DISCLAIMER: I am not a attorney or lawyer, just a licensed real estate salesperson in the state of California (CA DRE# 01855627). This blog is provided for informational purposes only and to help educate the home buying public of options available to them in the process of buying real estate. If you have concerns about any of the documents that you are signing in regards to a real estate transaction, or any other contract or legal matter I recommend you talk to a competent and properly licensed attorney (preferably one specializing in real estate law).
The Buyer Representation Agreement is like a Listing Agreement for the Buyer. The agreement has both advantages and disadvantages for you (the buyer) and the broker.
What are the advantages of the agreement for you:
- Shows Real Estate Agent that you are serious about buying a home
- Allows you to put a deadline on the agreement (creating an incentive for the Real Estate Agent to help you find an acceptable property quickly, by offering an amount of compensation greater than they might otherwise receive through co-operative broker agreements)
- Allows you to help define terms and price up front (saving You and your Real Estate Agent time, by helping define which properties they should be finding for you)
- Defines in writing duties that the Broker (represented by the Real Estate Agent) and the Buyer (You) have in regard to one another
Potential negative effects for you:
- May potentially owe an additional amount to the Broker for services rendered (since compensation is set in the Buyer Representation Agreement).
- May still owe compensation, if transaction is prevented due to some fault of your own.
- May still owe compensation, if transaction is prevented by another party of the transaction and you collect damages from that party. (This amount is limited by the Buyer Representation Agreement.)
The Fee:
Compensation to your Broker can be calculated in one of several ways:
- A percentage of the price you pay to acquire the property
- Example -- You purchase a property for $300,000, and have agreed to pay 3% to the brokerage representing you; however, the brokerage listing the property is only offering 2.5% to the co-operating broker. The Result: You owe an additional $1,500 ($300,000 * [3% - 2.5%]) to the brokerage that represented you. Total Cost to You: $301,500.
- A percentage of the price you pay to acquire the property, plus a flat fee
- Example -- Same as above, but with the addition of a flat fee (for example $500). The Result: You owe an additional $2,000 ($1,500 + $500) to the brokerage that represented you. Total Cost to You: $302,000.
- A flat fee
- Example -- You and the brokerage agree to a flat fee of $10,000 for their services. The Result: You owe any amount in excess of the amount obtain from the listing brokerage through the amount offered in the listing agreement. So, using the first example again, listing brokerage pays $7,500 (2.5% of $300,000) and you pay the remaining $2,500 ($10,000 - $7,500). Total Cost to You: $302,500.
- Any other method of compensation negotiated and agreed upon between you and the Broker, and attached to the agreement as a addendum
NOTE: If the rate and/or flat fee you agree to are a lesser amount than the amount paid by the listing brokerage/seller, then you do
not owe the brokerage representing you any additional amount. Your broker will usually be allowed to keep this additional amount, and must disclose to you, in writing, that they are doing so. You may like this idea when you first think about it, but please consider the following situation:
- You are renting a house for $2,000 and you offer the agent an extra $1,500 to find you a home to purchase. As a result of the extra $1,500 the agent works even harder and finds you a new home 1 month quicker than might normally happen. Have you spent extra money? No, you have saved $500.
Overall, I think that the Buyer Representation Agreement can greatly benefit both the buyer and the broker representing that buyer. It creates incentive for both parties (buyer and buyer's broker), but as with any contract that you enter into you should read the entire agreement and consult competent legal counsel if you do not understand any portion of what you are agreeing to.
If you have any question, on this or any other topic relating to real estate, or are in need of real estate services, please drop me a line by email or give me a call.
