer will compensate the broker if the buyer purchases a house their agent presents to them. The buyer is only relieved of paying the broker out of the proceeds of the sale if the seller agrees to pay a commission to the buyer’s agent. Also, under this contract, the buyer can purchase a home with another broker as long as their original agent did not propose it.
- Exclusive right-to-represent contracts: This agreement is the most common buyer-broker agreement. It outlines what the agent will do for you, the buyer, and It will describe the buyer’s obligations. The buyer may have to pay the commission detailed in the agreement, but if the seller’s listing agrees to pay the commission (very common), the buyer will not have any out of pocket costs. However, the included commissions are reflected in the overall cost of the property. What makes this agreement different than the others is that the buyer cannot work with another agent during the contract length.
Frequently Asked Questions on Buyer Representation Agreements:
* Should You Sign A Buyer Representation Agreement?
Yes! ONLY if you’re comfortable and happy with the terms indicated in the agreement.
Although signing an agreement with an agent is not required, buyers are encouraged to consider the benefits of having one. It puts in black and white what the agent must do in order to earn their commission. It prepares you for the upcoming negotiations. The agreement provides the opportunity for buyers to share their needs (even wants!) and expectations. And in turn, it gives the agents the chance to understand them and showcase their skills as they go through the process of drafting the terms. Also, finding gaps in a printed document is so much easier than trying to verbally sort things out.
As with any other documents that require your signature, take the time to read, and understand each clause of the agreement. If you’re unsure about something, ask questions, or consider seeking legal advice before signing. Larry, a recent buyer referred by the association to a buyer’s agent in Virginia, demonstrated the right behavior. He wanted to buy a piece of land where he would build his own house. They went together to visit the properties and the agent went above and beyond to make sure their client got what he wanted. Larry did have a good working relationship with his agent, but it did not stop him from having his lawyer check on the documents before fully signing them. This practice is most common in the Northeastern states of the US.
Regardless of whether you sign an agreement, the agent or brokerage is required to provide fair, conscientious, and competent service. Keep in mind though that a brokerage can choose to decline your business if you choose not to enter into a buyer representation agreement. But if you do sign one, remember to include a clause for a contract termination as a contingency. (See our other blog on How To Terminate Real Estate Agent Contract for more information.)
* What Should Be Included In A Buyer Representation Agreement?
A typical agreement will list the services that a buyer agent is going to provide throughout the home buying process. Buyers must also work with the agent in adding contingencies to the agreement. Doing this right from the beginning will make a huge difference during the negotiations.
For example, the deadly coronavirus forced most buyers to do virtual tours and home showings. This change increased the risk of purchasing a money-pit property. To counter that risk, buyers are highly encouraged to add contingency clauses to secure and protect their investments. In this case, adding an inspection contingency will help prevent buyers from purchasing a property that they are not happy with. Many buyer agents will refuse to present an offer without an inspection contingency because they know how much that can protect their clients. The inspection clause almost guarantees that buyers will get their earnest money back if the purchase must be terminated. It also wards off unexpected financial hardships after the sale.
A contingency clause defines a condition or action that must be met for a real estate contract to become binding. A contingency becomes part of a binding sales contract when both parties, the buyer and the seller, agree to the terms and sign the contract. -Investopedia
A good representation agreement typically includes the following:
- Agent’s Duties and Responsibilities
- Length of Contract
- Property Description
* How Long Should The Agreement Be?
The length of the contract is one of the most essential details to check before signing the document. The average length that most agents will offer is at least 6 months. Buyers though can decide the length, and reduce it to 3 months or even 30 or fewer days! It varies depending on a few factors. One factor may be how fast the buyers or sellers need to fulfill the transaction. Job relocation and the buyers’ financial status often dictate the length of the agreement. Therefore, the buyers or the sellers almost always have the final say on how long the agreement should be.
John Mandible responded with a rhetorical question: Whose money is at stake, and therefore who should be in control?
Fiduciary agents will always make the commitment to get the job done in YOUR timeline. -Barry Miller
Barry strongly believes that 90 days should be enough to fulfill the agent’s duties and responsibilities. For him, lengthy contracts put both the consumers’ and agents’ motivations at risk of not fully committing to their obligations. And if the short contract expires, similar terms can be renewed. Furthermore, he urged consumers to watch out for agents who require longer than 3 months. Those agents may be considering their own time frames instead of prioritizing yours.
These are all valid points. As a reminder, only buy or sell when you have analyzed the benefits to you.
Some of the Key Benefits of Shorter Length Agreements:
- Gives consumers control
- Helps maintain the right motivation and focus
- Fosters better communication between client and realtors
- Adds pressure to get a higher level of service from the realtors
- Processes and transactions meet their deadline or earlier
An important note from the Author:
The key lies not in the length of the contract, but the careful assessment of your current needs. A contract may be short or lengthy, but as has been proven many times, a consumer who is knowledgeable and knows the right questions to ask will have the most control over the transaction and most likely have a happy outcome.
Need An Expert’s Guidance?
The National Buyers Agent Association is headquartered in Colorado where 4 out of the TOP 5 2020-2021 Best Places To Live, are located according to the U.S. News & World Report annual ranking.
The association has a network of top-rate fiduciary agents that provide free consultations anywhere you are in the US. For faster access to a couple of top buyer agents, fill out the form or call 800-383-7188, Mondays through Sundays. A staff member or Kathleen Chiras herself will take your call and answer your questions. The service is constantly adding new home-buying videos, so check out our YouTube channel today! See you there!
Check out the A+ rating the service has with the Better Business Bureau here: https://www.bbb.org/us/co/evergreen/profile/association-management/skyfor-inc-0885-90275771