Should Buyers Sign Exclusive Agreements With an Agent
Ask any buyer's agent who has been practicing real estate for a while, and you'll hear sad stories from those agents who wished they had signed a buyer to a buyer's broker agreement. In defense of buyers, however, it's rarely the buyer's fault. It's the agent's fault for not explaining how the business works.
An agent typically works with a buyer for a few weeks to several months or longer. This effort includes:
• Introducing the buyer to lenders and obtaining loan preapproval letters
• Emailing listings that fit the buyer's requirements
• Calling listing agents to determine availability
• Making appointments with sellers before they show homes
• Driving the buyer from one neighborhood to the next, sometimes touring up to 10 homes a day
Then one day the buyer calls, in breathless excitement, to announce that he and his wife drove by a new subdivision, stopped to look at a model home and signed a contract to buy a new home from the builder. Sometimes a buyer adds, "Isn't that fabulous?" Sure, for the buyer, but it's not fabulous from the agent's perspective.
○ Buyer's Agents Expect Compensation
Just as listing agents sign formal listing agreements with sellers, buying agents expect formal agreements, too. Like listing agreements, buyer's broker agreements are typically bilateral, spelling out the rights and duties of both parties.
Because bilateral contracts are essentially a promise in exchange for a promise, if the agent doesn't perform, the buyer may have the right to fire the agent.
○ Finding a Buyer's Agent
Many buyers are referred by family, friends or co-workers to a buyer's agent. A referral is the best way to find an agent.
However, buyers who are relocating to a new area rarely have the luxury of building contacts quickly enough to trust a referral source. Alternatives buyers can use to find an agent are:
• Internet Searches
By finding online listings of homes for sale, a buyer can quickly figure out which agents in certain neighborhoods list most of the homes. But that would mean those agents are likely to specialize in seller representation and not buyer representation. Instead, run keyword searches such as "downtown Denver buyer's agent" from a search engine. You can also search websites where agents maintain national profiles such as Realtor.com or Active Rain, in addition to finding exclusive buyer brokerages that specialize solely in buyer representation and do not take listings at all.
• Open Houses
An agent hosting an open house may or may not be the listing agent. You should ask. Open houses provide an excellent opportunity to interact with agents and find out more about them. If an agent appears knowledgeable and your personalities mesh, ask for a business card. Then later, look up the agent's website for more information.
○ Should You Sign an Exclusive Agreement?
Little turns off buyers faster than an agent they've looked up online who emails a buyer's broker agreement before they meet in person.
Most buyers need to feel comfortable with an agent before signing.
Interviewing a real estate agent can help to ease a buyer's uncertainty. But many buyers are leery of signing agreements because they are concerned that the relationship might not work out. They don't want to be stuck with a crummy agent, and that's understandable. Here are a few precautions you can take to relieve that anxiety:
• Ask for Short-Term
The term of a buyer's broker agreement is negotiable. Although many agents might request a 90-day commitment at a minimum, you are free to ask for a 24-hour, seven-day or 30-day term; it's whatever you can negotiate.
• Request a Nonexclusive Agreement
These agreements provide compensation to the agent if you switch agents midstream but end up buying a home introduced to you by the first agent. It protects the agent by establishing a procuring cause. But you are free to pursue any other homes with another agent.
You can tell the agent that you prefer to spend a little time getting to know her before signing an exclusive buyer's broker agreement. It's reasonable to say, "Let's spend an afternoon looking at homes, and if I think we can work together, I'll sign an agreement with you before we go out again." I would caution against working with an agent who is too eager to work with you before she has interviewed you, as well.
• Specify Areas and Terms
Most contracts contain a description of the property. If you are undecided about areas, you might want to specify the terms and area in the contract, which will allow you to work with other agents in other areas or at different terms. For example, you might specify a price range or a neighborhood. If you later decide you don't want to buy a home in that price range or in that neighborhood, you can choose a different agent to show you homes in another price range or new area.
• Ask for a Guarantee
I give my clients a guarantee. Many agents will accommodate that request if you ask. That means it's a two-way street. I guarantee buyers that if either of us decides that the relationship isn't working out or our personalities clash, I will release them from the agreement, and they can do likewise. That way you're not cemented to a business arrangement if the agent is too pushy, argumentative or stubborn, and I'm not just talking about myself.