Buyer Brokerage

Buyer Broker Agreement

I spent all day long yesterday in my first of 14 (fourteen!) classes to get my GRI Designation. A lot of Realtors you come across don’t seem to think much of the various and sundry Realtor designations – of course, those are mostly people who don’t actually have any. It was a pretty interesting class, and I got a lot of out of it. I plan to share with you all some nuggets from the other classes I’ll be taking over the coming year, but let’s not get ahead of ourselves!

The class was ostensibly about Listing, Pricing, and Marketing properties. For some reason, though, we spent a lot of time talking about Buyer Brokerage Agreements. I have never once used a Buyer Brokerage Agreement in my life – we don’t typically use them in my office; in fact, I don’t know of anyone who actually uses them. Yet here was our instructor telling us we’re doing our clients a disservice not to use them.

But first, what is a Buyer Brokerage Agreement? Well, if you are working with a seller, you will have a contract, right? The contract says that if the home gets sold within the contract period, the listing agent is entitled to a commission. Actually, there are several types of listing agreements, but the most common is the “Exclusive Right to Sell” listing, which means that no matter who sells the property, the listing agent gets the commission, even if he has nothing to do with the actual sale. There are other types of listing agreements, but that’s the most popular among Realtors, as you might imagine!

Now, when a Realtor is working with a buyer, typically, there is no agreement between the two of them. The buyer is free to skip off and use another Realtor’s services, even if the buyer’s agent has been working hard for them in good faith for weeks, months, or years. Yes, it’s a risky business being a buyer’s agent. It didn’t seem fair to some Realtor, somewhere, and so the Buyer’s Brokerage Agreement was born.

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The BBA establishes a contractual relationship between the Buyer and the agent, which says that the buyer agrees to pay the agent a flat fee of $X or Y% as commission on the sale. If the BBA states that the buyer will pay 3%, and the buyer eventually buys a property where the commission rate is only 2.5%, then the buyer will owe the Realtor another 0.5% at close of escrow. Were I the buyer, I’d probably try to negotiate with my Realtor and get him to down to 2.5%, and if the commission paid on a property is higher than that, let the Realtor keep the extra commission. More than likely, he will have earned it.

But what is in it for the buyer? Why would a buyer sign such a form when it forces him to pay a commission? The GRI Instructor was pretty convincing on this. His thinking is that if a Realtor has a signed BBA with a buyer, then the Realtor will go the extra mile to make sure that the buyer sees every available property with the characteristics sought in the desired area and price range. But wait – wouldn’t a buyer’s agent normally do this, anyway?

The answer is: no. What about For Sale by Owners? What about expired, cancelled, or withdrawn listings? Or how about new developments, where the developer does not pay a commission to a buyer’s agent? What about listings where the seller is offering a paltry commission (e.g. $2000 – I’ve seen that, and less) where will probably end up losing money on the deal? Is a Realor, without a BBA, likely to show these properties to a buyer? The answer is: probably not!

The GRI Instructor gave a very cogent argument for using Buyer Brokerage Agreements. It’s something I will consider doing myself, since I really believe it will serve to make me provide better service to my buyer clients.

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Seb Frey helps long-time Bay Area homeowners make their next move easily the next one yet. If you're looking for a minimum of hassle, maximum net cash on sale, and certain results, contact Seb today.