Getting a Buyer Representation Agreement Signed by Your Buyer

Getting a Buyer Representation Agreement Signed by Your Buyer

By John Giffen

As published in Inman News on May 17, 2020

One of the biggest mistakes agents make is doing what I what I failed to do when I first started selling real estate: getting a buyer to sign a buyer representation agreement early in the relationship. Let me give you a brief synopsis of what happened to me.

Prospective buyers (husband and wife) elected to contract on a new construction home in Nashville, nearing completion without my involvement.  They discovered the property themselves when they were driving around on a sunny Sunday afternoon.  They walked in the pristine model home and met the onsite agent.  Two hours later, they walked out with a copy of the signed purchase contract for their new home in their hand.  I was not involved as this particular new community was – as they indicated when I first met them – in an area of town they did not want to live in and a price range above their budget.  They eliminated me from the process. I learned later from the builder’s agent that the buyers informed her they were not working with a REALTOR®. And, when she asked them if they signed a buyer representation agreement with an agent – they said no.  They lied about not working with me but were truthful about not signing an agreement.

Since I did not have a buyer rep agreement in place, nor did I have a valid case for procuring cause in the transaction, I missed out on $17,450 in sales commission.  It was a tough “pill to swallow.”  I never allowed this situation to happen to me again.

Numerous times I have agents come in my office frustrated because their buyer went behind their back and either used another buyer agent or purchased a home on their own. The time and money spent by a real estate professional working with buyers without a buyer representation agreement can add up quickly.

You can get a buyer representation agreement signed by a buyer if you approach it the right way. It comes down to excellent communication ensuring they know your buyer representation value proposition. A signed buyer rep agreement solidifies the partnership between you and them. It also provides them with protection during the buying process, as you will be in a position to work for them and them only.

Here are eight steps for getting a buyer representation agreement signed by your buyer:

1. Explain the purpose of a buyer representation agreement. A buyer representation agreement is a legal document formalizing the buyer’s working relationship with you, outlining what services they are entitled to, and what they should expect from you in return. The agreement is designed to clearly spell out the expectations of both parties as well

as emphasize the importance of developing mutual loyalty. It also provides the means for a higher level of service the client will receive from you, their buyer representative.

Like the listing agreement, it is an employment contract. Most buyer representation agreements are lengthy and cover the many legal aspects of the buyer agency relationship. However, it also should be a guide to how you and the client will work together in finding them a property to purchase.

When you ask your client to sign the buyer representation agreement, they should have a good understanding of what the agreement does for them if they sign it. Many consumers believe the form protects only the agent and not them. While it is true the agreement provides a path for how we, acting as buyer representatives, are compensated, it offers more protection for the buyer.

The agreement creates a “client” relationship with the buyer. In real estate, there is a difference between a person who is a “client” and one who is a “customer.” All buyers who have not signed an agency agreement with a broker are customers. If an agency agreement is signed with the broker through their designated agent, the buyer is considered a client.

The main difference between the two terms is the fiduciary duty the broker and their agent owe the client. Even though the agent must be honest and ethical with both parties in the transaction, he or she must be loyal to their client’s interests and obey all of their lawful instructions. This fiduciary duty is mandated by the terms and conditions of the buyer representation agreement.

2. Explain “agency” to the buyer. Under most state laws, if you enter into an agency relationshipwith a buyer or seller, you must explain to themwhat “agency” means. Discuss the various agency terms with the buyer so they have a clear understanding of who YOU are to THEM as their buyer representative.  Many states utilize different agency statuses and each brokerage may have a specific company policy concerning buyer representation including the acceptance or prohibition of dual agency (one agent representing both sides of the real estate transaction.) 

In Tennessee, we utilize “designated agency” to ensure only one agent is representing the client.  Consider using the following script to briefly explain how your agency relationship will benefit the buyer:“As your Designated Agent, I have been assigned by myManaging Broker as your one and only agent in your purchasetransaction, to the exclusion of all other licensees in my company.Even if someone else in my company represents a seller inwhose property you are interested, I, as your Designated Agent,will continue to work as an advocate for your best interests. An agency relationship of this type cannot, by law, be established without a written agency agreement — the Buyer Representation Agreement.”

3. Describe the “Six Standards” of your fiduciary duty. In your pre-licensing classes, you should have learned the acronym, “OLDCAR.” OLDCAR stands for the six specific standards of our fiduciary duty:

• Obedience — You must follow your client’s lawful and ethical instructions.

• Loyalty — You must be loyal to the client’s interests and keep their interests ahead of yours.

• Disclosure — In most states, the law requires a real estate agent, whether acting in an “agency” capacity or not, to disclose any adverse, or material, facts to their client.

• Confidentiality — You must never divulge anything you learn from or about your client, their business, financial or personal activities, or motivations and intentions unless they authorize you to do so. This authorization of disclosure should be in writing.

• Accounting — Part of your fiduciary duty is to account for all monies and documentation in a real estate transaction. This includes knowing where earnest money, deposits, and other funds are kept at all times.

• Reasonable care and diligence — This standard is based on handling all situations and issues in the transaction with the utmost care and diligence expected from a professional agent. In other words, your actions will not cause any harm to your client.

4. Convey to the buyer your value proposition based on quality customer service. In addition to the agent’s fiduciary responsibilities, the buyer should expect a higher level of service from their buyer representative. The services you deliver will need to be superior and “above and beyond” what the buyer would expect from an agent. This should be at the heart of your buyer representation value proposition.

One of the foundations of our professional reputation is service. The level and quality of the service you provide a buyer client may require you to work long hours, on weekends, and on holidays showing homes or visiting new construction developments. It also could involve ensuring the buyer connects with service providers such as contractors, electricians, plumbers, structural engineers, doctors and dentists, hair stylists, school personnel, etc. You will do what you need to do to meet the needs of your client. This is what quality service is all about.

5. Tell the buyer they will get more without paying more. Your client will receive more from you as their buyer representative without paying more. In almost all real estate transactions, the seller has agreed to pay the listing broker a certain amount of compensation to: (1) list and market the home to procure a buyer; and (2) pay the cooperating selling broker (you) who represents the buyer. In most situations, your compensation is paid from the funds the seller will receive at the close of the transaction.

You should also discuss with the buyer what happens if the seller is not willing to pay a cooperating broker commission. You will need to decide the amount the buyer should pay you at closing. This varies based on several factors including the financial condition of the buyer. You need to find out if they will have the funds at closing to pay your commission. If not, you will need to make a decision on whether or not to continue in representing the buyer. Explain to the buyer you do not work for free, and your time and expertise is not free.

6. To eliminate confusion, explain each part of the buyer representation agreement to the buyer. Almost all buyer representation agreements are createdso that the terms and conditions do not cause any uncertaintyconcerning the duties owed to the client by the agent and theduties owed to the agent by the client. Signing an agreement ismuch easier when both parties know what is required of them.

Take the time to review each section of the agreement and ask the buyer if they have any questions or need any clarification of any of the wording contained in the form. It is important you provide a copy of your buyer representation agreement before they sign it, so they have an opportunity to read it carefully, and if needed, send it to their attorney for review.

Review each section of the buyer representation agreement with your client:

• The parties to the agreement (buyer and broker/designated agent)

• Property information and source of information

• Price range

• Types of property to be sourced

• Commencement and expiration dates of the agreement

• Broker authorization to represent the buyer

• Broker and agency information

• Special stipulations

7. Agency relationships are based on mutual consent; we can end it if we don’t get along!

A buyer representation agreement, like other contracts, needs to specify a beginning and an ending date. Hopefully, the ending date is when the home they are purchasing closes. However, there are times when the agreement terminates before the stated ending date.

Mutually, the parties agreed to enter into an agreement, and it can be terminated early if both parties consent. You should be willing to terminate the agreement early if the working relationship isn’t going well. If things have gone sour, end the relationship. Remember, if someone doesn’t want to work with you, you can’t force them to do so.

8. Tell the buyer: “We are forming a partnership.” The relationship between a client and an agent shouldbe a partnership. With a formal agency relationship in place,you and your client will work together as partners in findingthe buyer’s next home.When I convey this to my clients, they appreciate the factI am working both for and with them. A partnership perspectiveof the relationship also creates mutual respect, trust, and mostimportantly, loyalty.

Now, get out there and sell something.  But, first, get that buyer representation agreement signed by your buyer!

John Giffen is Director of Broker Operations for Benchmark Realty, LLC in Franklin, Tennessee.  He is the author of “Do You Have a Minute? An Award-Winning Real Estate Managing Broker Reveals Keys for Industry Success.”

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