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Why it’s important to understand the Buyer Agency Agreement

Posted by Milana Cizmar on April 30, 2012

Make sure you understand the terms of the contract you are signing so that costly legal proceedings can be avoided later

The agreement you sign with a real estate agent should set out clearly and simply what you can expect from the agent and what the agent can expect from you. But this important document may be one of the least well understood, based on emails I get from buyers and agents

Here’s an example. Though it took over three years to get to trial, the lesson is clear; understand what buyer agency means before you start working with an agent or visiting agents at open houses.

A buyer couple was looking for a home in Milton and saw a For Sale sign of a real estate agent. Over the period of a few days the real estate agent showed the buyers several homes.

The couple decided to put an offer in on a house in Milton, with the real estate agent  acting as their agent. Before the agent did so, he sat down with the couple and gave them a Buyer Representation Agreement, the standard document that sets out what the agent will do for you. It also sets out important legal terms and conditions, including:

•The length of time the agent will act on your behalf. It can be as short as a day or six months or more;

•Where the agent will look for homes;

•An obligation for you to refer any property you find to the agent; and

•An agreement for you to pay the agent commission, if the seller refuses to pay it.

The couple’s offer for the house was not accepted and they went directly to a builder, without the help of the real estate agent and bought a house.

The real estate agent sued for $11,000 commission in a case heard in small claims court. The real estate agent argued he spent two to three hours with the couple explaining everything. The couple argued the real estate agent was at their house for just a few minutes and had to hurry off because another offer was coming in that night.

The couple also argued through their lawyer, they thought the only reason they had to sign the Buyer Agreement was so that they could put in an offer on the house they were interested in and that’s it. It was also not explained that the agreement would continue for another six months.

In a decision on March 27, the Judge accepted the couple’s story about the night they signed the buyer agreement. She noted that the agent did not have clear notes or recollection of the times and dates involved, while the couple did. She said that the buyers  could remember that it was late at night and the wife felt rushed putting the children to bed, and that she was not even at the table while most of the papers were reviewed by her husband.

The Judge ruled that the contract terms were not understood by the buyers and that when they signed the Buyer Agreement, they thought it meant something else. She denied the real estate agent’s claim for commission.

This case contains important lessons for buyers and real estate agents.

•Buyers, if you want a buyer agent to be loyal only to you, consider signing a Buyer Agency Agreement; do not try to use someone’s services and then avoid paying commission later;

•Buyers, also understand that you can negotiate the terms of this agreement, time period and territory. For example, if you only want it to apply to resale homes and not new homes, include that in the agreement;

•Agents, make sure that buyers clearly understand all the terms of any Buyer Agency Agreement before it is signed. Have the buyers initial all key paragraphs and leave them a copy of the agreement as well. Keep notes of everything that was discussed.

When everyone understands what Buyer Agency is all about, costly legal proceedings can be avoided later.

Mark Weisleder is a real estate lawyer. Email mark at [email protected]

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