Buyer Agency Agreement Defined
Buyer agency agreements (BAA) are contracts outlining the relationship between a homebuyer and a real estate agent. The BAA creates a working agreement for the duration of a transaction and establishes responsibilities. Also, the BAA clearly identifies the expectations of the real estate agent, and of the buyer. To form an agency, typically there must be mutual assent, consideration, intent to create, and competence . The North Carolina Real Estate Commission states that establishing agency can be accomplished orally or in writing, however, requires informed consent, which is provided in the form of a Buyer Agency Agreement. The BAA ensures buyer representation for a real estate transaction and played an important role in shaping our real estate market.
The Terms of the Agreement
A buyer agency agreement in North Carolina is comprised of an outline of an agreement between you and your broker that states the expectations of the relationship if you decide to hire that specific licensee as your agent. It is generally used when the buyer has found a home or property that they are interested in purchasing, or it may be used if they are interested in hiring the real estate agent or representative on a general basis. It is one of two types of contracts used in a real estate agency, the other being a listing agreement that is a written contract used in which a seller hires a real estate broker to market a property for sale. It is established to discuss the relationship wherein the agent will represent the buyer for a specific piece of property such as a home, raw land or any other form of real property. This allows you to designate another individual to be authorized to look into finding you the right property for your needs and to handle negotiations and other essential matters. The agreement does not require you to purchase a property, but in the case that you make an offer, the buyer agent will be entitled to compensation.
The agreement generally specifies the duties of the real estate licensee and covers topics such as: the expectation is that the licensee will represent you and your best interests at all times, and that they will act with your level of confidentiality in mind. The document also discloses that the licensee is to help you while you search for a property that fits your specifications. The limitations of the agreement can also be addressed in the contract, such as setting a time limit on your ability to work with the agency, and developing realistic expectations when it comes to what the agent can offer.
What Buyers & Agents Must Do Legally
The Buyer Agency Agreement establishes the legal responsibilities of both the buyer and the buyer’s agent in accordance with the North Carolina Real Estate License Law. Included among those duties are that the agent must assist the buyer, the buyer must compensate the agent if other parties do not, that the agent must avoid conflicts of interest, and that the agent must treat the buyer honestly and fairly and disclose any material facts.
As in all contractual relationships, there is an overarching fiduciary responsibility that the parties to a real estate transaction owe one another. The contract also sets the agent to take appropriate action in the event of a conflict of interest, which could result from the buyer seeking property listed by the agent or managing broker. The agreement requires the agent to submit to the buyer all offers to purchase property that comes to the attention of the agent.
Fiduciary duty to disclose is always a big concern. In this type of agreement, the duty is to disclose to the buyer any perils that the agent is aware of, such as neighborhood association fees, and status of zoning within the property. The statute in North Carolina provides the scope of such disclosure in section 93A-6.
The Benefits of Signing
A buyer agency agreement offers distinct advantages for home buyers. For starters, it provides each party with the protection afforded by a contract. The buyer benefits from a professional, experienced representation that is fully dedicated to their needs. The agent must be extremely familiar with the marketplace throughout the area where the home is located. They must get to know their clients, their lifestyles and how they relate to the home and community. This expertise allows them to thoroughly evaluate every residence from various perspectives. Navigating legal paperwork, negotiating, closing and finding a home to fit individual requirements is not easy for the average buyer or seller. For a buyer, having an agent to explain the complex process and guide them through it is invaluable. Their experience minimizes the potential for costly and/or frustrating mistakes. Since the agreement is an in-depth written contract, it protects the rights of both the buyer and the agent. It stipulates the buyer’s consent to legal representation, and the agent must perform certain duties for them. In addition, having this in writing offers protection in the event the relationship between the parties is severed. It also ensures compensation is provided if required.
How to End a Buyer Agency Agreement
Buyers can terminate their buyer agency agreement in a few different ways. One of those ways is by mutual agreement. If the buyer no longer wants to work with that agent, there are multiple ways for the agreement to be mutually terminated. The agent’s broker might have a company document that cancels the buyer agency agreement. Or the agent or the buyer may simply write a note to each other mutually terminating the agreement.
Another way for a buyer agency agreement to terminate is for the buyer to breach the agreement . If a buyer agency agreement is created that is true and enforceable and the buyer decides not to buy a house or otherwise breaches the contract, then the buyer agency agreement can also be terminated.
A buyer can also terminate the buyer agency agreement for any reason with just 90 days notice. This type of termination can be included as a provision in a legally enforceable buyer agency agreement following North Carolina law. As mentioned previously, if the agreement does not contain a termination provision, then it will be valid indefinitely. In that case, any termination would have to be mutual and in writing by the buyer and the agent.
Buyer & Agent Myths and Frequently Asked Questions
Understanding Buyer Agency Agreement In North Carolina: Common Misunderstandings And FAQ’s
From my experience, the most frequent misunderstandings are:
- They think that it is not legally binding — it is. It may be terminated after a set period of time, but between the time the buyer signs the agency agreement and the time it’s terminated, the objectionable acts can and most likely will cause the agent a problem and will probably cause the buyer a problem too. Another party might obtain title to the property because your agent was not legally empowered to buy the property for you.
- The agency agreement allows them to "steal" a realtor’s client — it doesn’t. The agency agreement prevents this from happening to the buyer. If you have an agency agreement with a realtor or a firm, that firm is your legal representative. An agent could "steal" a client from another agent, but if you have a written agency agreement with the firm, this will be rectified by the brokers when you leave and go to the new firm.
- Acting as a buyer’s agent is what realtors do anyway, right? No. A real estate agent cannot work as a buyer’s agent unless there is an agency agreement in place. If the agent that you met with yesterday lists and sells the same property that you are interested in today, they don’t have to treat you like a client if you didn’t have an agency agreement in effect yesterday. Most agents will be fair, but the law doesn’t require it. If you are a prospective buyer instead of a client today, the agent is not obligated to negotiate in your best interest.
- I found the house, so my agent doesn’t need to be involved — not true. You have the option of having your agent act as your sub-agent only. Sub-agents who don’t have an agency agreement with you must treat you like a prospective buyer and not negotiate in your best interest. If the listing agent offers to negotiate for your benefit, don’t accept their offer if you have a written agency agreement with another firm.
- I live on the other side of town and obtained my realtor through a referral from a friend —there are several things wrong with this. Referrals from a friend are great for many other things, but they are not good for choosing a real estate agent. Please consider having an agent who is licensed in North Carolina who meets your needs. Why? Your friend’s agent may not be a full time agent. Your friend’s agent is probably part time or a newly licensed real estate agent. Even if that agent is a very experienced agent, that agent does not know the market where you are searching for a house or what the competition looks like for a property that you wish to purchase. An agent who works in your neighborhood every day knows how to help you get the best price for the property you wish to sell and how to purchase the best property at the right price. If the agent is not licensed in North Carolina, you need to be aware that there is something called the North Carolina Real Estate Commission. The NCREC publishes a notice stating that it has no jurisdiction in other states; therefore you need to be diligent and educate yourself on the laws of the state you are searching. If you don’t make yourself aware of the laws in the state where your real estate transaction takes place, you are starting off from a disadvantage. If your friend’s agent is not a resident of the state where your real estate purchase is being made, you are opening yourself up for further problems.
- My firm has a policy against dual agency, so I am protected —this lack of knowledge could cost you more than you think. Just because the firm has a policy for you not to act as a dual agent does not mean you are protected. Only the broker-in-charge can violate the policy, and clients must consent to it beforehand. Even if the buyers disagree with the policy, it’s irrelevant because the BIC can consent to have dual agency in your particular transaction. No matter how many clients the firm represents, the consent of all the parties is necessary in order to enter into a transaction and be a legal dual agent. Just because your firm permits dual agency does not mean that your agent is legally approved and certified for dual agency. Does your agent understand the difference between dual agency and designated dual agency? Be sure to ask your agent and research the differences on your own. If the broker-owner consents to double-ended dual agency, the buyer could be the only person who suffers. It’s your money. Realize the risks and rewards.
Practical Tips for Negotiating
Many buyers are surprised to discover that a buyer agency agreement is negotiable. Buyer agency agreements tend to be somewhat formulaic, with one full commission being a standard figure most of us think about as being the anticipated fee for services of a real estate professional. However, that standard figure is just a starting point—an opening number, as it were. Having that number allows the broker to negotiate on your behalf as you consider the many factors involved in a home or land purchase.
From the beginning, you should insist on using the language of the standard buyer agency agreement offered by your professional. From there, you will have an excellent starting point for discussion. For example, the standard agreement in North Carolina states that 100% of the commission will be paid by the seller to the buyer’s broker when the listing broker is a member of the regional MLS. This is a perfectly good statement and one that directs the parties in the direction of an expectation of payment by the seller. You can start with an agreement to that effect.
However, if the subject property is not listed in the MLS, then you need to negotiate the language in the buyer agency agreement to agree on how the commission amount will be paid. There are many ways in which the total fee can be divided into amounts for each side of the transaction. For a $100,000 house the sellers might pay half and the buyers pay half if the system is set up for the split like that. If the seller was going to pay the entire 6% through the Listing Agreement (such as with a builder or owner who will not have to pay a commission because he is not represented), then there would be no need for the buyers to negotiate with the listing broker beyond 1% of the total sales price.
Sometimes the seller will agree to pay your professional a certain amount, then the rest is paid by you. These arrangements can get difficult if two buyer agents are involved and communications break down. To avoid this, make sure that the total amount of the fee you are responsible for is clearly delineated in the agreement.
Although a 6% fee is standard, that percentage is generally not required in the buyer agency agreement. Many professionals take buyers as clients and receive no compensation from the seller and others receive some compensation from the seller. The best way to find out how your selected buyer agent is working with you and the seller is to ask. In North Carolina the broker has a license obligation to provide you a written disclosure on the buyer agency agreement stating exactly how and when they will be compensated.
If your buyer agent is receiving a full fee from a seller, you will have little concern about negotiating a lower fee in an agreement. However, if you find you will be paying some or all of your professional’s fee, then you will be wise to negotiate the fee to be a lower amount. On the other hand, if the buyer agency agreement states that "everything paid by the seller is to be credited to the buyer," you may want to leave things as they are. When you go back to the negotiation table for a price reduction, knowing that the seller will have to give up some of their commission to pay you won’t help your side of the transaction. Better to leave the fee vague or more in the seller’s favor.
There is no right or wrong way to negotiate a buyer agency agreement in North Carolina. It all depends on how experienced your buyer agent is and how complicated the transaction becomes as it moves forward in the process. Good luck with your negotiations and remember to keep your agent in the loop so that they can best represent you!
Selecting the Right Buyer’s Agent
A buyer’s agent should be someone you trust to represent your best interests. While North Carolina real estate agents all work under the same governing body, the NC Real Estate Commission, it does not mean that they are all the same. It’s also important that your buyer’s agent be a full-time real estate agent – many people dabble in the profession as a side business, but you need someone on your side who works in this field full-time.
To find a trustworthy buyer’s agent, start by considering an agent with whom you have had previous experience, a friend or acquaintance, or even a family member if you’re comfortable with it. You can also ask your family and friends for a suggestion of a competent agent as well. Be sure to review the buyer’s agent’s website and social media pages (if they have them) to get a feel for their experience and reputation. It’s important to know that you have someone representing your interests during the home buying process.
Ask questions through email or in person. Questions to ask a prospective buyer’s agent include:
- Is this a full-time career for the person? If real estate is a part-time job for them , it’s likely that your listings and offers will be neglected.
- Do they work as a buying agent or do they spend most of their time listing properties?
- How many clients do they have right now and where are the properties they are currently showing?
- Do they get referral business? A buyer’s agent’s network of past clients in search of another property is a good sign that the agent is effective and knowledgeable.
- When a property is viewed, how they handle the offer – do they set a limit on the amount of properties they’ll show or do they let you control the process?
- What are their fees? While the buyer may not pay these directly, ask about the cost of the agent’s services to be sure there are no surprises later.
