Homebuyers: You’ll Soon Need a Contract With Your Agent. Are You Prepared?
A recent legal settlement means homebuyers will soon need a contract, or “buyer-broker agreement” before their agent shows them a house.
This is new for most buyers – and Realtors. In the past, an agent simply met the buyer at a home and called it good. The informal nature of buyer-broker relationships is about to change forever, thanks to a settlement agreement between the National Association of Realtors (NAR) and the Department of Justice (DOJ).
Currently, around 30% of states already require this written contract, but they vary from state to state. While nothing is finalized, NAR has provided a general outline of what the new contract must include. There are also essential elements a buyer-broker agreement should contain regardless of whether the NAR/DOJ settlement requires it.
Here’s how to prepare for the new buyer-broker agreement requirements.
The New Buyer-Broker Agreement Requirement Explained
The National Association of Realtors has always advocated for buyer-broker agreements to be standard practice, though many buyer’s agents do not use them consistently.
When the new requirements go into effect, a written and signed agreement will become mandatory when a buyer hires a real estate agent who is a member of the Multiple Listing Service (MLS) to help them buy a home.
As the lawsuit is ongoing and the settlement terms may change, it is important to confirm directly with your agent what the new rules means for you. You may even have to amend an agreement you enter into now if it doesn’t meet eventual requirements. If you are considering buying a home this year, make sure you ask your agent during the interview process how familiar they are with the terms of the NAR/DOJ settlement and how they plan on handling any required changes as they arise.
When Do I Need To Sign A Buyer-Broker Agreement?
Currently, most Realtors prefer that you sign the agreement before they start working with you in any significant capacity. This would mean prior to showing you any homes, and definitely before submitting a contract. Some real estate agents may also be willing to show you a home or two before asking you to sign.
The new rule requires you to sign an agreement before touring any homes listed for sale in the MLS. Additionally, you must sign an agreement before your agent sets up any MLS home search for you or does any work identifying specific properties for you. If you come to your agent having already determined which home you would like to buy and just need them to write up an offer (for example, if you saw the property at an open house already), then the agreement would need to be signed at that time.
What Must Your Agreement Include?
New regulations mandate the inclusion of certain elements in the agreement.
Payment terms: Most of the required parts cover how your agent will be compensated. There must be specific details on how much they will get paid, and the amount must be “objectively ascertainable and not open-ended.” That means it cannot say, for example, “whatever the seller is willing to pay.” It needs to be an actual dollar amount or percentage of the sales price. There will also be standard language that explains an agent is not entitled to receive more than the amount listed on the agreement (even if the seller is willing to pay more) and a disclosure that fees and commissions are negotiable, not set by any law or organization.
Dates: Your agreement should also include a start and end date
Termination: Terms by which you can terminate the agreement will be required.
State-specific items: State laws where you buy may also apply and could require additional clauses and disclosures.
While there are many other things your agreement should include, these are the only things your agreement must have based on the new requirements. There are plenty of items that should be on your agreement beyond the minimum.
What Should Your Agreement Include?
Like many things, the bare minimum is not usually good enough. That applies to your buyer-broker agreement as well. Just because it meets the new requirements doesn’t mean it’s sufficient for you to have peace of mind when hiring an agent. There are several key things you should look for in your written agreement with your real estate agent.
Your Obligations - For an agreement to be enforceable and valid, it needs to outline expectations for how both parties will behave throughout the process. Make sure you confirm what your agent is requiring of you based on your contract. This can include guaranteeing your availability within reasonable working hours, your agreement to communicate about the property solely through your agent (versus contacting the listing agent or the seller directly), and agreeing to provide accurate and true information about your personal and financial status. Some agreements may also include language that makes you acknowledge that you cannot ask your agent to break laws like the Fair Housing Act in the course of working with you.
Your Agent’s Obligations - You want to be clear about what your agent is going to do for you while working together. Generally, buyer-broker agreements will include language stating that your agent will help you navigate all parts of the home buying process with professional care and due diligence. But if there is something specific you are looking for or you have questions about what will be covered, make sure you ask your agent before signing.
Representation Type - Each state operates a little differently, but how you are being represented by your agent matters. For example, if you are in a state that allows dual agency, your agent could end up working for both you and the seller if you agree to it. Make sure you are clear about whether they are representing only you or if your agreement gives them permission to represent the seller as well.
Exclusive vs Non-Exclusive - Currently, there is no guidance about whether NAR will require an exclusive agreement be signed or whether it can be non-exclusive. However, you should check to see if your agent’s agreement prohibits you from working with other Realtors to help you buy a home. Most real estate agents will not want to sign a non-exclusive agreement as they will be less likely to get paid for their work. As a result, most buyer-broker agreements are automatically exclusive.
Retainer Fee - You may be required to pay a retainer fee upfront to hire your agent. This fee may be refundable at closing or non-refundable. Agents may also ask that you pay a fee “per door opened” or “per contract submitted.”
Protection Period - Some agreements may require you to pay your agent if you end up buying a home they showed you, even if you do not use them to buy the home. This can include if they showed you the home in-person or just sent the online listing to you. Sometimes this clause will be voided if you enter into a signed buyer-broker agreement with another agent or after a certain amount of time has passed. But if an agent believes they were the procuring cause for you buying the home, you may be required to pay them regardless of whether they help you through the rest of the transaction.
Property Type and Location - Often, a buyer-broker agreement will specify what type of property or what location the agreement is valid for. For example, you could sign an agreement with one agent to help you locate a residential property in a specific city, but could enter into a second agreement with a different agent to buy a residential property in a city 500 miles away. Or you could have one agreement for a residential property and a separate agreement with a different agent for a commercial property.
Navigating the Path Forward: Final Thoughts on Buyer-Broker Agreements
Ultimately, a buyer-broker agreement is designed to protect both you and your real estate agent equally and fairly. By clearly outlining the terms of your agreement in writing, both parties understand what is expected of them and can avoid misunderstandings.
As long as you review the terms of your agreement prior to signing and ask your potential Realtor the right questions, you can make sure the agreement is favorable for you and will protect you throughout the process.
Most importantly, current homebuyers should be aware that changes to buyer-broker agreements are inevitable as NAR and the DOJ continue working toward a finalized settlement. Hiring an agent who is well equipped to help you through those changes and explain the nuances of the new regulations should be one of your top priorities as a homebuyer.
