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What is a Buyer’s Agent Agreement?
If you are working with a buyer’s agent in Colorado, you will probably be asked to
sign a buyer’s agent agreement. This form has been approved by the Colorado Real Estate
Commission, in other words, most of it was not written by your agent. I say most of it
because your agent can add provisions and cross things out
Singing the buyer’s agent agreement is the real estate equivalent of “going steady.”
Your agent agrees to do the best job for you and give you what you need. In return, you
agree to work only with your agent so that in the end, when you finally buy a house,
your agent gets paid. What is included in the buyer’s agent agreement?
This agreement has several sections. The first three sections set the date, the
type of representation (buyer agency), and what kind of firm you will be working with.
Next, it defines the terms included in the agreement including who is the broker, what
is the property, who is the buyer. The services and duties of a buyers’ agent
are defined. This section I think is particularly interesting.
Unofficially, it explains that the broker must “look out for” the buyer. Officially,
it says the buyer’s agent job is “Promoting the interests of Buyer with the utmost good
faith, loyalty and fidelity.” For example, if the broker knows something
bad (or, officially “adverse material facts”) the broker has to tell the buyer. The broker
must submit work on time. Also, the broker is not allowed to reveal your secrets to the
seller, like if the buyer is willing to pay more than they offered.
How does a buyer’s agent get paid? There are several options outlined in the
agreement: success fee, hourly fee, and flat fee. Any of these arrangements may include
a retainer fee, which is usually deducted from the buyer agent’s fee at closing.
The most common type of fee is the success fee. This mean, if you successfully buy a
home, the agent gets paid. This is generally a percent of the purchase price of the home,
and is only paid if you actually buy the house. For example, 2.8% of the purchase price. Now
that 2.8% is just the percentage built in for the buyer agent’s side. There is typically
about the same amount also built in to cover the seller agent’s fees.
Who pays the buyer’s agent? Again, there are several options: buyer pays,
listing broker or seller pays, or buyer pays whatever the seller doesn’t cover. The most
common option is that the seller or listing brokerage pays. This was the option checked
in my contract. However, it is important to keep in mind that all agent fees are built
into the price of the home for sale. So even though technically speaking the “seller
pays”, all fees are typically included in the total market value of the home. No one
works for free. Both the buyer and the seller are actually invested in their own agent’s
fees because those fees are included in the price of the home. It’s just that buyers
and sellers don’t typically have out of pocket costs until closing. Total out of pocket
costs tend to be relatively low at closing because of how loans are structured.
The rest of the agreement is pretty typical legal jargon.
No discrimination. What to do in case of a conflict. You can’t modify the contract.
Ask your agent how the contract can be terminated. It also has a section that allows for additional
provisions, meaning they are not standard and your agent probably added them. Our agent
added a provision that says that we can terminate the agreement at any time with no penalties.
I thought that was pretty unusual, and because of it, I didn’t have the usual twinge of
“I sure hope I didn’t just miss the fine print where I signed away my first born.”
Remember, this is a legal document, and I am not an attorney. I am a first time home
buyer sharing my experience. If you have questions about the agreement, or would like to meet
a buyer’s agent, click here. Colorado Exclusive Buyer's Agent Association
blog