KEY BUYER AGREEMENT PROVISIONS
Both buyers and sellers of real property in Connecticut have the right to representation by a real estate company in a real estate transaction. When sellers have representation, they sign a listing agreement with a real estate company, and when buyers choose to be represented by a real estate company, they sign a buyer representation agreement.
Even though buyer representation has been in effect in Connecticut since 1997, many buyers still do not know that they may have their interests represented in a real estate transaction, that a buyer representation agreement is a legally binding contract, why they are asked to sign one, or what the representation agreement provisions mean..
A buyer representation agreement is a written agreement, a contract between a buyer and a real estate company that allows an agent of that company to locate and show properties for sale to that buyer. An exclusive right to represent buyer agreement means that the buyer will use the services of that company exclusively to find property, and even if the buyer finds the property he or she ultimately purchases, the company is entitled to compensation.
While real estate agents can show properties listed by their own companies without a signed buyer representation agreement , because the company represents the seller and has been hired to market and sell the seller’s property, the Connecticut Real Estate Regulations prohibit a licensee from showing properties listed by another company without a signed buyer representation agreement.
All buyer representation agreements, to be legally effective, must include certain key provisions, some of which are negotiable. Apart from stating the names of the parties to the agreement (the real estate company and the buyer(s)), a buyer representation agreement must contain the following:
1. A beginning date and an expiration date
2. All the terms and conditions of the parties’ agreement
3. A compensation provision
4. The signature of the buyer(s) and the real estate company’s agent.
A copy of the fully signed agreement must be given to the buyer(s).
The length of time a buyer representation agreement is in effect is negotiable. There is no standard, normal, or usual period of time, and the agreement can be in effect for one week, one month, three months, eight months, or whatever period of time the parties agree to.
The geographical area in which a buyer searches for property is another key buyer representation agreement element and is also a negotiable item. Some buyers know exactly the town or towns in which they want to live and can define the geographical area precisely by naming those towns; others are less certain and so can define the geographical area by naming towns determined to be within a certain number of miles from work or within a specific county. Specificity is good. Simply stating “the greater Hartford area” is not clear to a buyer or a buyer’s agent. Furthermore, knowing the geographical area the buyer representation agreement covers allows a buyer to engage the services of another company in another part of the state without violating the provisions of an existing buyer representation agreement.
Buyer representation agreements must also include a provision addressing the broker’s professional service fee. One of the most misunderstood aspects of buyer representation is how a buyer’s agent’s company gets paid. Most buyers do not want to pay someone to find them a property or help with the negotiations and inspections. Typically, buyers expect that their agent’s company will be compensated by the seller or the listing broker. The fact is that most buyer representation agreement compensation paragraphs provide that the buyer’s agent’s company will seek compensation from the listing broker or the seller, but if a seller (usually in a For-Sale-By-Owner sale) is unwilling to compensate the buyer’s agent’s company or the listing company is not cooperating with other brokers, the buyer’s agent’s company will look to the buyer for its compensation.
Another situation involving compensation can arise when a buyer who has signed a buyer representation agreement with company A also signs a buyer representation agreement with company B, thinking two companies are better than one, but both contracts cover the same time period and geographical area. If the buyer then buys property from company B while still contractually bound by its agreement with company A, the buyer may be liable to pay a commission to company A based on the purchase price of the property bought.
Connecticut’s buyer agency policy is user friendly, but knowing what’s in a buyer representation agreement is necessary and important. Just as buyers expect the companies with whom they sign agreements to honor their promises and obligations under the agreement, real estate companies also expect buyers to honor their promises and obligations under the agreement. Why? Buyer representation agreements are contracts and legally bind the parties to their mutual promises. The company promises to work in the buyer’s best interests to find properties that match the buyer’s needs, wants, and criteria, and the buyer promises to look for and buy property exclusively through that company; therefore, just as it takes two parties to agree to get into the buyer representation agreement, it takes the same two parties to agree to get out of it. One party cannot unilaterally decide to end it.
A buyer representation agreement is with a company, not with a particular agent, so if a buyer finds working with a particular agent difficult, uncomfortable or unproductive, the right course of action would be for the buyer to speak to the person in charge at that company?the manager, the broker, or the owner?to see if another agent from the company’s ranks could be provided. Here’s the reasoning: the company represents the buyer; therefore, all the agents of the company represent the buyer. The manager, broker, or owner has the right to substitute one agent for another to properly represent the buyer client. A buyer’s wrong course of action would be not returning the agent’s telephone calls (hoping they will eventually stop) or quietly “defecting” to another company.
A quick recap of buyer representation is this:
- A buyer wanting representation must sign a buyer representation agreement and be given a copy of it.
- A buyer representation agreement is a legally binding contract.
- All buyer representation agreements must contain certain provisions to be legally effective.
- Some of the terms of a buyer representation agreement are negotiable.
- An agent of a real estate brokerage company can show other company’s listing(s) to a buyer only if the buyer has signed a buyer representation agreement before being shown the property.
- All of a company’s agents, not just one agent in particular, represent the buyer who signs a buyer representation agreement.
Judith I. Johannsen is Assistant Counsel for the Connecticut Association of Realtors®, Inc.
Connecticut Association of REALTORS®, Inc. is Connecticut’s largest professional trade association representing over 18,500 real estate professionals engaged in all aspects of the real estate business. Founded in 1920, the Connecticut Association of REALTORS®, Inc. is dedicated to enhancing the ability of its members to conduct their business successfully while maintaining the preservation of private property rights. Use of the term “REALTOR®” is exclusive to the members of the REALTOR® Association and signifies their allegiance to a strict Code of Ethics.