Understanding Buyer Representation Agreements

Per new regulations of the National Association of Realtors, “beginning August 17, 2024, a buyer representative “working with” a buyer will be required to enter into a written agreement with the buyer prior to touring a home, including both in-person and live virtual tours”. The agreements in California that may be used for this are either the Property Showing and Representation Agreement or Buyer Representation and Broker Compensation Agreement

Either of these forms serve as a contractual document used in real estate transactions to establish a formal relationship between a buyer and a Realtor. The agreements outline the terms and conditions under which the realtor will represent the buyer in the search for and purchase of a property. It also specifies the compensation the realtor will receive for their services.

This new change stems from multiple lawsuits filed against the National Association of Realtors for alleged price fixing violating federal anti-trust laws. Commissions typically have been listed in the MLS on a listing to let the buyer’s agent know what commission percentage they will receive. Now, commissions will no longer be listed in the MLS.

What does this all mean for a buyer?

Firstly, in order for a realtor to show a buyer a home outside of an open house, the buyer will have to sign one of these forms that will list compensation to the Buyer’s agent. These agreements can be written creatively though so that a buyer does not feel locked in with a specific realtor they may not feel comfortable with yet.

Secondly, while in the past the seller has paid out commissions from the proceeds of the sale of their home to both the seller’s agent and the buyer’s agent, the seller can opt out of providing commissions to the buyer’s agent. This is where the Property Showing and Representation Agreement and the Buyer Representation and Broker Compensation Agreement come into play. These agreements will obligate the buyer to pay out commission to their agent if the seller does not offer compensating commission to the buyer’s agent and the buyer still agrees to purchase the property.

Most industry experts still expect the seller to pay commissions to both their selling agent and the buyer’s agent from the proceeds of their home. This is because many buyers may choose not to purchase a home if they have to pay the realtor’s commission out of their own pockets.

How can a buyer avoid paying their Realtor’s commission?

1) Don’t buy a home if the seller is not willing to pay your Realtor’s full commission. As your Realtor, I should be able to determine before showing if the seller is willing to do so. Even if they are not, you can still make an offer that is contingent upon them paying your Realtor’s commission.

2) You can sign a Buyer Non-Agency Agreement or an Open House Visitor Non-Agency Disclosure and Sign-in Form with the seller’s agent. In Pine Mountain Lake, a gated community, very few agents have open homes because they are so unproductive; so, the later form would be rarely used. Additionally, you would have to sign one of these forms with the selling agent for each property that you view.

Either form will get you into a home for viewing, but if you want to represent yourself when buying a property, the list agent will not be able to help or advise you at all, because they would be representing the seller exclusively and any help that they give to a buyer could be construed as a violation of their fiduciary duties to the seller, opening them up to litigation.

More specifically, they would not be able to give you any of the numerous forms involved in a purchase agreement; you would have to somehow obtain the forms and complete them without the assistance of the seller’s agent. Likewise, they could not advise you on any advisory, disclosure, or supplemental forms; or in regard to inspectors/escrow companies to use, or any other aspect of the transaction. You would be completely on your own.

Ultimately, you would really need to contract an attorney, a buyer’s agent, or the list agent to help you with all of this, and if you decide to have the list agent represent you (dual agency), they will expect to be compensated for this for being a buyer’s agent as well.

Why you really should work with a buyer’s agent

Buyer’s agents provide expert guidance and advocacy through one of the most complex and important financial transactions you’ll ever make. As a home buyer, you’ll likely benefit from having an experienced professional represent your interests only — not the seller’s — in the search and transaction (Most sellers, in turn, ‌work with a listing agent to represent their side of the deal).

Also, engaging a buyer’s agent provides you with personalized service. Your agent will spend time understanding your requirements and preferences to find your ideal home. They’ll also handle the legwork, from scouting listings to coordinating showings, reducing the stress associated with the home buying process.

Some may be nervous about entering an agreement with an agent that they dont even know, and many concerns are best alleviated by a good phone conversation with a prospective agent about your home search needs and questions. With such a conversation, an experienced agent should be able to establish your trust and the rapport necessary for a good working relationship.

If you are still tentative about committing to an agent, the Property Showing and Representation Agreement form is a good alternative, because an agent can tailor the representation agreement to only apply for the property(s) that you are seeing on a specific day. If you are not feeling good about the agent, future properties can be viewed with other agents.