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The Contract - The Exclusive Buyer-Broker Agreement & Agency Disclosure
The Exclusive Buyer-Broker Agreement is a completely one-sided contract carefully crafted to obfuscate services offered and compensation requested so that the ignorant buyer has no idea how much he is paying for these undisclosed services. It will not have any specific services offered and will list zero metrics for success or failure on the basis of services rendered. In return, the contract by default will lock in the buyer to a 3 month exclusive agreement where even if the buyer attempts to fire his poor performing agent and go out on his own to find a home that he negotiates for, he will still have to pay the brokerage the full 3% plus extra $650 for doing nothing. Further, the contract will force you pay his fee regardless of whether the seller agrees to pay. If he is as dishonest as Agent X, then he will lie to your face when he briefs this portion of the contract to you or just skip over it altogether.
The truth is that Agents prefer when the seller agrees to pay because it gives them the opportunity to advertise to you that you are getting their services for "free" and it also relieves them of any substantive obligation to you because their compensation no longer depends on you at all. However, if the seller will not agree to pay, then you are on the hook to pay. This scenario will likely end in your giving up on purchasing a home until the time that your exclusive agreement expires. In my case, Agent X waited until we found a home we wanted to make an offer on the house before presenting us with this agreement despite being mandated by NAR to do so. He manipulated me via a false relationship of trust that he leveraged to insert himself into a sales process that he knew would only benefit himself.
Now, not all situations are like mine. You might have debilitating social anxiety that prevents you from interacting with people where you might need a buyer's agent concierge services to get you through a purchase of a home. Below are the pitfalls to look for and how and suggestions on what language to insist in your contract in the event you do choose to work with a buyer's agent:
Language to look out for and negotiate against:
1) Look out for vague descriptions of services offered. In my contract the only mention of services offered for the requested $22850 was "help locate and negotiate acquisition". That's it. No exaggeration. There are no specifics to what any of those words mean, no metrics for success or failure, no way to hold them accountable for anything, no way to fire them, no way to say they didn't succeed, nothing. It doesn't even say the agent needs to to find the buyer his property technically, they could just find a random property for anyone or no one and negotiate it's acquisition for a 3rd party and technically the buyer would still be responsible to pay them for services given even if it was solely the fed-up buyer who went out and found a house, negotiated it, and closed the sale himself. This is literally insane as written. What kind of purported service writes vague descriptions like this with zero possibility for accountability? Scammers. So how do you counter this? You need to force them to put specific language in there and then tell them how much you are willing to pay for each specific service. Also, above all, please NEVER agree to any broker fee that is dependent on final price of the house. This is working directly against you! Rather, create time or per instance based compensation with potential bonuses tied to their using skill to financially benefit you, such as negotiating down the price of the house. Here are some potential specific services and how to negotiate compensation:
The Buyer's agent will do the following for the associated fees:
Help you assess what you're looking for in a home. Truth is, I don't even know how to put qualifications or metrics on this supposed "service" because I can't imagine anyone needing help in knowing what they want. This seems completely fabricated by someone grasping for straws to explain what they do. If you don't know what you want in a house you probably shouldn't be buying one.
Assist you in your search for homes within your budget. I personally wouldn't ever request this service because you can find everything out there on Zillow yourself. Sometimes they can find homes that pop up on MLS that aren't "live" yet for other people that you might be able to view and put an offer on before other people, but for the expense buyer's agents charge, it isn't likely worth it. But you could put a metric on this that you are willing to pay $50/home that your agent finds that you are actually end up viewing with a bonus of $200 if they can get you into the home before other's van view it.
Arrange visits to the property. I wouldn't pay for this either, I'm just going to call up the seller or seller's agent for free directly in the future; but if you want the help, you could put a metric on this of $35/hr for the agent's time while out viewing homes or $50/home, etc.
Review the inspection report with you. This can be helpful if you don't understand what is wrong and you trust them to help you come up with estimates of how much it would cost you to hire a contractor/service to come in and fix all of the issues on the inspection. Perhaps offer him $50/hr to go over the report and $75/hr to negotiate concessions on your behalf.
Negotiate with the seller to help you get the best price. This can be useful if you aren't comfortable with confrontation or haggling. Offer him $50-$100 for a market assessment if you want one and then once you come up with an offer, give your agent $50/hr to negotiate on your behalf and then incentivize him by offering to give him 25% of any amount he can negotiate down from the offer price you just determined. Also include a penalty if he fails to get your offer accepted that he must return the negotiating fee or something similar.
Handle the majority of the home offer paperwork. Offer him $50 to fill out the cookie cutter contract and put it online for signatures.
Make sure deadlines are met on the escrow timeline. Again, this isn't needed. As part of any of your conversation where you are paying him by the hour, just have him list out specifically what the gates/timelines are for each step in the process and who it is that you need to call to make it happen.
Help with the loan application process. Again, if needed. Realtors don't really do this, they'd likely at most just refer you to their favorite loan broker. This is just another question you can ask them when they are on the $/hr clock. Loan applications is the job of a loan broker. You can hit the easy button with a big company like rocket mortgage or what I'd recommend is calling up at least three different loan brokers and then ask them to give you quotes on loans and then use those quotes to negotiate down each of them until you find the best deal, the lowest loan fees/closing fees possible. In my experience, I got way more value out of my loan broker who worked his butt off to get me a solid deal at a decent rate. He took time to go over points options for buying down the interest rate and how that affected lender incentive discounts on closing costs etc, unlike agent X, he was VERY helpful and definitely earned the $1200 he charged me in the "broker" fee as a closing cost. More on navigating loans here.
Navigating the final closing. Again, don't really need help here. You are going to pick and use a title company and be assigned an escrow officer. Just call them early and work with them. They are going to already charge you a set fee so call them all you want to get your questions asked and to ensure everything is lined up for your close: the loan, 1031 money, a mobile notary if you are not local to sign all the paperwork that they will prepare and have you sign. They take care of the title and you will have already gotten all your other closing fees disclosed to you through your loan broker. If you are paying cash, then work with your escrow officer to determine all of that.
Exclusivity - Another condition to never agree to:
Don't accept exclusivity terms from your agent. They will try to lock you in for 3 months, don't do it. Rather than signing an exclusivity agreement, it is much better to just pay them by service or by the hour and have the agreement such that either party can voluntarily exit at any time the arrangement is mutually beneficial. If you can't find an a la carte or by hour service, I'd recommend never signing an exclusive agreement for more than a couple weeks or at most, a month at a time. The big issue with exclusivity is that it is a trap that Agents use as leverage when you find a home you want. The truth is that they have significant leverage on you in the unfortunate event that they convinced you to pay a percentage of the sale of the home. They likely achieved this feat by offering "that you won't actually have to pay it because the seller usuall covers it". This leverage is exercised in the following example. You are scrolling through Zillow and find a FSBO home that you love and ask your realtor about it. He calls the owner and finds out that he does not agree to pay your buyers realtor fees and that his asking price is firm. Now you are stuck. You love the house but in order to get it you have to pay the asking price and, on top of that, you have to pay your realtor his fees too, not good. If you try to go around your agent and just buy it on your own and the realtor finds out about it, they will sue you for their fee and win because of the exclusivity contract you signed. I also want to reiterate the fact that paying a percent of final sale ALWAYS works against the buyer because your agent gets more money if you more money and get less concessions on the home you want. It is insane to agree to this.
Other golden nuggets you might find in the one-sided contract:
The Buyer is advised not to rely on the Company, or any agents of the Company, for a determination regarding the physical or legal condition of the property…” Why then are we paying them?
Further, "Any recommendations for third party services made by the Company or the Buyer’s Agent do not guarantee the Buyer’s satisfaction" Again, if I can't rely on his recommendations what am I paying him for?
Toward the end it states that the buyer agrees not to be part of a class action lawsuit as well. Who needs to put this in their contract? Only bad service.
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