Buyer Representation Agreement: Definition, Purpose & Types

Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

In this lesson, we'll discuss the types and characteristics of buyer representation agreements. By the end, you will better understand how the contract works and what it does for the buyer and real estate agent.

Buyer Representation Agreement Definition

When sellers want to put a house up for sale, they typically hire a real estate agent to list and market the property. The real estate agent acts on behalf of the sellers. Agents are legally and ethically obligated to act in the seller's best interest.

But how does a seller get the advantage of professional help? After all, if the seller's agent is looking out for the best interests of the seller, then by definition they don't have the same amount of care for the buyer. Fortunately for buyers, a number of agents offer their services exclusively to buyers so that they too can have a pro in their corner.

A buyer representation agreement is a contract between a real estate agent and the buyer to form an exclusive representation relationship. The contracted agent acts as the buyer's agent in the real estate transaction. The buyer gets the agent's expertise in locating a property and real estate negotiations. The contract protects the agent's time and work investment in helping the buyer. Buyer's agents need to make money for their services, and part of how they make sure their services don't go to waste is the representation agreement, which prevents the buyer from buying a home without the involvement of the agent.

Types of Buyer Representation Agreements

How does a buyer's agent work with buyers to find and purchase a home? The buyer's agent will have a preferred system of how they work with buyers. They generally use three different types of contracts to establish the professional relationship and explain how the process works.

The non-exclusive not-for-compensation contract is the rarest and least restrictive of the buyer representation agreements. This kind of arrangement might be used if the agent is a friend of the buyer or doing the service as a favor. Both people may still wish to have documentation of the relationship. Some of the key points of this type of agreement:

  • States the broker does not have to be paid
  • Allows the buyer to hire another broker while working with the original agent
  • Permits cancellation of the contract by either party at any time

The non-exclusive right-to-represent contract expands on the non-exclusive not-for-compensation contract. This type of contract:

  • States that the agent earns compensation
  • Outlines that the agent earns a commission if they broker a house or other compensation if they represent the buyer in the purchase
  • States that the buyer may still contract with another agent
  • Outlines specific contract termination provisions

The exclusive right-to-represent contract is the most common buyer representation agreement and best protects the agent. Buyer's agents make significant time and resource investments. This contract helps ensure the agent gets paid for their work. This type of contract:

  • States the buyer may not hire another agent during the duration of the contract
  • States the agent makes money if the buyer finds the house on their own or uses another agent
  • Prevents the buyer from firing the agent without permissible cause
  • Can last for months or a year

Required Elements

At the bare minimum, a buyer representation agreement must include a few specific elements. It must:

  • Say if it's exclusive or non-exclusive
  • Outline and define any compensation structure
  • Identify buyer and seller obligations, rights, and duties
  • Have an expiration date
  • Disclose any conflicts of interest on the agent's part, like if the agent is showing a property where he already has a listing agreement

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