Why it's important to have a Buyer's Service Agreement

All sellers know that when they list their home for sale, they must sign a "Listing Agreement." This agreement commits the seller to give the listing agent an exclusive right to sell the home for for a specific period, say 120 days. In turn the listing agent commits to a fiduciary duty to his or her seller. What is a fiduciary duty?

Much like your attorney has a fiduciary responsibility to protect your interests to the exclusion of others so long as his actions are legal, the listing agent has the same fiduciary responsibility to the home seller.

An "Exclusive Buyer Service Agreement" commits the selling agent to the same fiduciary duty to her or his buyer for a specific period of time. In turn the buyer legally commits to purchase a home or investment property using that broker during that agreed upon time. If they buy a home without having their broker write the sale, they still owe their broker a commission.

Normally the seller pays the commission in a home sale. However, should the owner refuse to pay the commission (such as with For Sale By Owners), the Buyer Service Agreement says the buyer will pay the broker a specified fee based on either a percentage of the sale price (normally 2.7 to 3.15%); the buyer and broker might also agree to a flat fee of say $5000. If the buyer is paying the commission, negotiation for purchase need to take that into account and the offer priced accordingly, since the seller will thus gain that much more in his or her net proceeds.

How does this service agreement benefit the buyer? A lot of buyers never sign such agreements and still purchase a home using a broker. Under this agreement, the selling agent must make consistent efforts to find the buyer the type home the buyer seeks. Should the broker not be diligent in this effort (such as not personally contacting the buyer for one or two months), the buyer may not be liable to pay the commission should the buyer find a home on his or her own. This agreement helps the buyer psychologically also. When a broker knows he will be paid a fee for the effort he puts into finding a buyer a home (which can and often does take months), that agent will work even harder to meet his or her buyer's needs.

If you as a buyer trust your broker sufficiently to have her or him locate and assist you in purchasing a home worth hundreds of thousands of dollars, don't you think you should extend that trust to a formal commitment? The broker, knowing she has a higher standard of performance required under the Buyer Service Agreement, naturally puts even greater effort into finding you the right home...and equally important, in negotiating price, terms, and repairs on your behalf.