Intro
Are you looking to buy a home and suddenly finding that agents are asking you to sign some sort of contract before looking at properties?
Today, we’re diving into a very important document that every home buyer needs to know about: the Buyer Representation Agreement.
Starting no later than August 17th, the new Buyer Representation Agreement will be required before agents can tour properties with their clients. There is a lot of discussion throughout the real estate industry about these new rules, and I have another video about that topic that I will link in the comments below.
Now, don’t freak out. This can be a good thing for both buyers and real estate agents because it forces both parties to have a clear conversation about what is expected from each of them.
You can think of this as basically an employment contract. It outlines your agent’s duties and specifies how much their services cost.
This agreement is now a requirement across the country by all Realtors and will soon be a law here in California. The agreements will vary to some degree, but the example I’m going to explain is the one we’ll be using here in California.
I’ll show you the July 24th version in easy-to-understand terms.
Length of Time
First, let’s look at the length of time this agreement will be in effect.
You can put any time frame that is acceptable to you and your agent, as long as it doesn’t exceed three months. Unless the buyer is a corporation or a business partnership, in which case it can be for longer.
But if you’re just a regular person, it’s three months.
Remember that if an agent is telling you something longer, read the fine print and maybe go find another agent. If the agent tries to rewrite the language of the length of time in this agreement, it is automatically void.
The intent here from the California Association of Realtors was to be very consumer-friendly and not bind you to an excessively long time frame.
As with any agreement, you can easily extend it before it expires for another three-month term.
Type of Representation
Let’s talk about the type of representation.
This section defines whether your agreement is exclusive or non-exclusive. Pay attention here because this is very important to your business relationship with your agent.
An exclusive agreement is just like it sounds. It means you work solely with one agent under the terms of the agreement.
This often leads to more dedicated service because the agent knows you aren’t working with a bunch of other agents and is assured of their compensation if you purchase a property.
Here is the most important part of the agreement: if this agreement is exclusive and you purchase any property that is outlined in the terms of your agreement, then the agent is owed a commission even if you used another agent to purchase it.
So this means you are committed to your agent. It is not a good idea to run around with other agents if you have signed an exclusive agreement.
It’s also important that you understand that if you sign agreements with more than one agent in the same geographic areas and during the same time frame, you could be liable to both parties.
So remember, exclusive means exclusive.
In order for the agreement to be exclusive, the box needs to be checked and the buyer needs to initial the exclusive representation box on page five.
On the other hand, a non-exclusive or open agreement allows you to work with multiple agents at the same time.
While this feels like it provides more flexibility for you, it can lead to less personalized service since the agent or agents will likely not be as committed.
Think of it this way: your boss hires three people to do the same job at work but decides to pay only one of them. The other two have wasted their time, which they honestly could have spent working for someone who values them and their time.
If you want my honest advice, you should meet with the agent, or even multiple agents, at the very beginning for a consultation to discuss the way they do business and their process from start to finish.
This interview will really give you an idea of how they work, what level of experience they have, and ultimately whether they are a good fit for you.
The good news here is that you, as a buyer, will get to be much more choosy about the level of service and experience you expect.
I really believe the less experienced agents are likely to struggle in this new environment as people will be much more discerning about who they sign up with.
I’ve got another great video that I will link below which talks about what should happen before you sign one of these agreements.
I also think it’s very reasonable to request an open or non-exclusive arrangement initially to see if you and your agent are a good fit for each other. Kind of like dating for a couple of weeks.
However, most really good and experienced agents will usually require an exclusive agreement as they know what they bring to the table and our time is valuable.
Newer agents might be more flexible and accept an open arrangement, but remember, it’s all negotiable.
The key is to find an arrangement that works best for both of you and ensures you get the support you need.
Now, in a non-exclusive agreement, the agent has still earned compensation if they are involved in the sale through what we call broker involvement.
A lot of this is broken down on the next page, right here in 4B4. It does a great job explaining what this means as it pertains to this agreement.
Broker involvement basically means any actions your agent takes to help you find and purchase a property.
This includes showing you property, submitting offers, performing a market analysis, and reviewing property documents or disclosures with you.
If your agent is significantly involved in helping you secure a property, they are entitled to compensation under the time frame agreed upon.
This also stipulates that if an agent just sets you up on a search or emails you a property, they do not have any right to be paid. There has to be more work involved.
Hopefully, this gives you a good breakdown of the difference between exclusive and non-exclusive representation.
Property Details
Next, this section details the type of property you’re looking to buy, such as single-family residential, multifamily, condo, vacant land, and so on.
Here, you would also specify the county or cities where you’re interested in purchasing a property.
The agent should not be putting something crazy like all of Northern California. They should only be representing you in areas they are extremely familiar with and where they understand all of the nuances and customary rules in the area. They should be able to deliver the expected standard of care you deserve.
I always question when I see an agent whose office is 50 miles from the property they are trying to sell.
The additional description area and the additional buyer preferences and priority section give you the opportunity to be super specific in your requirements.
Honestly, I don’t see many people using these lines, but they are there if needed.
For the property’s excluded section, this would be where you might tell your agent, “Hey, I was working with another agent previously and they were involved in some properties.”
This is where you would list those properties to prevent you from owing a commission to two agents on the same property.
Remember, going over this form with your agent is a great time to have these discussions.
Now, this part details how much your agent will be paid.
As nice as your agent is, no one wants to work for free. You may be someone who has the extra cash and paying your agent out of pocket is no problem, but it’s important to note that compensation can come from the seller as a percentage of the purchase price or even a flat fee.
This can be accomplished through your offer as a direct payment to your agent or as a credit to cover it from the seller.
Most of the agents right now are charging a percentage rather than a fixed fee.
Remember, the amount or rate of real estate commissions is not fixed by law and can be negotiated.
Here in E2 is where it states that if your agent fee is paid by the seller, then it is credited against the amount you agreed to pay your agent in this agreement.
In section E1, it also states that if the seller is issuing any credit more than the amount you agreed to pay your agent, then the agent cannot keep it. Your agent is only entitled to the amount in this agreement.
Here in E3, it is saying that once this agreement has expired or is terminated, you would be obligated to still pay your agent if they were involved with the property for the number of days indicated here.
If there are a number of days put in here for the continuation period, then the agent has five days to deliver a list of properties to you that they had broker involvement in and would be due compensation if you ended up purchasing one of those properties.
So be very careful if you decide that you want to use a different agent on the same property that another agent helped you with previously.
Now, everybody’s favorite topic: how to cancel this agreement.
This is covered here in section F5. Either party can cancel with written notice. Either you or your agent can say, “Hey, this just isn’t working out and I want out.”
The best practice would be to formally cancel it with the Cancellation of Buyer Representation form.
This is super simple and effective immediately if it’s a non-exclusive agreement, but if it’s exclusive, then cancellation occurs 30 days after the notice.
Always read the cancellation clause carefully and discuss it with your agent.
Remember, if things go sideways between you and your agent, you can always decide to mutually cancel and even agree that nothing is owed. Just make sure you have it in writing.
Just like the representation agreement, ambiguity is no one’s friend in real estate.
Here in section G1, it defaults to five days for you to provide your pre-approval letter from your lender and the proof of funds, which your agent will need when writing an offer.
You can put a different amount of days here if needed.
Now G2 is interesting, as it is a place where the buyer may say, “Hey, I do not have the extra funds to pay you, Mr. or Mrs. Agent.”
You are probably wondering why the heck that is in there, but again, it is the chance to have an honest conversation and make sure everyone is on the same page.
You can still work together, but it just means that you will definitely need to go after properties where the seller is willing to give you a credit or pay your broker directly through the offer on the home that you decide to buy.
The next box would be if you are using a type of loan that does not allow the buyer to pay their agent. This used to be the case with VA loans, but they have recently changed their guidelines.
And this last box is where you can write any other terms you or your agent might need that aren’t already covered.
Now, the way this contract is laid out is that all the terms are here on the first page, and the following pages give longer explanations and go into more detail for each of the things that we just went over.
I’d like to point out some additional important items.
Additional Terms
7A provides an advisory to the buyer signing multiple representation agreements. It really goes into more detail about the risks involved when signing up with multiple agents at the same time.
Here in item 8, it discusses broker obligations.
The agent’s duties are to assist in locating properties, presenting and negotiating offers, facilitating the escrow process, ordering reports and investigations, scheduling and attending meetings with professionals like inspectors, providing lists of recommended professionals, and assisting with finding a lender.
Brokers are also required to conduct a visual inspection of the property, and they also have a fiduciary duty to put your interests above all others, which includes duties of honesty and confidentiality.
Here in nine, it talks about the buyer’s obligations to act in good faith, to read all the documents provided, and to pay for any inspections or reports that are requested and ordered on behalf of the buyer.
You, as the buyer, also have a duty to let your agent know if any material facts pop up that you need more information on.
If you are silent, you are deemed to be satisfied on any issues with a particular property.
Last Page
Finally, the last page is where the buyer would need to initial here in box 15, confirming, if this were to be an exclusive agreement, that the buyer is fully aware whether or not this agreement is exclusive or non-exclusive.
It also confirms the compensation that was outlined on the first page.
Below is where everyone signs.
The reason this is all on the last page is that only this page is sent over to the seller if they have agreed to pay your agent’s fee. This way, the seller can be assured the request is legitimate.
Now remember, make sure to review all parts of the agreement carefully. Don’t hesitate to ask your agent to clarify anything that’s unclear.
Understanding the Buyer Representation Agreement at the beginning is crucial for a smooth and successful home-buying experience. It protects you and ensures you get the best possible service from your agent.
If you have any questions about this agreement or need further clarification, feel free to reach out.
Thanks for watching. If you found this video helpful, please let me know if there are any other topics you’d like me to cover.
Happy house hunting, and see you next time.
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