Real estate has long been the go-to investment for those looking to build long-term wealth for generations. Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide.
Would you go to one car dealership for the rest of your life? Do you like to stick with one health insurance broker, one insurance provider, the same primary care doctor -- all the same teams, as long as possible? The answer to the buyer's agent agreement (AKA buyer broker agreement, AKA buyer’s representation agreement) topic lies within how you answer these questions. It comes down to this: Do you like consistency, or do you like freedom of choice?
Of course, there are situations where you must sign a buyer broker agreement. Some brokers and Realtors require them. For that matter, so do some states. In these situations, the question becomes, how do you ensure you sign with a good one and don't get entangled in a contract that isn't great for you?
But for situations when it's not required by law, you have to consider what's right for you and what's ethical and make a decision based on your instincts, not what the agent is telling you.
What is a buyer's agent?
Agents are essentially go-betweens, with the buyer's agent representing the person looking to buy a home and the listing agent representing the person selling the home. Both of these individuals can be any degree of professional and proactive, or not -- it completely depends on the person. Some people have more hustle, more knowledge of the homebuilding industry, and more integrity than others. To some extent, this also depends on the price range of the real estate. You can expect a lot more from a buyer's agent if you're looking in the million-dollar range than if you have a $200,000 budget.
A buyer's agent typically is the point of contact with all listing agents, doing the legwork of researching possible properties, asking questions to make sure they fit the buyer's parameters, and setting appointments. They're also supposed to help make sense of contracts, work with mortgage professionals, and assist with due diligence on a property.
But often, they don't. And the more they don't, the more the client starts to think, Why do I need you again? And that is when the presence or absence of a signed contract becomes very significant.
Does your state require you to sign a buyer's agent agreement?
If the answer is yes, then that's the end of it. You don't have a choice in states like Connecticut, Minnesota, and Virginia. But, be very choosy about who you sign with, and make sure the contract terms are as favorable as possible, including a clause that allows you to terminate if things aren't working.
Also, be aware that not all buyer's representation agreements are exclusive. The terms for a nonexclusive agreement might only cover properties in a certain price range or within a certain geographical area. Real estate agents typically don't like to sign nonexclusive agreements, but as a buyer looking out for your own best interests, it may be preferable to have multiple people working on your behalf until you've decided whether you can fully trust just one.
Does the brokerage or Realtor you're talking to require you to sign?
If this is the case but there's no law to underscore it, then there's quite a bit to consider. Did this broker get a very strong recommendation from friends you trust? Are they a specialist in the type of property you're looking at or the neighborhood you want to buy in? Do they have access to information and resources that exceed what their competitors have? Or do you get a good feeling about how they would handle you as a client, based on your assessment of their professional skills?
Remember, a buyer's agent doesn't just find good potential properties for their client. And their job doesn't end once you've made an offer and had it accepted. There are many more places where a buyer's agent can help or harm. Ideally, they can spot things on the contract that are unfavorable to their client. They can refer to trusted professionals in their circle, like a trustworthy lender. They can also help their clients understand certain challenges or potential downsides to buying in a specific development or neighborhood. If you've found an agent who is strong in all these areas, then it could well be worth it to get them fully on your side by signing a contract.
While there's no rule around this, if someone's trying to sign you on an exclusive contract simply based on being a self-styled market expert or working harder for you than anyone else would, take a step back. Those are meaningless promises until you have more information to qualify them. Come up with a list of questions that can help you gauge whether this person really has special expertise or connections. Find out whether they have access to exclusive listings (not on the MLS). Ask them for their lender recommendations, and then research those names.
Does the brokerage or Realtor not require you to sign?
In this case, why are you considering doing it? Do you simply feel it would be the "right" thing to do? Or, has the real estate agent hinted that they could work harder and offer you more if you were officially their client on paper? This is a business decision but with distinctly personal consequences, so your answer will be decided by ethics and self-interest.
The other possible answer is that you've worked with this person a bit and want them to be a specialist for you, sourcing multiple properties and making sure you get the first look. If that's the case, a buyer's contract makes it more of an official business contract, signifying that they're part of your team in the long term and not just for a single transaction.
Representation can be a privilege or a pain
Ask any actor and they'll tell you: Sometimes being "repped" isn't all it's cracked up to be. If someone's not truly working hard on your behalf, but letting you do most of the work while they wait around to get their cut, it wastes time and energy and even money.
Unlike actors and models, who need agents to get them work, you're looking for an agent to help you make an enormous purchase. That puts you firmly in the decision-maker seat. Don't sign away your power unless you have full confidence in the arrangement.
Got $1,000? The 10 Top Investments We’d Make Right Now
Our team of analysts agrees. These 10 real estate plays are the best ways to invest in real estate right now. By signing up to be a member of Real Estate Winners, you’ll get access to our 10 best ideas and new investment ideas every month.
Find out how you can get started with Real Estate Winners by clicking here.