Things You Can and Cannot Do When You Have an Exclusive Contract with a Real Estate Agent?

Having an exclusive contract with a real estate agent leads to numerous benefits, some expected and perhaps even unexpected. However, when a real estate agent asks you to sign an exclusive contract with him or her, he or she is also getting something from it – so there are also some additional costs. Continue reading about both the costs and benefits and how they can hinder or benefit your home search.

Why a Real Estate Agent May Want You to Sign the Exclusive Contract

In order to understand why a why a real estate agent may want you to sign an exclusive contract, just imagine the scenario:

"Finally, after tons and tons of work, your client, the buyer makes an offer for the home they wish to purchase, and you as the real estate agent could not be happier – not only have you helped your client, but also made some income.

However, there is a little bump in the road – the offer is made with a different agent. It turns out that the buyer's friend at church is also an agent and the buyer submits their offer through her instead."

In this case, the original agent will wish they had made the buyer sign the “buyer agreement” - an exclusive contract that would not allow the buyer to make a offer with a different real estate agent.

Unfortunately, however, this scenario can also work in reverse – the real estate agent may drop the client, in which case the client is not only left without an offer but without any help to make one!

Luckily for the buyer, this scenario is much less likely – most real estate agents work on commission; thus, their income comes primarily from getting the buyer a successful and finalized deal.

💡Key Insight: An exclusive contract protects both parties-the buyer and the buyers real estate agent.

Why might the Buyer Want to Sign an Exclusive Contract with One Real Estate Agent?

In a similar way that listing agents sign an exclusive listing agreement with the seller, a similar option exists with a buyer’s broker agreement.

As a buyer, it may not seem to make much sense initially to sign an exclusive contract with one agent. However, it is essential to keep in mind you will be working with the agent for an extensive period of time –a good agent will invest an enormous amount of effort and time in helping their client to become properly positioned so that when you find your dream home, that your offer will be accepted.

This effort can include things like introductions to lenders, advice on the finding the best subdivision or area to buy for your needs, advice on how to present your finances when making an offer so the seller will like your offer better than the others, setting up their portal so you get emails and updates on the areas of interest, etc.

This process can be anywhere from several weeks to several months of “up front” work on the part of the agent. Consequently, it may be in your best interests  to enter into an exclusive contract with your agent,since that commitment allows your agent to justify spending that extra time and effort with you, and prioritizing your needs above other less committed potential clients who are not willing to commit. The agreement will incentivize the agent.

An agent usually works with the buyer for several weeks, or in some cases even several months. In his job, the real estate agent should make sufficient effort to include the buyer – from introducing the buyer to lenders and helping them get their loan approved to introducing them to their future home and helping them make the home theirs.

This will include endless emails full of home offerings that fit the buyer’s requirements, to various appointments and finally showings, often driving the buyer from one neighborhood to the next. Because of the sheer amount of work involved, a contract can be incredibly helpful – it can outline the rights and responsibilities of both parties for their best interests.

And if the agent is not serving the buyer sufficiently, the buyer always has the right to end the contract and fire the real estate agent. However, as this is a bilateral contract, both parties must agree to the relationship's ending.

💡Key Insight: An exclusive contract with a real estate agent can help set the terms for both parties-which is incredibly useful

What is an Exclusive Buyer’s Broker Agreement?

A buyer’s broker agreement, or in other words a buyer-broken contract, is, first of all, a form of contract – thus a legal, typically bilateral agreement between two parties. The contract outlines both the rights and requirements for both the buyer and the real estate agent.

The agent’s responsibilities are most likely to include activities such as locating and identifying potential properties for the buyer to consider, reviewing paperwork, preparing purchase offers, and might also include some other additional services – this depends solely on what both the real estate agent and the buyer agree to.

The buyer’s requirements are obviously much smaller – usually, they include them having to seriously consider the home offerings, qualifying to purchase the property, reading all the materials provided, and perhaps most importantly, cooperating with the real estate agent.

For many buyer-seller relationships, this arrangement is ideal – the contract with the real estate agent ensures the things run smoothly, and both the buyer and the seller gain maximal satisfaction from their purchase and sale, respectively.

💡Key Insight: An exclusive buyer’s broker agreement puts into writing what the real estate agent is responsible for and what the buyers responsibilities are

Buyer-Broker Compensation

According to the details stated in the contract, the broker or the real estate agent will receive their commission on the property at the time of closing, or in other words, when the sale of the home is finalized.

As such, the commission works in the same way as they would without an agreement. However, there is one minor change – if a hardworking agent has a buyer attempting to flake on the agreement or the sale, and they are trying to purchase a contract with another broker, the real estate agent may still be entitled to their compensation.

And as such, even though the sale of the house may not go through, the buyer may still be required to pay the real estate agent their commission.

The Risks of Signing an Exclusive Contract with a Real Estate Agent

It is important to keep in mind that some real estate agents will not even ask the buyer to sign the exclusive contract with them – in which case, it may be solely on the buyer to decide.

However, if the buyer does decide to sign, it is important to keep in mind a few things. Firstly, the agreement usually lasts 90 days, and even though the buyer is allowed to ask for a shorter term of 30 or even fewer days, real estate agents will often refuse.

This is mainly because the agent risks putting the buyer on the right path to finding a potential buyer and then being fired before achieving their sale commission. The buyer is also not allowed to ask another broker to show the home or property.

The buyer can, however, still buy without an agent. It does have its disadvantage – the real estate agent is still entitled to their commission, even if the sale was achieved without their help. If any disputes arise, they can be brought to the small claims court. Essentially, the contract represents an exclusive right for the agent to gain their commission if they have succeeded in their work.

Additionally, keep in mind these contracts tend to be largely bilateral – meaning that both the real estate agent and the buyer must agree to end the contract while it is still active. One party cannot simply leave the other without the second party’s consent.

💡Key Insight: Top risks for the home seller: locked into a 90 Day contract. The agent is still eligible for a commission if a buyer buys a house without their help. Also, the contract is bilateral: one party can't leave the contract without the permission of the other parties consent

Can You Get out of an Exclusive Buyer’s Agent Contract?

The short answer is – yes, but... Apart from the already mentioned way, whereby both parties agree to end the contract prematurely, there are also other ways to end the contract without paying the agent the commission they may feel entitled to.

Placing a Guarantee Request in the Contract

This way can only work if the contract has not been signed yet, and will only work with certain agencies or brokers. Essentially, the buyer can ask the broker to place a guarantee request in terms of the contract. This means that in certain cases, it is guaranteed that the buyer can leave without any penalties.

The circumstances of this depend on what both the real estate agent and the buyer agree to. However, in most cases, these can include reasons such as the agent and the buyer not being a good fit, the agent under delivering on the buyer's requests, and others.

It is crucial to know that the buyer does indeed have the right to request this addition to the contract and should place it if possible – just in case. However, it is also essential to keep in mind that many brokers will not allow for the guarantee request, as it may be too risky for them – the client can claim they are not a good fit at any point.

It may thus leave the real estate agent without their desired commission.

💡Key Insight: Before signing a contract ask to place a guarantee request on the contract.

Buying a Different Type of Home

This, although a way to end the contract, maybe a more unfortunate way for many. A sure way to end the contract is to shift the focus to another type of property fully.

If the buyer jumps ship and purchases a whole different type of property than stated in the contract, they are legally allowed to end it while not having to pay any additional charges.

For example, if the buyer intended to buy a single-family home, they are still free to change their broker and buy a different house if they choose to buy a multi-family home instead.

Other parameters mentioned within the contract are also applicable in the same way. If the contract states a certain city, the buyer wishes to buy their home in. They are free to purchase a home with any broker outside of the area stated in the contract.

Other possible parameters may include – a specific state, price range, or type of property. However, this way will be incredibly illogical for most buyers – it may not make sense to purchase a kind of home the buyer does not want or one in an area they do not wish to live in.

💡Key Insight: It is possible to break the contract by purchasing outside the agreed upon geographic parameters or if the buyer chooses to purchase an entirely different style of property.

Waiting Out the Term Within the Contract

As previously mentioned, the contracts are only active for a certain number of days after being signed – usually 90, but in certain cases, this number can be negotiated down. Because the contracts usually last a certain period, the buyer is no longer bound to the contract after the period passes. However, most real estate agents will not agree to end the contract in under 30 days.

💡Key Insight: Once the contract is over, the buyer and agent are free to do as they wish

Lastly, It Depends on the Terms of The Contract

Lastly, and perhaps most importantly, if the buyer wishes to end an exclusive buyer’s contract, he or she may best refer to the terms of the contract. Within the agreement, an area will include the details upon which the contract can be terminated. Termination should always be spelled out and may require payment or commission, as discussed above.

What if the Buyer Purchases a Home Regardless of the Contract?

As discussed above, buying a home within the areas specified in the contract without the broker’s help, assistance, or with the help or assistance of another real estate agent may mean the broker is entitled to a certain fee or a commission.

Again, the details and the size of this fee will be spelled out within the contract. Thus, before the buyer violates the agreement, it is crucial that they know the sanctions that will follow. Because of this, it is always better to first have a conversation with the real estate agent and attempt to end the exclusive contract amicably.

How Best to Prevent any Discrepancies which May Arise from the Contract?

Despite the possible disadvantages, it is essential to keep in mind the benefits. Not only does the contract provide security to both parties, but it also enlists their rights and responsibilities.

In this case, neither party can claim they were allowed/not allowed to do some activity without consequences. Essentially, if the buyer signs the agreement, they know exactly what and what not to expect – and so applies to the real estate agent.

Therefore, it is crucial to keep in mind the agreement can be largely beneficial if done correctly. As with any contract, it is crucial to read the agreement and ask any questions carefully – it is better to do so earlier than later.

It could also be preferable to take the contract draft with you and consult any real estate lawyer or professional for specifics before signing the infamous dotted line.

Additionally, it is important to get to know the real estate agent before signing the agreement. It may also be good to research the agency, read any possible reviews, and get an overall feel for whether they are not only trustworthy but whether they will also be helpful and efficient in the home-search process.

Moreover, some real estate agents may allow the buyer to place a guarantee request in the contract, thus allowing the buyer to leave the contract without a penalty in certain cases (for example, if it is not a good match or if the agent is not doing satisfactory work.)

💡Key Insight: At the end of the day the contract serves a purpose of serving both parties by providing security