Signing a contract when representing sellers and listing a property are second nature to all real estate professionals. An agent would never list a property without a contract, right? So, why do so few agents require a buyer representation agreement? It’s not standard practice because it can be a difficult conversation to have with buyers.
In a November session at the National Association of Realtors NXT Conference in Orlando, Adorna Carroll, president of Dynamic Directions, who trains real estate agents on buyer/seller representation, offered what she says is one way to get ahead of any decisions on buyer commissions coming down from the multiple lawsuits currently moving through the court.
“Your guess is as good as mine about what’s going to happen,” she said. “Agents must move from a subagency or transaction brokerage mindset to a representation mindset because that’s going to be the value proposition.”
For buyer’s agents getting a signed buyer agreement requires a careful conversation about the amount of time you will be spending with your buyers to find them their dream home. Yet, rather than propose a signed buyer agreement, agents often do this work ministerially, keeping their fingers crossed that the buyers won’t act without them or with a different agent.
The next time a homebuyer approaches you for assistance in finding their dream home, have them sign on the dotted line. “I recommend you tell them, ‘There are certain things that I need to cover here so we can mitigate your risk and we can manage mine,’” she said.
Putting together a process for buyer representation
According to Carroll, there are several classes that you can take to guide you in how to approach buyers when requesting they sign an exclusive buyer agreement. Some that she recommends are: Accredited Buyers Representative course (ABR), the Seller Rep Specialist course (SRS) and the Real Estate Negotiation Expert designation (RENE). Enrolling in these courses and earning these certifications will elevate an agent’s skill set and reassure buyers that they are working with a seasoned professional.
But once you’ve acquired the skill set to attract buyers, what do you include in a buyer’s contract? How do you write one? And most importantly, how do you get buyers to sign?
According to Carroll, there are a few key points that every buyer’s contract should cover:
- What the agent can do by law
- What the agent can’t do by law
- The agent’s business routine
- A start and end date
- Payment guidelines
For best results and to create a non-voidable contract, said Carroll, it is not recommended to include price ranges or property types in the buyer’s contract. The buyer could change their mind on any of these finer details.
Some buyer’s contracts include termination fees, but not all do. Whether or not you decide to include a termination fee will be largely based on personal experience. Some agents require termination fees for any expenses they forwarded on behalf of the buyer in the search process.
Have an attorney review the agreement
After you create a buyer representation agreement, enlist the help of an attorney to review the document. Carroll says to go into any meeting with an attorney with one question, “Can you defend me based on this contract?” If they don’t say yes, she notes, it’s back to the drawing table. You need a document that binds you to these buyers and guarantees your compensation.
No exceptions
Using a buyer representation agreement is important whether you are working with buyers you know, like family, friends or colleagues, or complete strangers.
It may be easier to get known clients to sign on the dotted line, but for some reason, agents are least likely to ask them to do so. In reality, these known clients probably make up a large percentage of your client base. The decision to contractually represent these buyers can revolutionize business.
Asking unknown, or new, clients to sign a buyer’s contract has its challenges as well. They may not yet feel comfortable signing with an agent they’re unfamiliar with, and that is okay. You don’t want the business of a buyer who will be difficult to work with. However, if an unknown client does sign, then you have a set of parameters on which you can build a relationship with them. Allow them to ask questions about the process and spend time with you in your office so they feel assured in their decision to sign with you.
Your time is valuable, and a signed buyer representation agreement ensures that your value is recognized.
This information is meant as a guideline and not legal advice. Always enlist the help of an attorney when crafting and executing contracts.