What is a Buyer Brokerage Contract?
Buyer brokerage agreements, also known simply as buyer brokers or buyer representation agreements, are legally binding arrangements in which real estate buyers engage a Florida licensed real estate agent or broker to represent them for the purchase of real estate. The buyer brokerage agreement outlines the duties and responsibilities of the parties, and what obligations the parties will legally have in the event of the real estate purchased or sold.
Typically, you will see a buyer broker agreement between $200 to $500 for a transaction , and the buyer is free to cancel the buyer broker agreement at any time. In addition, most real estate brokers will give the buyers 2-3 days to review the buyer broker agreement before it becomes binding. This gives the buyer ample time to "sleep on it" or perhaps even consult with legal counsel before the Buyer Broker Agreement is signed.
A good buyer broker agreement will clearly spell out all the fees to be charged to the buyer, along with any commission splits with other brokers involved in the transaction.
Elements of a Florida Buyer Brokerage Contract
A Buyer Broker Agreement outlines the contractual relationship between an agent and a potential buyer in Florida. These agreements are not a requirement to find or purchase a home. However, the purpose of these contracts is to set out the roles and responsibilities of the agent and how the agent will be compensated.
No matter the type of buyer agency agreement, there are a few things that are typically included in the contract so that all parties clearly understand their roles in the home buying process. These include: Agent responsibilities: The agent agrees to assist the buyer by showing properties, providing access to other properties, such as new construction, and advising the buyer on the home buying process. These responsibilities apply regardless of who pays the agent. Terms of representation: Generally, they have 3 options for an agreement: Financial obligations/commission: The agreement should specify when the agent will be paid, up to 10 percent. It will also provide information on what is expected of the buyer agent. Many state disclosure requirements so that the buyer can see how much the agent will make if/when the home is purchased. Duration of the contract: This can be for a few days or months, depending on how quickly the buyer believes they are able to find a home. Termination: The contract can be terminated for any number of reasons, but it is generally up to the discretion of the parties involved. It’s best when this is explicitly stated in the contract so that there’s no question about how to exit the contract. Success of the agreement: The agreement is rescinded if the client has not purchased property 120 days after the agreement expiration date. It also notes that there is no guarantee that the buyer will find a home or that the property will be located. Other common elements that can be included are confidentiality provisions, confirmation and limitation of liability, no waiver of contract terms and attorney’s fees in the event of litigation.
Benefits of a Buyer Brokerage Contract
One of the first questions buyers have when dealing with a Buyer Broker is why one would need to sign a Buyer Brokerage Agreement. The simple answer to this question is that it assures the agent that they will get compensated for their services if and when the buyer purchases a property. This Agreement also assures the buyer that they have an ethical obligation from their agent for the job they do.
Let’s go back in time for a second. To the late 80s, early 90s. The only service offered to buyers was the listing. This meant that the listing agent listed the property for the seller, promoting their property and exposing it to the world. Buyers were not represented unless someone hired a realtor to find something they want. It was more difficult to get information about a property, and buyers did not always have their best interest and pocketbooks at heart. Which then came the Buyer Agency. The Buyer Agency ensures the ethical duty that an agent performs when finding a property for the buyer. It also provides whom the agent works for, the buyer. It is the opposite of the traditional listing contract, which served the seller. This historic event led into the Buyer Agency Account; The agreement notifies the agent that they have a fiduciary duty to represent the buyer. The contract designates the agent’s and buyer’s responsibilities to each other.
The advantages of a Buyer Broker Agreement for the buyer are that the Buyer Broker can negotiate more openly, instead of just writing an offer. For instance, let’s say that a property has some issues. Your Buyer Broker would be able to discuss it openly with you, which may not seem that important on the phone, but when you actually know someone’s salary and how much house they can afford, it will be easier to negotiate.
Also, if you find a property and then discover you need a vacation spot, your agent will have insight and can help you find the best place for that as well.
As previously mentioned throughout the agreement, the buyer is assured that the Buyer Broker will give their best efforts available to find them a house. This may ensure that you have a full-time staff and dedicated agents trying to find you a home. It ensures that you will not be just another number and get lost in the system. It also saves the buyer time, instead of doing it yourself.
A Buyer Brokerage Agreement also helps the buyer by you having to sign an agreement that binds the agent to you and your wishes. This Agreement also assures the agent’s ethical obligation to do the task at hand.
Legal Issues and Compliance
The process of creating a buyer brokerage agreement in Florida requires strict adherence to both federal and state laws. The most primary rule is that any agreement must be consensual, with full disclosure to all parties involved. Federal law mandates a set of requirements for agreements that are designed to assure that the sellers receive the full price for a property following a successful transaction. The cornerstone of these regulations is the Real Estate Settlement Procedures Act (RESPA). Under this law, real estate transactions must take place with the utmost transparency, as these actions significantly impact local economies (ho[[ingpropcode]]). This means that agents and brokers must disclose all affiliations, commissions and financial relationships to all parties involved in a sale prior to drafting an agreement. State laws regarding buyer-realtor agreements impact all Florida real estate brokers, as they all require licensure. Licensing protects the public from unethical business practices in the industry (realtor.com). All real estate licensees should have a thorough understanding of how to draft buyer brokerage agreements that comply with the law and protect them from liability.
How a Buyer Brokerage Contract Differs from Other Real Estate Contracts
Buyer brokerage agreements are different than other real estate contracts in some important ways. Bear in mind that this post is not legal advice and you should always read and understand any agreement before you sign it.
The most obvious difference is that a buyer brokerage agreement is signed by a buyer while a listing agreement is signed by a seller. Under section 475.01(1)(a), Florida Statutes, a buyer brokerage agreement is defined as
"an agreement between a licensed broker and another person meant to assist the other person in purchasing or obtaining an interest in real property or a business, other than an agreement with a broker employed by a principal to search for property to be purchased, leased, or rented. A buyer brokerage agreement shall satisfy the requirements of part II of chapter 689 if it has a duration longer than 1 year."
While listing agreements are often much longer in duration than buyer brokerage agreements, there is no requirement that a buyer brokerage agreement be limited in duration. There are instances where a buyer may wish to exclusively represent a buyer agent over an extended period of time.
Listing agreements are often tailored specifically for a homeseller (and even a particular property) or the type of real property being sold. Buyer brokerage agreements are often standardized for all buyers, regardless of your situation. In other words, a listing agreement is likely to have clauses that are friendly to the sellers’ specific desires or interests.
If you are a buyer who expects to buy a wide variety of properties, a standardized form buyer brokerage agreement can be beneficial in that you do not have to worry about trying to get a different contract each time you deal with a new property and a different listing agent.
In other respects, a buyer brokerage agreement is much like a typical listing agreement . It often has exclusive representation of a buyer, allows broker to pursue commission from another source (such as a commission from the seller), creates a real estate brokerage agency relationship, and discloses issues regarding the contractual duties of a buyer agent.
One of the most important aspects of any buyer brokerage agreement is the scope of representation. While this scope of representation can often surprise buyers, you should pay careful attention to it. A seller may instruct a listing agent to sell real property at a specific price. Listings often include a requirement to market the property vigorously and report sales activity to the seller until the property is sold.
But buyers may not receive such treatment under a buyer brokerage agreement, unless you negotiate such provisions. Your Florida buyer brokerage agreement may simply direct the buyer agent to "use diligent efforts to locate property to purchase." In practice, depending on what price range or type of property you are using the agent for, "diligent efforts" may only mean that the buyer agent will show you properties that the agent happens to know about that are for sale. You may not receive any of the "hard work" that a listing agent often puts in for a seller, such as extensive marketing to sell a property at the best price.
When using a buyer brokerage agreement, review carefully the scope of representation and pay special attention to any clauses that limit the responsibilities of your buyer agent. If the buyer agent has only limited duties to you, then this agreement may be similar to hiring a buyer agent on an ad hoc basis. You will need to evaluate the market to determine what level of service you desire, and whether this level of service is compatible with the terms of the buyer brokerage agreement.
How to Select a Buyer’s Agent
Buyer’s need to make sure that they are dealing with someone with an existing relationship to them, when it comes to the purchase of residential or commercial property. Although not ordinarily required, it’s best if the person is a licensed real estate professional. If the buyer’s agent is already collecting a commission from a seller, then the homeowner usually has to pay a separate fee or commission to the buyer’s agent. A buyer’s agent is hired to find a property for a buyer and represent the buyer’s interest in the purchase of that property. Unlike what is done for a seller, a buyer’s agent is required to promote the buyer’s interest in a property and keep the buyer and their personal information confidential.
It’s critical to have a buyer’s agent. A buyer’s agent will be invaluable to a buyer in their search for a home. Without an agent, the inexperience of a buyer when it comes to real estate purchases can lead to costly mistakes and missing out on great deals. Interviews with a prospective agent should be done to determine if there is a good fitting relationship for both parties. Before hiring a buyer’s agent, a buyer may want to consider whether or not it is beneficial to sign a buyer’s agency agreement.
Typically a buyer’s agency agreement does not need to be in writing, but it is highly recommended that it is. When entered into, it does not need to be very detailed, and, but should at least outline the following:
- That the buyer has hired the real estate agent of their choice as their buyer’s agent
- What type of property that the buyer is seeking to buy
- How long the relationship will last
- How much the buyer is willing to spend
- What the buyer’s preferences are regarding the purchase
- How much a commission the agent is entitled to if any
A buyer’s agent, short of being a special agent, is not allowed to make binding contracts on behalf of the buyer, but can sign documents and contracts. An agent must act in the best interest of its principal and must make all efforts to promote their business interests.
Frequently Encountered Mistakes and How to Avoid Them
Be wary of the following common issues in the Florida residential real estate context:
Commission entitlements upon Early Termination Because Buyer Brokerage Agreements (often referred to as just "Buyer Contracts") are exclusive agreements, they typically contain a provision stating that the real estate broker will be entitled to their full commission amount in the event the buyer terminates the Contract prior to completion of the sale. This creates two problems. First, the amount of the agreed commission may be substantial, and the standard Florida policy is that real estate brokers work on a partial commission basis which would, of course, encourage real estate brokers to complete the sale within a reasonable amount of time. Secondly, because these agreements are exclusive contracts, the terms and conditions of the buyer contract cannot be an illegal restraint upon the buyer’s right to sell their interest in the property without incurring fees. For example, a typical form language of an exclusive buyer contract is as follows: "In the event that the buyer and seller do not enter into a Purchase and Sale Agreement within ___ days from the effective date of this Buyer Contract, then this Buyer Contract is automatically cancelled, but the buyer remains liable for any costs and fees incarnated by the Broker under this Buyer Contract." Obviously, on its face, this provision directly contradicts the current cause in Florida law referenced above. The good news is that there is no harm in the parties’ to a real estate contract stating what the parties want their contract to mean, and if that includes some language saying that the buyer will pay the broker all fees and expenses should the contract terminate, then so long as it’s clear that the expectation is that all fees and expenses are immaterial to the negotiation and entry into the real estate contract, the expectation of the parties will be honored , for better or worse.
Lack of Identifying Information Buyers and Brokers sometimes forget that Florida law requires identifying information about the buyer, and not just as a matter of the Florida Real Estate Commission regulations, but also the Florida Communications Laws. One way of at least adding more identifying information to the contract is to require an application on the part of the buyer, that contains the names of buyers, ages of buyers, social security numbers, and other relevant identifying information. Be cautious, however, in going beyond what the law absolutely requires, because you don’t want to run afoul of the Fair Credit Reporting Act. At the present time, buyer applications are not required in Florida, but are common in other states.
Lack of Definition of Property Be sure to identify the property specifically if the contact we are discussing is to approve a Purchase and Sale Contract. A typical language for identifying the property would be, "Legal description of the property and address: Lot 1, Block 1, Sunshine Acres, City of Sun City, County of In-the-Sun, State of Florida (pin number and street address)." It drives Buyers and Brokers and attorneys crazy when property is called, for example, "a condo" or "in a subdivision". It helps If the parties at least have a document that describes the property by legal description, address and other identifying information, such as a parcel identification number, which makes it easy to locate by the applicant.
Sufficiency of Buyer Signature Typically a signature is sufficient, but if the buyer wants to ensure that things will be enforceable in the event of a dispute down the road, he or she will sometimes insist that the buyer agree to not only sign the contract, but also to have their signatures witnessed by two witnesses and notarized in order to be effective. This may be helpful if you have a minor child that could object at a later time because they have standing as "next of kin."