Understanding Services and Protecting the Broker Your office policy will dictate the provisions in its buyer representation

Understanding the Buyer's Representation Agreement

Your office policy will dictate the provisions in its buyer representation agreement. Understand your company’s buyer representation agreement, and know the scope of services you can provide. To protect the broker, work within the parameters of the agreement. Lawsuits often occur when consumer and client expectations are not met. The best ways to ensure that you meet those expectations is to define at the beginning what buyers should expect. That’s what the buyer representation agreement does.

Common Provisions in a Buyer's Representation Agreement

Since it’s in your best interest to work within the parameters of the buyer representation agreement, it’s also best to agree on terms with the buyer-client that are broad enough to cover many situations and conditions. For instance, the description of the buyer’s desired property should be more general than precise. Likewise, price, if it is addressed in the agreement, should be defined in a range, not an exact amount. It should be broad enough to include all properties the buyer-client is qualified to see or may want to see. Other provisions covered in a buyer representation agreement include:

Property Type/Description
Is the buyer-client looking to purchase residential, commercial or rental property or land?

Example of Description of Property Sought:
Buyer-client wishes to purchase Real Property, which may include a lot and residence to be constructed, as follows:
A. Approximate Price Range: $ _____________ to $ _____________
B. General Description: _______________________________________________
C. Preferred Location(s): ______________________________________________
D. Preferred Terms: __________________________________________________

Scope of Work
What is the range of duties and tasks you are agreeing to perform? And what is expected of the buyer-client?
Exclusive or Non-exclusive
This will vary by state and company policy, but generally an exclusive agreement is much preferred to a non-exclusive or “open” agreement.

Example of Exclusive Agreement:
Buyer-client hereby grants _____________ (Buyer Rep) the sole and exclusive right during the duration of this agreement to assist buyer-client in locating for purchase acceptable real estate ("Real Property") as indicated by Buyer signing an offer to purchase that is accepted by a seller. Other duties and responsibilities as defined by law.

Duration of Relationship
How long will the buyer be your client? Factors that may influence this include your marketplace, desired property type, buyer needs, etc. Company policy should be observed if it addresses this issue.

Example of Duration of Representation:
This agreement shall commence on ____________ and shall continue through ___________.

Payment for Services Performed by Others
How you will be reimbursed for expenses and for the payment of services performed by others on behalf of your buyer-client.

Example of Payment of Charges for Services Performed by Others:
The Buyer shall be responsible to pay immediately expenses/charges for services from outside sources. (Examples: roof or mechanical inspections, pest inspections, surveys, title reports, etc.)

Consent to Show Properties to Other Buyers
State regulations may affect this, but generally such a provision allows for both you and your company to show the same property to other buyers.

Example of Consent to Show Properties to Other Buyers:
Other potential buyers may be interested in the same properties as the buyer-client. It is agreed that Designated Agent may represent those buyers, whether such representation arises prior to, during, or after the end of this Agreement. In such a situation, the Designated Agent will not disclose to either buyer the terms of the other's offer.

Potential of a Disclosed Dual Agency Situation
The buyer-client may want to be shown Real Property which is listed by the Broker. In that event, the Broker will undertake a dual representation (represent both the seller and the buyer in the sale of Real Property). Representing more than one party in a transaction may present a conflict of interest since both clients (buyer and seller) may rely upon the Broker's advice and the clients' respective interests may be adverse to each other. The Broker will endeavor to be impartial between both parties and will not represent the interest of either party to the exclusion or detriment of the other party. The Broker will act as a dual agent only with the written consent of ALL parties in the transaction. Parties are not required to agree. Note: This only affects those in disclosed dual agency states and in companies with office policies that allow disclosed dual agency. If the possibility exists, it should be included in the buyer representation agreement. (Code of Ethics, Article 1, Standards of Practice 1-5 and 1-13).
Non-Discrimination
All federal, state and local fair housing statutes and regulations must be observed. Discrimination is unacceptable under any circumstance.
Miscellaneous
Other items to consider:

>	Is the agreement assignable?	>	Does the agreement dictate mediation, arbitration, or another way to resolve disputes or will the parties head straight for the courts?
>	What is the recourse if a commission dispute or other problem develops?
>	Do you begin working with the buyer-client on a short trial-period basis?	>	Do you include a provision that allows you or your client to cancel the agreement?

Compensation Provisions.
All of these scenarios and many others must be discussed — UP FRONT— with your buyer-clients, with solutions agreed to in writing in the buyer representation agreement. (See section below for more detailed information.)

>	Under what circumstances will you get paid?	>	What if your buyer-client saw the property at an open house with the listing agent, creating a procuring cause question?
>	How much will you get paid?
>	Who will pay you?	>	What if the MLS offer of compensation is more than what your agreement authorizes you to accept, creating an “overage?”
>	What if it’s an MLS-entry-only property?
>	What if it’s a FSBO or a broker exclusive property, not MLS-listed?	>	What if the MLS offer of compensation is less than what is defined in your agreement?
>	What if it’s new construction?

Paying the Brokerage Fees

Compensation issues should be defined by your office policy, and it’s important to understand what options are available to your client and those that are not.

For payment to be made to a brokerage company, the following three conditions must exist:

	1.	All parties must know and understand who is representing whom in the real estate transaction.
	2.	All representatives, subagents, and non-agents (facilitator or transaction broker) must speak and act in a manner that is consistent with their legal relationships.
	3	All parties must know, understand and agree to how the brokerage fees will be paid.

Limitations

Because the payment of compensation, in and of itself, does not establish an agency relationship, the person paying the fees is not automatically the client. However, in the absence of an agreement, it may be strong evidence of the intention to create an agency relationship. Yet as a rule, whether or by whom compensation is to be paid is not the controlling factor.
Compensation should be established by express written agreement.
Does a retainer go into the same escrow as sales deposits? This is state specific and should be checked before accepting retainers. Retainers may not be allowed in all states.

Compensation Issues

According to the NAR Code of Ethics, a buyer’s representative cannot attempt to interfere with the terms of the listing agreement between the seller and the seller’s agent nor should the buyer’s representative interfere or attempt to modify the listing broker’s offer of compensation. (See the NAR Code of Ethics, 16-16).

But to help ensure that you get compensated for your efforts in the transaction, include a commission protection clause in the buyer representation agreement. This will help to protect your commission:

in case the buyer is negotiating with the seller at the time the agreement expires.
in case the buyer’s representative shows the buyer-client a property during the term of the relationship but the buyer delays making an offer until after the agreement expires.

Modes of Compensation

There are different modes (methods) of compensation available to buyer’s representatives. It is in the best interests of your clients to always try to negotiate your fee, so that the seller or seller’s broker pays your fee. Ultimately, however, your clients are responsible for your fees, and they should be informed that if the seller or seller’s broker does not pay your fee, they must do so. Buyer’s representatives can work on a “contingency fee” basis, where a fee is paid only if a purchase is completed. (also called a “success fee”). They can also work for a non-contingent fee, where the fee is paid, even if no purchase is made. Yet whether contingent or non-contingent, how the fee is calculated can vary.

1.	Fees can be determined using the price of the property as a factor:
	Percentage of purchase price.
	Percentage of list price
	Percentage of purchase price plus a percentage of the amount less than the listing price
2.	Fees can also be determined using the of time spent in the search and purchase as a factor:
	Hourly fee or hourly fee plus promotional expenses
	Hourly fee plus non-refundable retainer, if retainers are allowed under state law
	Either of the above with a minimum commission When this occurs, the buyer then has several choices:
	a.	The buyer can pay the buyer’s representative fee and compensate for this in the amount offered for the property to the seller. Note: This is generally not an appropriate option with a cash-poor buyer.
	b.	The buyer can include a provision in the purchase offer, stating that the seller agrees to pay a specified fee to the buyer in order for the buyer to pay their buyer’s rep. Wording such as “This offer is subject to and contingent upon the seller reimbursing the buyer at closing x% of the purchase price to pay the buyer’s [closing costs, buyer agency compensation. See Code of Ethics Standard of Practice 16-16. Note: The buyer cannot put into the offer anything that resembles “The seller or listing agent shall pay to the buyer’s representative x% of the selling price.”

Other Common Compensation Scenarios

	1.	When the seller is represented by both the listing and selling company through sub-agency:
		The seller pays the listing agent and authorizes the listing agent to share the commission with subagents. The buyer has no representative and has no obligation to pay compensation to anyone.
		The seller provides written authorization to the listing agent through the listing agreement to share the brokerage commission with a buyer’s representative. This information may be entered into the MLS or conveyed by the listing agent in promotions or telephone discussions. The buyer’s representative, the seller’s representative, the buyer and the seller agree in writing that the payment of this fee is made solely as an economic adjustment in this transaction and does not create nor imply that an agency relationship exists between the buyer’s representative and any person other than the buyer. Note: Some buyer’s agent who prefer to have their compensation come from the buyer, not the listing agent or the seller include language in the purchase agreement stating that the buyer’s rep refuses the compensation offered to them from the listing agent and the seller and that the seller shall pay to the buyer directly the compensation so that they can use the funds to compensate their agent directly.
		The seller provides written authorization to the listing agent to refuse to share the commission with a buyer representative.
	2.	When the seller is not represented: (For Sale by Owner)
		The buyer can pay the buyer’s representative fee and compensate for this in the amount offered to the seller. Note: This is generally not an appropriate option with a cash-poor buyer.
		The seller and the buyer’s representative enter into a commission agreement, stipulating that the seller agrees to pay the buyer’s representative fee on behalf of the buyer. The payment of this fee is made solely as an economic adjustment in the transaction and does not create nor imply that an agency relationship exists between the buyer’s representative and any person other than the buyer.
		The buyer can include a provision in the purchase offer, stating that the seller agrees to pay a specified fee to the buyer’s representative on behalf of the buyer, stipulating that payment of this fee is made solely as an economic adjustment in the transaction and does not create nor imply that an agency relationship exists between the buyer’s representative and any person other than the buyer.