The Risks of an Exclusive Buyer Agency Contract

first time home buyerFinally buyer agency contracts are becoming more popular in Greater Boston.  As a first time home buyer in Boston you should be especially interested in signing a buyer agency contract.  Boston, Newton, and Brookline Realtors are usually happy to discuss the contract and demonstrate how it protects you.

The goal of a buyer agency contract is to cement a relationship between broker and buyer for a set period of time.  The broker is obligated to meet fiduciary responsibilities to the buyer, which essential means the buyer’s interests and instructions always trump the broker’s interests and advice.

Like in any contract, there are risks and benefits to both the agent and the buyer.  Let’s clarify what they are so you can judge if you need the buyer agency when you buy a home.

Risks to Buyer

To the buyer, there are two main risks.  First, the buyer is obligated to work exclusively with the buyer agent for a set period of time, as outlined in the contract.  But what happens after a couple of months the agent proves unhelpful or a bad match?

This risk can mostly be averted by interviewing agents and asking for referrals.  Some agents happily work with you for a bit to ensure there is a good match between broker and buyer.

The second risk to the home buyer is the possibility of an added cost.  But, that’s not really the case – it only seems like a risk.  The prices of homes almost always include the buyer agent’s commission.   Most For-Sale-By-Owner homes pay a buyer agency commission.

What about a listing with a discount commission.  Say you are a first time home buyer in Boston and you are looking at small condos.  Some of them may have a commission paid to buyer’s agent of 2%, and your contract is for 2.5%.  Where is the missing 0.5% coming from?

You can build the added commission into the offer price and it can still come out of the seller’s final price.  Alternatively, you can pay the balance at the closing yourself remembering sellers who discount commission usually negotiate badly – meaning, you probably have a decent deal on your hands!

Risks to Broker

The broker also takes risks in these contracts.  First, just as the buyers, we may not want to spend six or twelve months committed to you.  Sometimes agents don’t like their clients, and fat chance we’ll get referrals from a client’s accountant / attorney / financial planner / parents to learn if you are reasonable.

But the guarantee of getting paid has brokers working a bit harder for clients and more committed to the process regardless of how unreasonable.

The other risk we have, and the biggest of all risks, is somehow failing to meet all the obligations spelled out in the contract.  We can’t miss a house!  This is especially daunting in a very tight market where everything sells so quickly.

Every obligation and task on the contract is a potential lawsuit if not done correctly.  The buyer agency contract carries a huge responsibility for the broker.  This is not a bad thing, but it is important to point out.

The Benefits

Signing a contract awards the buyer benefits of fiduciary obligation and commitment from the broker.  You have someone working for you, no need to ponder the agent’s agenda.  As a serious buyer you want to hire a buyer agent so you are guaranteed a level of service, which you deserve.

The broker benefits from the guaranteed income if he should successfully sell a home.  It is very frustrating for agents to work for buyers only to find they walked into an open house and bought a home direct from the listing agent.

We don’t get paid if you don’t buy, but if you do buy, we want to get paid. The buyer agency contract guarantees the buyer receives services in return.  This begs the buyers to consider their agents more carefully, which is a very good thing.

Buyers often mistakenly think the buyer agency contract was developed to protect agents, when the buyer is the one who has most to gain.