Before you sign a Buyer’s Brokerage Agreement, here’s some things to think about.

Hank Bailey
Hank Bailey
Published on November 2, 2019

Like practitioners in any profession, real estate agents and brokers have a unique vocabulary. They usher their clients through the logistics of a distinct process and provide industry-exclusive legal paperwork.

Because agents and brokers use industry specific vocabulary daily, they are so familiar with it that many tend to forget that their clients are not. None of us want to appear clueless, so many real estate consumers keep quiet and don’t ask questions about things they don’t understand.

Today I’ve decided to fix that by discussing a form that your buyer’s agent may ask you to sign, and why you need to review it carefully before you do.

Buyer’s Brokerage Agreement or Contract

This is typically the first form many agents will pull out of their briefcase for you to sign before you visit the first listing, and it gives the broker and his/her agent the exclusive right to represent you in the purchase of a home. Key terms to be aware of are as follows;

  • Exclusive Agreement
  • Term
  • Commission
  • Independent Contractor Relationship
  • Agency and Brokerage
  • Protected Period

The buyer’s brokerage agreement is a contract, so read and understand everything in it before signing.

Let me pick on two of these terms, which I have found to be a hinderance in the way that some agents write up these agreements.  The terms are protected period and commission.

Here’s the rub, so to speak, and what to pay particular attention to in reviewing such a document. How long is the protected period because an exaggerated timeframe just might mean that you may be stuck owing a commission even if that particular agent is unsuccessful during the term of the buyer’s brokerage agreement in negotiating a home for you! It’s a major ‘gotcha’ for that agent to claim compensation for their time. The Georgia Exclusive Buyer’s Brokerage agreement says, for example, under Protected Period,

“In the event that during the Protected Period, as that term is defined below, following termination or expiration of this Brokerage Agreement, Buyer purchases, options or contracts to purchase or exchange, or contracts to purchase ownership interest in a legal entity which owns, leases or lease purchases any property which during the term of this Agreement was submitted to, identified or shown to Buyer by Broker or for which Broker provided information about to Buyer, then notwithstanding any provision to the contrary contained herein, Buyer shall pay Broker at closing or the commencement of any lease, if applicable, the commission or commissions set forth above. “

What this means is that “even if” you terminate the agreement later because you aren’t feeling like your agent is working in your best interests in helping you obtain a home, you are still stuck potentially in paying a commission if you buy a home that the agent so much as sent you a flyer on from the MLS while under contract with you. How long are protected periods? I saw one recently that went for 180 days! Be careful in what you sign and make sure a term like this is no more than a week or two from the termination or expiration of that agreement!

Let’s talk about the commission and how it’s structured. Going back to the Georgia Exclusive Buyer’s Brokerage agreement once again, it says under Commission;

“If during the term of this Agreement (or during the Protected Period after the termination or expiration of this Agreement) Buyer enters into a contract for the purchase and sale (including a Lease/Purchase Contract), option (including a Lease/Option Contract), or exchange of real property, with the seller thereof, Buyer agrees that Broker shall be entitled to the commission as agreed in section “A” at the closing of the transaction (“Commission”). There may be properties shown to Buyer by Broker where a bonus is being offered to Broker for finding a buyer to purchase the property. Buyer consents to Broker receiving such bonus in addition to the commission referenced herein. b. While not required, the custom in Georgia is for the seller to pay the commissions of the real estate brokers. This obligation is usually created in a listing agreement between the seller and the listing broker. Generally, these agreements require the listing broker to share the commission it receives with the selling broker working with or representing the buyer in the transaction. In the event Seller does not pay the Broker the full amount of the Commission, Commission will be paid by the Buyer as agreed in section “A.”

The first question you have to look into answering for yourself is what does section “A,” in the commission section happen to say? On the Georgia form, it denotes a commission rate. In Georgia, where I work and live, it’s not uncommon to see a buyer’s broker commission, paid by the seller and published in MLS (the multiple listing service) of 3% of sales price.  I also see listings that pay a buyer’s agent (technically paid to the buyer’s brokerage) 2.5%-3%. It can vary.

If your buyer’s agent for example, puts into the buyer’s brokerage agreement under section “A” a 3% commission as the figure they expect to be paid upon closing a transaction for you, and the commission is less than that on the house you want to see, are they going to show it to you? If they do and you like the house enough to put an offer on it, how is that difference in commission being made up?  On the Georgia form, it notes in section “B,” that “In the event Seller does not pay the Broker the full amount of the Commission,  Buyer shall OR  shall not pay Broker the difference at closing between Broker’s Commission and the commission actually paid to Broker.”  How is that box checked?

I’ve received feedback before where agents are charging at closing the difference to the buyer if the commission is less than they feel within that agreement they are entitled to receive in terms of compensation.

This is why I say, know what you’re signing upfront. Don’t get caught by surprise and don’t put yourself in the position where your agent ‘might not show you a home’ because the commission is less than he or she thinks they need to make on a transaction for you! Also, make sure they are not going to ‘bill you the difference’ at closing either!

Me personally, I’m glad that I had a broker who years ago taught me not to focus on transactional commissions, but rather to focus simply on selling more homes each year than I did the year before.  This requires doing what’s in your client’s best interests. When wearing my ‘buyer’s agent’s’ hat I typically don’t even look at the seller paid commission on a given listing until we are under contract, the home inspection is complete, and repairs have been negotiated to my buyer’s liking to know we are moving forward on the sale.

I also don’t worry about protected periods, and I certainly never would ask a buyer to pay me a commission.  Sounds old fashioned maybe, but I try and treat people like I want to be treated.

My view, is that I work for buyer’s that I represent and have always felt that if I call them back, and if I am the most responsive agent they have ever known, get them in the houses they want to see when they want to see them based on ‘their’ schedule, not mine, that they’ll keep calling me and keep coming back! In this way I try to communicate to buyers I work with that I am trying to earn their business every single day! It’s not about a contract, it’s about my desire to earn their business not just for today, but for a lifetime!

Hope you enjoy this Google review from a once skeptical first time home buyer I had the pleasure of working with over this past year.

“My wife and I started the home buying process unrepresented. We were skeptical of buyers agents and didn’t want to deal with anyone that was pushy or that didn’t look out for our best interests. All of that changed when we met Hank. Hank dispelled all of our skepticism when it came to buyers agents. We found Hank to be someone who genuinely cared about finding the right home for us. He didn’t push us toward any particularly house and was instrumental in helping point out potential issues or concerns. I would not hesitate to use Hank in our next real estate transaction. He is second to none.” Cody Nichols

Buying a home is a paperwork-intensive undertaking, but nothing compares to the stack of papers you’ll be required to sign at closing. Make sure your agent is there to explain the complex with patience and an attitude of service to help keep that peace of mind throughout the process from contract to close!

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