New Buyer Broker Agreement Rules Will Change Home Shopping
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Joseph Gordon EditorClose
Joseph Gordon EditorJoseph Gordon is an Editor with HomeLight. He has several years of experience reporting on the commercial real estate and insurance industries.
If you’re hoping to purchase a home in the near future, you should be aware of a major change to the home-buying process that has altered how homes are purchased and shopped across the country.
Any prospective homebuyer who plans to purchase through a Realtor (that is, a licensed real estate agent who is a member of the National Association of Realtors) must sign a buyer-broker agreement before that agent can give the buyer a tour of the property.
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Disclaimer: The information in this article is for educational purposes only and should not be taken as legal advice. HomeLight always encourages you to consult a legal advisor regarding your situation.
What is a broker-buyer agreement in real estate?
A buyer-broker agreement in real estate is a document that aims to outline clearly what a buyer’s agent will do for you. This can include how much the agent will be compensated, the length of time you might be expected to work with said agent, along with other details.
This legally binding contract lays out the terms of the professional relationship from the start. It is intended to protect both you and the buyer’s agent and, ideally, prevent any potential misunderstandings about what is expected.
These agreements used to be optional when working with a buyer’s agent. However, now you are required to enter into a written agreement before touring a property with a buyer’s agent who is also a Realtor.
Remember, not every buyer’s agent is considered a Realtor, and the terms of these agreements will differ by market, so it’s important to have a full understanding of whether you are working with a licensed real estate agent, a Realtor, or a for-sale-by-owner seller before signing any contract.
Do I have to sign a broker-buyer agreement?
“While buyer broker agreements have always existed, it is now a requirement versus an optional practice,” says David Guthrie, a top-performing Arizona real estate agent who works with nearly 80% more single-family homes than the average Tucson agent.
“What’s new about the buyer-broker agreements is the requirement for real estate agents to enter into written agreements that clearly outline all terms and fees before showing any property or engaging in any meaningful work on behalf of a client,” Guthrie says.
As such, these contracts will vary and could include things like exclusivity terms requiring a buyer to work with a specific agent, terms on how long that buyer must work with said agent, or may even have specific requirements needed to cancel the agreement. The contract should also clearly specify the agent’s commission.
“If a prospective buyer declines to sign a buyer-broker agreement before viewing a property, it means that no formal agency relationship can be established. Agents simply cannot perform any work on behalf of a client without establishing [their terms] in writing,” Guthrie says.
“These upfront written agreements ultimately protect the interests of both the buyer and the agent,” Guthrie adds.
Why have broker-buyer agreements changed?
This shift is a result of the $418 million settlement between The Justice Department and the National Association of Realtors earlier this year, following a series of class action lawsuits related to home-seller commissions.
These changes are intended to “decouple” seller and buyer agent compensation. Industry experts predict this decoupling will likely lower agent fees and allow buyers to negotiate commission amounts directly.
Editor’s note: While changes to commissions were mandated by a court decision, some sellers may opt to pay the buyer’s agent’s commission as an incentive or seller concession to increase the likelihood of a quick or profitable sale.
Do I need a signed agreement to view an open house?
You likely won’t have to sign a buyer-broker agreement if you show up to view a random open house.
However, it’s important to note that this is an early point of discussion within the industry and among different Realtor associations. Open house guidelines or policies are still evolving and may vary by region or brokerage. Theoretically, if you are not working with a buyer’s agent, you should be able to view a home for sale at an open house hosted by a seller’s agent.
“While open houses (where the listing agent represents the seller) remain accessible without a buyer-broker agreement, these showings are typically limited to scheduled times,” Guthrie says.
He adds that if you’re looking for a more personalized experience, you’ll want to work with a buyer’s agent, which is where the agreement will come into play.
“Before the change, a prospective buyer might have called an agent they found online, and the agent would show a few homes without any formal agreement in place. This was often done to build rapport and trust with the client,” he says.
These agreements will primarily apply to prospective buyers who work with Realtors and licensees who use the Multiple Listing Service (MLS).
“Buyers will now need to formally agree to the terms and conditions, including the agent’s compensation, before an agent can show them properties or represent them in negotiations. This ensures transparency and clarity for both parties from the outset,” Guthrie says.
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What’s in the new broker-buyer agreements?
The terrain around these agreements is still shifting and will likely continue to do so for the foreseeable future. As a result, there isn’t likely to be a standard contract for buyer’s agents and prospective buyers anytime soon.
If an agent cannot articulate the benefits and services they provide, this could be a red flag for the consumer.
David Guthrie Real Estate AgentClose
David Guthrie Real Estate Agent at Long Realty Company
- Years of Experience 19
- Transactions 409
- Average Price Point $263k
- Single Family Homes 343
However, there will likely be “best practices” that agents can be expected to employ in order to maintain good faith relationships with potential clients. For any contract, consulting with an attorney before signing will always be considered a prudent measure.
“I think any consumer that has questions or concerns about what they’re being asked to sign could absolutely take it to an attorney and have an attorney interpret it for them. As real estate agents, we are not attorneys, and we can explain what the contract means to us, but if they want to find out the legalities, of course, they can take it to an attorney and have them review it,” says Sandra Rathe, a top-selling agent in Florida with 15 years of experience.
Are all broker-buyer agreements the same?
While the terms of the contracts can vary, from the length of the agreement, to whether or not the agreement requires exclusivity with the buyer’s agent, all terms must be laid out clearly for the potential client.
“Buyers are expected to perform due diligence and fully understand the terms before signing. It’s often recommended that buyers consult with an attorney before signing any contract. However, now that this is a standard of practice for the industry, most consumers will likely not spend the resources to review a boilerplate document that is standard for the area,” Guthrie says.
As such, Guthrie says, the onus will be on the buyer’s agents to make this process as seamless as possible for prospective buyers, lest they miss out on potential business.
“In the new landscape, buyer’s agents will need to demonstrate their value more clearly than before. If an agent cannot articulate the benefits and services they provide, this could be a red flag for the consumer. Buyers should feel empowered to interview multiple agents to find one who can clearly explain their value and align with their own unique needs.” he adds.
Though there is currently no national standard buyer-broker agreement, common agreements you can expect to encounter will likely include:
- One-property agreement: For when you only want to commit to a buyer’s agent to view a single property.
- One day of showing agreement: This will apply to all properties seen that day.
- Open house agreement: This will clarify that no relationship has been established, allowing the prospective buyer to view the property without further stipulations.
- A nonexclusive agreement: This type of agreement, when available, would only apply to properties shown, whether live or through a virtual tour.
- An exclusive agreement: This would define the relationship as fully established. “Exclusive” means the buyer has an obligation to compensate their agent for any property purchased, whether the agent they signed the agreement with showed or didn’t show the buyer a home. This is the type of agreement you’ll most frequently encounter.
What red flags might be in a broker-buyer agreement?
Not all agents are created equal, and not all agreements will work for every prospective buyer. Buying a home is a major purchase, and if you’re in the market for a new home, you will want to do as much research as possible on any agent you are about to enter into a contract with.
“Buyers need to know who they’re getting into business with. So, before they sign a buyer broker agreement, they need to make sure that the agent that they are signing with is a full-time agent. Somebody who has a track record of success,” Rathe suggests.
According to Kevin Cruz, a HomeLight Elite agent based in California, agent fees are one area of concern that buyers should be aware of.
“The main thing from our experience and our company’s experience is to be aware of the fee your agent is charging and if there are additional terms that are included on top of that. Just make sure you don’t sign two buyer-broker agreements for the same county,” Cruz cautions.
He also notes that buyers also have options.
“Our agents get on an initial buyer consultation call to identify the needs of the buyer. Then identify if this might be a good working relationship and a good fit for both ends,” Cruz adds.
“If the buyers are not comfortable with signing a longer term, three-month commitment, they can start with a PSRA first, the Property Showing Representative Agreement. That lasts 30 days and is valid for up to three properties,” Cruz says.
What’s next for broker-buyer agreements?
While the conversation around purchasing a home is always changing, HomeLight can help demystify the process.
As always, if you’re looking to buy or sell a home, HomeLight would be happy to assist you in your homebuying journey. We can connect you with a trusted local agent in your area today, giving you the peace of mind needed to manage the complicated homebuying or selling process.
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