Until recently, using a buyer broker agreement was optional for Silicon Valley home buyers. As of August 17, 2024, however, Realtors around the country are working to comply with a settlement between the Department of Justice (DOJ) and the National Association of Realtors (NAR), and part of that includes mandatory written contract of some kind before the Realtor may show the buyer homes.
Prior to that settlement, the use of a buyer broker agreement was mandated in 18 states, so it’s not new everywhere, but it is in California. Of course, some real estate agents always used them with their buyer clients.
Today the question is shifting from not whether you should sign a buyer broker agreement, if if you want to “go it alone” or if you want a buyer’s agent at all.
First, what is a buyer broker agreement?
A buyer broker agreement is used between home buyers and their real estate agents, much like a listing agreement is used between sellers and theirs. It is a written agreement for buyer representation and agent or broker compensation.
Several new procedures kicked in on top of these, such as the need to sign in at open houses and sellers having the option to pay or not to pay the buyer’s agent’s compensation in escrow. We elaborated on the real estate changes in a separate article on this site and also discussed a related concept, seller concessions.
Few quick highlights on the buyer agent paperwork (this is not comprehensive, just some salient points):
- There are several forms that could be used and the new policies do not specify which one must be signed. Some brokerages may have their own.
- The agreement is for 3 months maximum. It can be renewed and it can be cancelled (there are some nuances to be aware of regarding this, but either the agent or the consumer can cancel).
- Representation can be exclusive or non-exclusive (meaning that a buyer might be able to work with several real estate licensees at once). Similarly, listing agreements can be exclusive or non-exclusive, but most listing agents will not work on a non-exclusive basis with their sellers. We don’t work on a non-exclusive basis with our sellers or our buyers.
- The written agreement between buyers and their Realtors or real estate agents specifies the fee to be paid when the consumer purchases a home through or with them.
- The fee is the buyer’s responsibility, but it can be written into the purchase contract (like any other term) for the seller to pay it. The seller may agree, reject it, or counter it – just like any other element in the purchase contract. So far, it seems like most of the time the sellers are covering it.
- What if the seller counters it out after getting an offer with that request? In that case the buyer can elect to pay the fee, counter the seller again, or walk away from the purchase.
- Some buyers may prefer to pay their agent directly in order to purchase the home at a lower price and enjoy lower property taxes. For buyers with abundant cash, this can be a great strategy.
- If the seller is willing to be responsible for the buyer agent’s fee, it may not be mentioned on the MLS or anything connected to the MLS. But it could be advertised on a house flier or rider sign. Doing so may give confidence to buyers interested in the property but worried about having to come up with the cash to pay their own agent.
- Also: the buyer agent can ONLY receive the amount in the buyer broker comment. If the seller wants to pay more, that buyer agent cannot receive it (unless the buyers and their agent redo the paperwork).
Related reading: Buying a home – 2024 changes (on our popehandy.com site)
Why have a buyer agent?
There are so many reasons why home buyers benefit from having their own agent. She or he can help to figure out the options and understand what is viable for your budget. A good buyer’s agent can help you learn the pros and cons of various areas, home types, construction, terrain, risk factors, contract clauses (and how they impact the buyer) and on and on.
A seasoned real estate professional knows the contract, understands more about property condition, can pull out red flags in disclosure packages, and make their clients aware of potential hazards in various parts of the home purchase process.
Buyer’s agents are fiduciaries to their clients and educate, counsel, and negotiate on their behalf. Skipping that can be very risky!
Want to read more about the wrong assumptions people have when they decide to forgo their own buyer agent representation? Please read out our article Who Needs A Buyer’s Agent? I Can Find It All On The Web!
What about going to the listing agent directly?
Some home buyers may want to “go it alone” and approach the listing agent directly. This could be to ask the listing agent to also represent them or to tell the agent that they want to represent themselves. The latter case of the unrepresented buyer has a similar counterpart in the For Sale by Owner seller. Yes, this is legal. It raises questions, though.
- Does the seller have to take an offer from an unrepresented seller? I don’t know the answer to that.
- Would the buyer save money that way? There’s no one-size-fits-all answer, but in the new order of real estate, listing agents may ask for a larger commission if they have to assist (not represent) a buyer without an agent. There’s also a question about how well that buyer might do without a real estate pro in his or her corner. In that case, the agent involved would only be representing the seller, not the buyer. It’s one thing to provide information, another to provide guidance or advice.
- Listing agents put in this position should be concerned about the risks of implied agency.
- Something else: not all listing agents (or their seller clients) want to “double end” their sales. We don’t, as a general rule (I’ve done it 3 times in almost 32 years).
What are some of the concerns around an exclusive buyer broker contract?
Buyers have two main issues with buyer broker agreements: one is being “locked in” to an agent who may not perform (this is a worry that sellers have too) and the other is being forced to pay a commission in order to buy a home.
(1) Buyers and seller both worry that if they sign a listing or buyer broker agreement, they might get stuck with a dud of an agent who’s not performing and of whom they can’t easily be rid. Most real estate agents and brokers would release a client who’s unhappy “no questions asked”. Some, however, won’t, and I’ve known one or two who wouldn’t, so this is a reasonable and fair concern which should be addressed.
The form we are using with buyers is the Buyer Representation and Broker Compensation (BRBC) contract, which is published by the California Association of Realtors. There is a cancellation clause built into it!
(2) The other worry is the fear of having to pay the commission. Most of the time, the home buyer will still purchase a property in which the seller pays the commission. Even in “for sale by owner” offerings, many times the sellers will offer a certain amount (percent or flat fee). If the seller won’t pay, it potentially can be added onto the cost of the home (check with your lender on this) – with that view, buyers can decide if it’s still a good deal or not.
Often if the property is not on the MLS, it’s not getting the traffic so will sell for less – meaning it should still be a good deal in many cases.
Further, if the seller won’t pay it and this cost is nothing you want to pay, you can walk away from the purchase.
Let’s see what the buyer broker agreement says (this is from the California Association of Realtors BRBC, referenced above) in terms of compensation. First, there is no one way of paying (by amount or commission) – there are various possible ways of compensating your real estate agent: by commission (percent of sales price), by flat fee (a set dollar amount), or some other way (via addendum: this could be hourly, part commission and part dollar amount, or a combination of all three). It’s negotiable.
That said, we do work on a percentage basis.
Interested in buying a home in Silicon Valley? We do offer a no-obligation initial consultation (usually about 30 minutes long). Feel free to reach out to us to discuss!
Related articles:
Do I have to buy the house from the Realtor who showed it to me?
What happens when inspectors disagree about the property?
How often should you get a termite inspection?
