What Is a Buyer-Broker Agreement in Real Estate?

Buying a home is a complicated process, especially for first-time homebuyers and those looking to purchase in competitive markets. That’s why many buyers turn to an experienced real estate agent through their broker to help search for and buy a home that fits their needs.

To get that help, you’ll likely need to sign what’s called a buyer-broker agreement, which specifies how you’ll work with each other, and how they’ll get paid.

Here’s what you need to know about buyer-broker agreements.

What Is a Real Estate Broker?

A real estate broker is a real estate agent who has an additional license that allows them to supervise and employ other agents. Most states require real estate agents to work under the supervision of a broker. This is different from a mortgage broker, who helps homeowners work with lenders to get a mortgage.

How a Buyer-Broker Agreement Works

A buyer-broker agreement is a contract between you and your real estate agent’s broker that defines your business relationship and explains each party’s obligations.

Here are common features found in most buyer-brokerage agreements.

Broker’s duties

One of the first things outlined in the agreement is the broker’s duties to the buyer.

There’s no standard list of duties. What you and the broker agree to is what the deal covers. But most deals will require the broker to:

• Help the buyer find a suitable home.
• Follow all applicable laws and regulations.
• Help negotiate with sellers.

Some brokers provide more services in certain deals, while others provide less. For example, some deals exclude help with negotiation. It’s up to you to work with a broker to ensure any agreement you sign includes all the services you want from them.

Buyer’s duties

After describing the broker’s duties, the agreement will outline the buyer’s obligations. Most deals require the buyer to:

• Agree to work exclusively with the broker.
• Be readily available to tour properties.
• Respond to the broker’s communications in a timely manner.
• Give the broker accurate financial information.
• Perform due diligence on properties the broker presents.
• Fully review relevant documents before signing.

Property description

Some broker-buyer agreements may require the buyer to describe in detail the type of property they’re looking for, including the general location, price range, number of bedrooms, and overall size of the home and the property.

Term length

This sets a time limit on the contract, usually three to six months. Term lengths are more common in exclusive contracts. Once the contract expires, the buyer is free to work with other brokers.

Exclusivity

Buyer’s brokerage agreements fall into two main categories:

• Exclusive agreements. The buyer agrees to work only with the broker they’re signing the contract with.
• Nonexclusive agreements. The buyer is free to work with brokers other than the one they’re signing the deal with.

Representation

This describes how the broker intends to represent the buyer in a home purchase. The options are single and dual representation.

• Single representation means the broker is representing only the buyer in any transaction.
• Dual representation means the broker is representing both the buyer and the seller.

Dual representation raises concerns about impartiality and conflict of interest, and some states make dual representation illegal.

Compensation

This describes how the broker is paid for the services they provide. When a house is sold, the buyer’s agent and the seller’s agent typically split a commission of about 5% or 6% of the purchase price. This commission is paid by the seller as part of their closing costs. Some agreements could require the buyer to pay the broker a retainer fee, which may be refunded when the buyer purchases a home, and the broker is paid their commission.

Termination clause

Sometimes, a buyer-broker relationship doesn’t work out. A termination clause outlines how either side can cancel the agreement before its expiration date.

For example, it might state that the buyer can cancel the agreement if the broker fails to present suitable homes within a specified period of time.

This clause also describes the timeline for terminating the deal, how much notice must be given, and any fees either side must pay.

Types of Buyer-Broker Agreements

There are three main types of buyer-broker agreements. Keep in mind there may be slight variations depending on where you live.

Nonexclusive not-for-compensation

Nonexclusive not-for-compensation agreements are the most basic type of buyer-broker agreement. Either party is free to cancel the contract at any time, and neither party is obligated to work exclusively with the other.

What makes this type of agreement unique is that it specifies the broker will not receive any compensation.

Nonexclusive right to represent

A nonexclusive right-to-represent agreement allows the buyer to work with other brokers, but if the broker signing the deal presents a home that the buyer purchases, or represents the buyer during the purchasing process, the broker is to be paid their share of the commission.

These agreements are more concrete than not-for-compensation agreements. There are usually more steps or specific requirements that must be met to cancel the deal.

Exclusive right to represent

Exclusive right-to-represent agreements are the most popular type of buyer-broker agreement. With these deals, the buyer commits to working solely with the broker. This means no other brokers may show homes to you or represent you in a real estate transaction.

This agreement also describes the compensation the broker will receive, which is owed even if the buyer purchases a home the broker did not find for them.

Differences by state

Real estate is a highly regulated industry, so the specifics of buyer-broker agreements and how you work with your broker vary depending on where you live.

For example, some states require a buyer-broker agreement when working with a broker, while others make it optional.

Before signing any agreement, speak with different brokers in your area. Also, talk with people you know to get a sense of what is typical in your local market.

Pros and Cons of a Buyer-Broker Agreement

If you’re thinking about working with a broker, it’s important to consider the pros and cons of signing a buyer-broker agreement.

Pros of a buyer-broker agreement

Some benefits of signing a buyer-broker agreement include:

• Legal protections. Your agreement will describe your relationship with your broker and outline the broker’s responsibilities toward you. Depending on what’s in the agreement, you’ll have a legal assurance that the broker will represent only your interests in a transaction.
• A more motivated agent. If you sign an exclusive agreement, your agent knows that you won’t suddenly disappear and buy a home with another broker. This can motivate them to find you a home because they’re certain they’ll get the commission.
• Access to more properties. “A buyer-broker agreement typically gives you access to a wider range of properties that may not be listed on public websites or available to the general public,” says Amanda Rivera, a Realtor in Queens, New York.

Cons of a buyer-broker agreement

Some disadvantages of signing a buyer-broker agreement include:

• You might get stuck with an agent you don’t work well with. If you sign an exclusive agreement with an agent and you wind up not liking the way they work with you, you’ll be stuck with them until your contract expires.
• You might owe a commission no matter what. If your agreement specifies fees or commissions the broker receives, you might owe them money even if you find a home to buy without their help.

FAQ: What Is a Buyer-Broker Agreement?

Here are answers to some frequently asked questions about buyer-broker agreements.

The Bottom Line on What Is a Buyer-Broker Agreement?

Working with a broker when buying a home is a good idea, but before you get started, you’ll probably have to sign an agreement. Think about the type of agreement that works best for your needs, and be sure to read the contract carefully before signing.