Thread: Buyers Agents Contracts

A colleague of mine is looking for a house. He showed me the contract an agent wants him to sign to be his buyer’s agent. I didn’t read much of it, but two items really stuck out:

1. If the agent doesn’t get at least 2.5% commission, the buyer will top it up to 2.5%.
2. The term is 3 months, but if the buyer purchases a house from any source whatsoever within 60 days after the contract expires, the commission is payable.

As we were looking it over, the agent called, wondering when he could pick up the signed document. Needless to say, I advised him not to sign it.

The contract is a standard document produced by the provincial real estate association. I do have some sympathy for agents who have to put up with a lot of tire kickers, but this contract goes way too far, in my opinion, to protect the agent at the expense of the buyer.

Are these common in other areas?

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Some folks tried that around here in the 90's, but it doesn't get much use anymore. Too many other agents to choose from, that don't use forced-commission contracts.

As a consumer, I wouldn't sign it. If I find and buy a FSBO property on my own, I'm not paying an agent's commission.

Dom.

Tell him to scratch out the parts he does not like and put it what he wants!

When we were looking to buy our first house and were naive to the ways of the real estate agents we were offered one of these contracts. We considered it because we liked the agent but then decided that in a free market society we did not have to put up with that kind of nonsense. I wanted an agent that was looking out for me, not the other way around.

And of course, after minimal agent shopping, we found one.

The funny thing is that if the agent would have offered to forget about that contract we probably would have stuck with her, but she wouldn't back down. Her loss, our gain.

IMO, those types of contracts should be forbidden by the board of realtors.

David,

I wouldn't sign a contract that I'm paying someone a commission for if ;
1) I'm not satisified with the details of the agreement.
2) I don't want to pay someone when they don't do any work or wouldn't have done anything for their compensation.

That's just me... your mileage may vary.

Originally Posted by Eric Shuman

IMO, those types of contracts should be forbidden by the board of realtors.

The interesting thing about this contract is that it was produced by the Ontario Real Eastate Association. All the agent needs to do is fill in the % he wants to take as a commission.

Appreciate the feedback. I am sure there are lots of agents around who don't need one of these. I think my colleague plans do do some agent shopping along with his house shopping.

Why would anyone sign a contract like that? I know people sign them everyday but I don't understand why anyone would want to obligate themselves to paying someone thousands of dollars for nothing.

I would tell an agent that presented me a contract like that she earns her commission when I buy a house that she presented to me. If I buy a house that I found without her (a FSBO or another listed property) I owe her nothing. And if her split of the commission on a property I buy is not enough then tough.

Just as bad as a builders contract stateing that you can not have a third party inspection before closing.

I think some people just don't read what they sign.

In some states, Missouri for example, such contracts are required by "Agency Law". Without such a contract the Agent, even though presumably working for the buyer, is technically an agent for the SELLER. And only holds a fiduciary responsibility to the seller. A Buyers Agent contract such as this, changes that and legally, ethically, and morally puts the agent in a position to fully represent that buyer (even though they generally are paid via the listing agency). Without that document the agent may inadvertently establish what is called an "implied agency" with his/her actions causing the buyers to believe that the agent is acting on their behalf, when legally and in reality they are not.

Around here these are required, and many brokerages also "require" their agents to comply. Some agents ignore that requirement, and take their chances. These contracts are meant to protect the buyers as much as the agents. I don't know about this specific situation mentioned in this thread, but the contracts I've seen can be written for as long as you want, even as little as a day. The extended time frame after the contract expires mentioned is only on the homes that the agent shows the client at that time. The client can purchase any other home they want to without owing the broker a penny, as long as they didn't look at during the time of the contract period. They also have a clause that if the contract is for longer, either party can suspend it in writing within 3 days.

Bottom line, the percentage is pretty much unenforceable anyway. I've seen it happen over and over again where a buyers is in an agency agreement, but then walks into an open house on Sunday afternoon without their agent and writes a contract on it right then without their agent. In many cases the agent never hears from them again, because when they realize what they have done, they don't return calls. The agent has no way of knowing that their client has actually made a purchase unless they stumble upon that info somehow. They just never hear from them again, and can't get a hold of them. Even if they find out, there's not much short of a lawsuit that they can do to get the $, and the courts generally aren't favorable to awarding Realtors judgments. Besides all the trouble and bad press that goes with it doesn't make it worth it.

Hope that helps clear up the confusion a little. These really are meant to protect both sides, the agent and the buyer. And where they protect the Agent is primarily on the legal side of things, not the financial. (The financial just scares most people into keeping their side of the bargain.)

Buyers agent contracts are common, legal and enforceable, at least in Texas. Would you go out and work for three months on someone's behalf without a guarantee of the possbility of recompense? If you would, I have room in my company for inspectors just like you.

Aaron

What a chuckle. Y'all need to go read YOUR Inspection Agreement.

I wanted an agent that was looking out for me, not the other way around.

It IS THE CONTRACT that makes sure the agent is looking out for you instead of the "other way around".

Get educated. Read your state's agency law.

Most realtors work for the seller UNLESS their is a buyer's agency contract.

I wouldn't buy a house using an agent who wouldn't provide an agreeable buyer's agency contract.

In most states there are four agency types.

Listing Agent: Lists the house and advertises it.

Selling Agent: The one who brings in the buyer. Legally obligated to do their best for the seller, NOT THE BUYER.

Dual agent (aka Transaction broker) : Can't do their best for either the seller or the buyer as their pledge is to "Do no harm to either party". Can't do their best for me if they are also looking out for the seller.

Buyer's agent: Gotta have that Buyer's agency agreement tying them to your best interests. Put's them legally on your side, not the seller's side.

In addition, YOU don't technically pay them. OK it all comes out of the money you pay the seller, but technically speaking, they get their half of the typical 6 % commission and the listing agent gets the other half. Well, really the brokers get their 3% each and pay the agents whatever the agreed split is.

SO, the agent's get 6% (or 5% or whatever is negotiated). 3% goes to the listing agent, 3% to the selling agent. NEITHER OF WHO ARE ON THE BUYER"S SIDE. Sure, that's a good deal!

Get real. Get a buyer's agent you can trust. Sign a buyer's agent contract legally obligating them to do their best for YOU, not the seller. They get their 3% from the seller, NOT you.

Ain't much different than you asking the buye to sign your inspection agreement.

Get educated. Google "buyer's agency contract".

I found an agent that did look out for me, got paid their appropriate commission and did not make me sign an exclusivity contract. I don't mind a contract with an agent, however:

Quote:

"In addition, YOU don't technically pay them. OK it all comes out of the money you pay the seller, but technically speaking, they get their half of the typical 6 % commission and the listing agent gets the other half. Well, really the brokers get their 3% each and pay the agents whatever the agreed split is." EC

Evidently you will pay them if you use someone else (another agent) within 60 days of the buyers agent contract expiring, after the three month contract period as discussed in the thread starting post.

I did not feel comfortable with that. What if the agent I had a contract with turned out to be a nonproducer and after the three month contract I hired another agent that produced the next day? I sure as !7#$ would not pay them for nothing.


People should do whatever they are comfortable with.

Comparing an inspection contract to the agent contract is not an adequate comparison in my opinion. Apples and oranges.

My contract is for services performed at a specific time, with guaranteed results for that time. My clients sign the contract the day before or the day of my service to them and if they choose to use another inspector before then, that is there perogative. I would not make them sign a contract ten days before the inspection is performed stating that if they decide to use another inspector then they still have to pay me.

Reminds me of an inspection firm when I first started that said sure you can go to work for us but if you quit, you cannot work in this area unless you give us the same cut of your income (65%) we were taking when you worked for us and you must sign a contract stating such. Yeah, right.

There are agents who will only work for buyers and there are agents who do nothing but list properties.
Bottom line; both agents work for the folks that are paying them.

Originally Posted by Jerry McCarthy

There are agents who will only work for buyers and there are agents who do nothing but list properties.
Bottom line; both agents work for the folks that are paying them.

Well said.

Aaron

Originally Posted by Erby Crofutt

What a chuckle. Y'all need to go read YOUR Inspection Agreement.

Get real. Get a buyer's agent you can trust. Sign a buyer's agent contract legally obligating them to do their best for YOU, not the seller. They get their 3% from the seller, NOT you.

Ain't much different than you asking the buye to sign your inspection agreement.

Get educated. Google "buyer's agency contract".

Sorry Erby, but that ain't what we're taking about here. There are buyer's agents that demand payment from you to represent your interests, even if you buy a house through someone else, another agent, or buy it on your own.

This is not the standard "buyer's agent collecting their 3%" at the closing arragement.

Dom.

Originally Posted by Dom D'Agostino

Sorry Erby, but that ain't what we're taking about here. There are buyer's agents that demand payment from you to represent your interests, even if you buy a house through someone else, another agent, or buy it on your own.

This is not the standard "buyer's agent collecting their 3%" at the closing arragement.

Dom.

You are right, it isn't, but what it is saying is this...

Listen, If I'm going to be your agent, I want to get paid for it. Normally, I get paid at the end, when you close on your house. In the mean time, I'm going to invest a lot of my time, effort, and gasoline to find you a great house. Now if you go out and purchase a home yourself without me, I still expect to be paid for my work and effort, and you should expect to have to pay me for it. That fee is 2.5% of the purchase price of whatever home you buy.

This is the equivalent of someone calling me on the phone and telling me to go inspect a home for them, then after the inspection they don't pay me because they decide not to buy that house. I still want to get paid for my inspection regardless of if they buy that particular house or not. Likewise the agent should have the right to get paid for their work as well, regardless of which home the buyer buys. That is all this is saying.

There is no one holding a gun the buyers head. If they don't want a buyers agent they don't have to have one. But if they want their own agent (and it only makes sense for them to have one), it's only right that the agent should be paid for their efforts.

Mark, I see what you are saying. I however have a little different perspective. The agent makes a percentage based on what they do and should get paid for the results. If they find a house for me and I buy it, great every one wins. If they don't find a house for me, then either I am too hard to please or they did not do their job well enough. If I buy a house that they showed me, then they deserve to get paid. If I find a house on my own that they did not find and buy it, then what part do they have in that? It is different if they list your house and you sell it after the listing expires to someone who found it because of their listing just to save the commission.

I think the contract to tie someone to an agent as was mentioned here is a little rich even for realtors. If The agent needs that kind of deal, just charge them by the hour. The whole commission based fee is based on performance.

Originally Posted by Mark Nahrgang

Listen, If I'm going to be your agent, I want to get paid for it. Normally, I get paid at the end, when you close on your house. In the mean time, I'm going to invest a lot of my time, effort, and gasoline to find you a great house. Now if you go out and purchase a home yourself without me, I still expect to be paid for my work and effort, and you should expect to have to pay me for it. That fee is 2.5% of the purchase price of whatever home you buy.

Mark,

Then, by your thinking, when you go look at a new Ford truck, and talk to a salesman, then end up buying a Chevy truck at the Chevy dealer, you are expected to pay the Ford salesman the commission because you bought the Chevy?

What have you been drinking.

When you get into sales and work on commission - you get paid when YOU sell something. That's what the big money is for. Sometimes you are lucky (i.e., that means you are "good" in a "good market" in "good times") and you sell something to almost everyone you show houses to.

Sometimes you are not lucky (i.e., that means you are "not good enough" to overcome the other obstacles) and you seldom sell anything to anyone.

Those in the first group are successful.

Those in the second group are not.

You invest YOUR TIME (and efforts, etc.) because YOU want to sell ME something. If you are not good enough to do so, it's your lose, not mine, and you might just be in the wrong business.

Like a few summers ago when we almost bought a house in Maggie Valley, NC. The agent took use around most of the day, we found a place we liked, filled out the offer ... with the exception of signing them ... and went back home to make sure that is what we wanted. Two days later we advised the agent up there that it was not exactly what we were looking for in an investment/vacation house. Their loss, BUT ... we discussed this with them while we were driving around and she (the agent) acknowledges that sometimes her time and effort pays off and sometimes it does not.

A year and a half ago we looked around the Ormond Beach/Daytona Beach area for a house, found one, put in the offer, and bought it. That agent was at the right place, at the right time, and the right house was available - otherwise she would have not made the sale either.

Getting back to the agent in Maggie Valley - we may go up there next summer and look for a house to buy, and, if that agent is still there, we will use her, because she was honest about the houses we looked at. If she had tried to force us into anything, she would be out of the picture - it would be her loss, not our.

When you go into sales and commission, you are risking everything for nothing ... or everything for it all ... that's why some succeed and others fail.

The important part is "an agreeable contract" that legally obligates them to do their best for you instead of the seller.

They get paid if you buy a house they show you within the time frame.

You buy a house they don't show you, they don't get paid and you have one or two agents helping you thru the deal, NEITHER of which is legally obligated to you.

Each of gets to make our own "Smart Choice".

Mine was to make sure I had an agent legally obligated to do their best for me instead of the seller.

David's Item # 2 was unreasonable and wouldn't be part of an "agreeable contract" for me.

Eric said:

I found an agent that did look out for me, got paid their appropriate commission and did not make me sign an exclusivity contract.

Check with a lawyer. I'll bet you'll be surprised to find out that that agent was legally obligated to do their best for the seller. Or, as a tranaction broker or dual agent unable to do their best for either one of you. I can only imagine the things you discussed in front of that agent that they were obligated to tell the seller such as "let's offer this but we can really afford to pay this."

Get Educated. Google "buyer's agency contract"

Here's a start just for you Jerry. Read carefully the duties of the agent/broker in each situation. Especially that regarding confidentiality.

REAL ESTATE BROKERAGE AND AGENCY


Your example of the Ford and Chevy are way out of whack. We're talking legal representation, not TV's and trucks. Your example of Salesman is one thing and accurate. Agency (legal representation) is another. Open your eyes.
-

Originally Posted by Erby Crofutt

Here's a start just for you Jerry. Read carefully the duties of the agent/broker in each situation. Especially that regarding confidentiality.

REAL ESTATE BROKERAGE AND AGENCY

I am aware of that.

Your example of the Ford and Chevy are way out of whack. We're talking legal representation,

No we're not. We are talking about sales, commissions, and people wanting to get paid just because they showed you a property, then you go somewhere else and buy something else, and that person still expects to bet paid.

Your example of Salesman is one thing and accurate. Agency (legal representation) is another.

Agreed there, but ...

Open your eyes.

I'd suggest you open YOUR eyes and read what is being discussed.

This is from the first post:

A colleague of mine is looking for a house. He showed me the contract an agent wants him to sign to be his buyer’s agent. I didn’t read much of it, but two items really stuck out:

1. If the agent doesn’t get at least 2.5% commission, the buyer will top it up to 2.5%.
2. The term is 3 months, but if the buyer purchases a house from any source whatsoever within 60 days after the contract expires, the commission is payable.

Nothing about agency, all about getting commission whether or not they make the sale.

Sales Commissions are based on performance, not the time devoted to one's efforts.

Let me see if I have the groups right.

1. "Agents should not get paid if they don't produce for you, no matter the circumstances"
2. "Agents should get paid no matter what they do"
3. "You should be able to take advantage of Realtors' time effort, and money while you look on your own. If you beat them to the right house, they get nothing"

I'm unable to identify with anybody. How about?
You employ an Agent. You inform the Agent that you intend to get the right house with the best pricing and financing available. You tell the Agent that you are aware of how he will be paid, but that if at any time you find that he is not acting in your best interest, the deal is over. That includes when sitting at the closing table. You will be honest with the Agent. As long as that Agent is working on your behalf and showing you houses meeting the criteria you have set, if you happen to find one of interest when she is not with you, you will allow her to negotiate and do the paperwork on your behalf.

JP, you left out a very important Provio when you stated "When you go into sales and commission, you are risking everything for nothing ... or everything for it all ... that's why some succeed and others fail." That is true only if all parties are being honest and if you are a poor enough salesman that you strive for the one time deal. Real money is made in commissioned sales through relationships and repeat business.

I raised my family on commissioned sales before I bought my first business. I learned to quickly identify the dead beats who only understood their side of deal and never wasted my time with them. Changing your mind about a purchase is one issue. Doubling your manpower by having an agent drive around and look for you while you do the same (with the intent of cutting the Agent out if you find something first) is theft.

What you described is the stock market or the lottery. Commissioned sales is not the market or the lottery. It assumes intelligent planning of one's time for a suitable reward. The reward comes with a sale. The sale comes with work and the honest cooperation of all parties concerned. It assumes ethics. If the Client has no ethics, there will never be a sale.

For those of you who fall into the latter category, how many of you told the Agent up front what you were doing? If you did and they were still dumb enough to work for you, their bad and they desrved what they got. If you sprang it on them after you found a place on your own, shame on you.

As to the scenario that started this thread, I can't imagine anyone signing a contract like that.

Originally Posted by Thom Walker

Let me see if I have the groups right.

1. "Agents should not get paid if they don't produce for you, no matter the circumstances"
2. "Agents should get paid no matter what they do"
3. "You should be able to take advantage of Realtors' time effort, and money while you look on your own. If you beat them to the right house, they get nothing"

I'm unable to identify with anybody. How about?

And?

You did not tell us what 'your group' thinks.

You employ an Agent. You inform the Agent that you intend to get the right house with the best pricing and financing available. You tell the Agent that you are aware of how he will be paid, but that if at any time you find that he is not acting in your best interest, the deal is over. That includes when sitting at the closing table. You will be honest with the Agent. As long as that Agent is working on your behalf and showing you houses meeting the criteria you have set, if you happen to find one of interest when she is not with you, you will allow her to negotiate and do the paperwork on your behalf.

Correct, and that sounds like 1. to me.

JP, you left out a very important Provio when you stated "When you go into sales and commission, you are risking everything for nothing ... or everything for it all ... that's why some succeed and others fail." That is true only if all parties are being honest and if you are a poor enough salesman that you strive for the one time deal. Real money is made in commissioned sales through relationships and repeat business.

Correct, and, if you noticed, in my post I stated "Getting back to the agent in Maggie Valley - we may go up there next summer and look for a house to buy, and, if that agent is still there, we will use her, because she was honest about the houses we looked at."

Does that your "That is true only if all parties are being honest " part?

She was honest with us and we were honest with her.

You needn't be defensive. my quote was,
"I raised my family on commissioned sales before I bought my first business. I learned to quickly identify the dead beats who only understood their side of deal and never wasted my time with them. Changing your mind about a purchase is one issue. {This would be what you did}Doubling your manpower by having an agent drive around and look for you while you do the same (with the intent of cutting the Agent out if you find something first) is theft." {This is what I understand others to be suggesting}

And no, my idea ian't the same as idea 1. One defines "produces a result" as providing the introduction to the house one ultimately buys as the only means for Agent compensation. Whereas, my concept defines production as the Agent perhaps making that introduction, but being rewarded based on the effort to locate the house, helping the Client define their desires to themselves more clearly, find best choice financing, ins., strike the best deal with the seller, understand the neighborhood and schools, provide the comps, get a realistic appraiser, locate the best inspector, research development plans in the immediate area, and handle the paperwork.

Originally Posted by Thom Walker

And no, my idea ian't the same as idea 1. One defines "produces a result" as providing the introduction to the house one ultimately buys as the only means for Agent compensation. Whereas, my concept defines production as the Agent perhaps making that introduction, but being rewarded based on the effort to locate the house, helping the Client define their desires to themselves more clearly, find best choice financing, ins., strike the best deal with the seller, understand the neighborhood and schools, provide the comps, get a realistic appraiser, locate the best inspector, research development plans in the immediate area, and handle the paperwork.

Okay, so you are not 1.

You mean you get paid even if you don't sell (close the deal)?

That means 2.?

Remember, those 1., 2., 3. choices were reduced to their basics, and you were the one who reduced them to those basics.

If not 1., then 2.? I know it's not 3.

Suppose I walk into a shoe store and the clerk asks me what I am looking for. I describe the shoes I would like and the clerk measures my feet and pulls out a couple of pair for me to try on. I don't like one pair and the other pair don't fit. So the clerk pulls out two more pair. One shoe pinches my foot and I just don't care for the other pair so the clerk pulls out two more pair.

After trying on a dozen pair of shoes I leave the shoe store and walk into another shoe store. After describing what I am looking for (perhaps a bit more refined after listening to advice from the first clerk) the new clerk pulls out two pair of shoes. I like the first pair and buy them.

Do I owe the first clerk anything? He tried really hard to find me a pair of shoes that I would like and that would fit but he just couldn't produce that right pair of shoes. I say sorry, thanks for the help but I don't owe him anything since he did not close the deal.

Let's say the second clerk was similarly unable to fit me with a pair of shoes that I liked after showing me 15 pairs. On my way home I see a guy selling shoes out of the back of a van. I stop and find a pair of shoes (new and unworn) exactly to my liking and just my size. I buy them. (Think of this as a FSBO.) Do I owe either clerk anything? Again, no. Although they both tried valiantly neither of them were able to carry the ball across the goal line and close the deal.

(I know. This is similar to JP's Ford & Chevy analogy.)

Sometimes an agent may find the right house for a buyer after the first showing; sometimes she may show the buyer 50 houses (or show a house to 50 prospective buyers) and never get a sale. Those are the risks of being a RE agent. That's why RE agents have such a big payday (6% around here, split among the agents) when they do make a sale. They are not guaranteed payment every time they show a house or from every client they work with. If they were the rate would be much lower than 6%.

A contract is a negotiated instrument. Anyone can write down anything they want and ask someone to agree to it. If the person signs it and doesn't read it they are tied to it, a concept I'm sure we're all intimately familiar with.

This falls into the catagory of 'it never hurts to ask' - as long as people keep singing these things I say it's great for the realtors offering them, more power to them.

That is the basis this country is built upon. Of course I think it's ridiculous and would laugh at a realtor that ever dreamed I'd sign it. But it's my choice. Nobody's holding a gun to your head. This is capitalism at it's best. If you don't like the paper in front of you and person holding it, move on. It's your right.

Until a given clause is illegal there's nothing wrong with having it in your contract.... is any of this sounding familair yet? This is pretty funny stuff.... a group of HI's arguing over the fineprint of a contract... LOL.