What is an Exclusive Buyer Agreement?
The exclusive buyer agency agreement refers to a legally binding contract between a real estate agent and you as the real estate buyer. You enter into this document voluntarily and it should only be signed after fully understanding what it means for the real estate transaction and your working relationship with your real estate agent. Specific terms of the agreement vary from state to state.
Essentially, this exclusive buyer agency agreement creates an agency relationship between you and your real estate agent. The agent is your client and you are their customer. The real estate agent has a legal responsibility to look out for your best interest and inform you of anything that may affect your decision to purchase a property.
By signing a buyer agency , you are essentially hiring your agent to represent you as the buyer of the property in question at a stated commission rate.
In other words, you are agreeing to work exclusively with this agent (if there is more than one property, the agent may eventually move on to represent another customer in selling that property). In exchange, the agent is promising to help you find the perfect home or property, and work diligently to ensure you have the best chance of seeing a return on your investment.
What are the Key Provisions of an Exclusive Buyer Agreement?
The exclusive buyer agent agreement generally addresses the following:
Agent’s Duties – Often times, common law duties of agents are expressly addressed. Duties may include, among other things, acting as fiduciaries, acting in the buyer’s best interests, providing undivided loyalty to the buyer, full disclosure, and reasonable care.
Term – The length of time an exclusive buyer agency contract lasts is generally three months, with an automatic renewal if the property is not purchased. During the term, the buyer agrees to work exclusively with the buyer’s agent and will not look for properties on his or her own or through another agent.
Compensation – Compensation may be the same as that paid by sellers at the real estate transaction, or may be payable following the close of the property purchased by the buyer (noting that, if the property was purchased without representation, the buyer may still owe the fee). The compensation is what the seller in a property would otherwise pay a buyer’s agent, except that it is subtracted from the commission paid to the selling agent. Some jurisdictions have mandated that the compensation must be considered separately from the buyer agent contract, and something as simple as a checkmark next to a pre-printed compensation amount is not considered consent to be bound by a buyer agency contract.
What are the Advantages of an Exclusive Buyer Agreement?
One of the main benefits of an exclusive buyer agent who enters into an exclusive agency agreement with his or her clients is the enhancement of service which they can provide to their buyer clients. An agency agreement which is signed by both parties increases commitment. Your exclusive agent is committed to working for you, the buyer, but you must also commit to work exclusively with your agent to buy a house, and you will be required to sign an agency agreement with each agent throughout the entire house-hunting process.
An buyer agent who is in an exclusive buyer agency agreement will want to outshine the competition — ensuring that you are satisfied with the service you receive from him or her and showing you all of the best houses in the neighborhood you are interested in. With such a commitment to serve you, you can rest assured that your agent will "move mountains" when it comes time to negotiate with the seller’s agent to try and secure the deal you are looking for.
What are the Disadvantages and Risks of an Exclusive Buyer Agreement?
Before committing to an exclusive buyer agency agreement, buyers should take the time to consider whether they have the financial means to fulfill the terms of the contract. In other words, your proposal for the property must be one that you are willing and able to fulfill. Lastly, it is always best to be as well-informed about the property as possible prior to entering into an exclusive buyer agency agreement.
Although an exclusive buyer agency agreement certainly has advantages, there are also potential drawbacks and considerations that home buyers should be aware of. For example, there may be times when the client may not "mesh" with their real estate agent, resulting in an uneasy or uncomfortable relationship.
Perhaps, after a short time, you begin to feel like your current real estate agent is not a good fit for you. This can make your decision to buy a home more difficult, especially when your current real estate agent has already shown you homes that you are interested in purchasing. In these cases, you may want to break your exclusive buyer agent agreement. Most of the time, you will be expected to pay the real estate agent for the work he/she has already done by covering the commission fee out of your pocket .
Another potential drawback of an exclusive buyer agency agreement is the fact that you must agree to use only the services of the exclusive buyer’s agent. If the seller of the desired property does not want to deal with your buyer’s agent, it may be difficult for you to compete with other home buyers who may have agents that the seller prefers to work with.
One issue that some buyers do not consider is having an exclusive buyer agency agreement with a real estate agent that may not be licensed in their state. For example, Chicago requires real estate agents to be licensed there, while buying a house in Michigan requires a license there.
It is vital to ensure that your real estate agent is licensed in every state in which you intend to purchase a home. That way, you will not be delayed in moving to your new house because your real estate agent is not licensed in that state. An option in this situation is hire a lawyer to draft the exclusive buyer agency agreement who is licensed in both Illinois and Michigan.
Each case involving an exclusive buyer agency agreement is different, and the issues raised above may not arise in your particular case. However, it is important to be as well-informed as possible before showing interest in a property and before signing any type of real estate agreement.
Sample Exclusive Buyer Agreement
To understand an exclusive buyer agency agreement, it is helpful to look at an example to see what one typically looks like and the various clauses and terms contained within it. The following is a practical example:
EXCLUSIVE BUYER AGENCY CONTRACT
BETWEEN "CLIENT" (abbreviation)
AND
(NAME OF LIC RE PERSON)
Located at (address)
"BROKER"
The undersigned CLIENT(s) and ____(licensee)____ ("Broker") enter into this Buyer’s Broker (Agency) Contract as of this ____ day of _________ ____, and agree as follows:
Section 1. ENGAGEMENT
(A) The CLIENT engages the BROKER. BAT as BROKER. as described herein.
( i ) as a buyer’s agent for the purpose of identifying, showing, negotiating, transacting and acquiring real estate in the CLIENT’S best interest. buyer of real property, including but not limited to, single family residences, condominiums, multi-family units, raw land, commercial, and income properties during the sale term of this Contract.
OR
(ii ) as a buyer’s subagent for the purpose of identifying, showing, negotiating, transacting and acquiring real estate in the CLIENT’S best interest. }}
OR
(iii ) as a seller’s subagent for the purpose of identifying, showing, negotiating, transacting and selling real estate in the CLIENT’S best interest. seller of real property, including but not limited to, single family residences, condominiums, multi-family units, raw land, commercial, and income properties during the sale term of this Contract.
(B) The CLIENT does not engage the Broker for purposes of this section, except as to any that are so identified.
Section 2. EXCLUSIVITY
A. The CLIENT agrees to work exclusively with the BROKER on all real estate transactions, as described above, in the geographic area of _____ (LEGAL DESCRIPTION). CLIENT agrees to be represented only by the BROKER in connection with all real estate transactions in the city of _____ (CITY), including future purchases _____ (BY NEIGHBORHOOD NAME). _______ (BY NEIGHBORHOOD NAME) (Hereinafter the "Neighborhood"). client agrees to work exclusively with the BROKER on all real estate transactions as described below, in the Neighborhood and surrounding areas. CLIENT agrees to buy or sell through the BROKER homes located in the Neighborhood.
The Neighborhood is more particularly described as all properties _____ (LEGAL DESCRIPTION). The CLIENT acknowledges that the BROKER has made no representations as to any other areas which may or may not be in the Neighborhood.
Frequently Asked Questions about Exclusive Buyer Agreements
Ex Exclusive Buyer Agency Agreements – Frequently Asked Questions
What is the purpose of the exclusive buyer agency agreement?
It creates an agency relationship between a buyer and an agent, in which the buyer authorizes the agent to act on behalf of the buyer to locate and negotiate the purchase of property.
Why do I need a written document for this?
The exclusive buyer agency agreement has legally binding terms that create a fiduciary obligation for the agent. It is an over-arching contract between the buyer and the agent, and as such should be committed to writing. Although it is not legally required, it provides the buyer with greater protections than an expressed but unwritten agreement.
Why would I need some kind of legal protection for my purchase of real estate?
Purchasing property as a buyer is the most significant investment most people will ever make. Not investing in legally binding legal protections for this purchase means that negotiations, fiduciary relationships, and other legal and contract related matters could be affected by ethical concerns at best, and at worst could cost the buyer a great deal of money and satisfaction.
What is the agent’s role after signing an exclusive buyer agency agreement?
The agent will act in the best interest of the buyer and look out for the buyer’s best interests throughout the process . The agent will also accompany the buyer on showings or ask the buyer to sign a waiver granting the buyer consent to view a particular property without the agent present.
If the buyer decides to arrange a showing or attend an open house without the agent, is the agent still committed to a fiduciary responsibility to act in the buyer’s best interest?
No. The agency agreement is an exclusive agreement which states, in a sense, that the agent is the only buyer agent representing the buyer. This provision applies through the terms of the agreement even if the buyer is not present with the agent when viewing a property.
What if I decide to stop working with this agent and switch to a different one?
There is no legal recourse preventing a buyer from making such a decision to change agents. But the buyer must notify the first agent in writing of the decision to end the exclusive buyer agency agreement. If the next agent will be showing properties that the first agent showed, then the buyer must first execute a written waiver with the first agent stating the same.
What if the agent shows properties that the buyer had previously viewed elsewhere without the agent?
The buyer must execute a written waiver with the agent for this to take place. Otherwise, the agent is under no obligation to show the property.
What if the buyer has additional questions not answered here?
The purchaser should ask the agent. That is a significant part of the agent’s role under the buyer agency agreement terms.