What is a buyer agency agreement?

Quick insights

• Buyer agency agreements are legally binding documents that clarify the professional expectations between a homebuyer and real estate agent.
• Buyer contracts typically indicate the real estate agent’s specific duties, their compensation, the contract’s duration and termination rights.
• The contracts can be either exclusive or nonexclusive, which indicates the buyer’s ability to work with one agent or multiple agents respectively.

If you’re preparing to buy a home, you may be wondering what buyer agency agreements are and how they work. These agreements exist to formalize the buyer-agent relationship and clarify professional expectations. Exclusivity, compensation and duration are among what these legally binding documents can cover.

For many people, buying a home will be the most financially significant decision they’ve ever made. Knowing what to look for in a buyer agency agreement can affect how the process unfolds. In this article, we’ll address common questions relating to buyer contracts, including how to terminate one if it no longer suits you.

Defining the buyer agency agreement

The buyer agency agreement is a legal contract that formalizes the professional relationship between a homebuyer and real estate agent, including the duration, terms and compensation expectations. This document also outlines the responsibilities of the agent toward the buyer, such as confidentiality and full disclosure of a home’s characteristics. These agreements can be exclusive or nonexclusive, respectively indicating the buyer’s ability to work with one agent or multiple agents.

The duration of a buyer agency agreement

A real estate agent’s contract with a buyer should specify how long the contract will be active for before it terminates. This can be under certain conditions, such as when the purchase of a home is complete, or after a certain amount of time has passed without a successful sale. Most contracts will also indicate how the relationship can be manually terminated, such as by mutual agreement or in situations involving a breach of contract by either party.

Agent responsibilities and compensation

The buyer agency agreement will specify what actions the agent is responsible for. Examples include searching for properties that meet the buyer’s criteria, scheduling showings and negotiating the sale. The contract will also specify how much the buyer must pay for those services. In most cases, the agency is paid 5–6% of the listing price at closing and may distribute the total to its agent(s) along business guidelines.

Contract terms and exclusivity

Buyer contracts can have exclusive or nonexclusive terms, which indicate whether the buyer is allowed to work with multiple agents in the process of buying a home. An exclusive buyer agency agreement binds the buyer to one agent. This might assure the agent of their position and encourage a dedicated approach throughout the homebuying process. For example, because they are more likely to earn commission, an agent with an exclusive contract might be more proactive with finding the buyer the right home.

Some buyers prefer to work with multiple agents and use nonexclusive buyer agency agreements. Working with multiple agents may provide buyers with different advantages, including broader industry expertise and access to more listings and connections. However, the presence of multiple agents may dilute the dedication of each one, who would be competing to earn commission.

Is a buyer agency agreement required?

Generally speaking, buyer agency agreements are not required by a federal law; however, individual states and principalities may have their own laws regulating such arrangements. In places where laws don’t regulate buyer agency agreements, one may still be preferred or required by the real estate agent.

Creating a buyer agency agreement

Real estate agents typically have a standard buyer agreement form, which they will present to prospective clients. The buyer, possibly with the assistance of a dedicated legal professional, can review the terms and agree or propose changes to the contract. All areas of the document may be negotiable, including exclusivity, compensation and terms. As a legally enforceable contract, it will impact any real estate transaction, so the terms are important for the buyer to understand fully before signing.

Terminating a buyer agency agreement

There is a range of circumstances under which the agreement can be terminated. Each buyer’s contract will have specific language relating to the process and conditions. Besides scenarios where the contract is automatically terminated with the purchase of a home, the contract may be terminated by:

• Mutual agreement: A buyer has changed their search area or decided they no longer want to buy a home; they may be able to mutually agree to terminate the contract. Abiding by the exact requirements in the agreement, such as a notice period for the termination, can help wind down the relationship amicably.
• Breach of contract: Either party failing to uphold their end of the agreement may be considered breach of contract and grounds for termination.
• Death of involved parties: The contract is not typically actionable if either the agent or buyer passes away during the process.

In conclusion

While buyer agency agreements may not be required by law, they often help to buy a home in a competitive market. These contracts tend to be standardized and lean toward exclusive arrangements, which can help improve your confidence that your agent is dedicated to your interests. Still, certain buyers may prefer the flexibility that comes with a nonexclusive contract. In either case, it’s important to review your buyer agency agreement carefully and ask clarifying questions before signing on the dotted line.