We’ve now reached the point where all home buyers who wish to employ a Realtor must sign a contract with them first, before they even see a house together. We’ve talked about this already, sort of. What was theory is now practice, and there will be plenty of getting used to it from buyers, sellers, and agents alike.
If you’re going to jump into the buyer pool any time soon, you’ll be asked to sign what’s called a Buyer Representation Agreement (yes, the BRA). It’s not as scary as it sounds, even for those who have a visceral reaction when asked to sign anything. The Realtor, who should have by this point demonstrated to you why they should be hired, will walk you through the form. Before that happens, I’ll walk you through some of it myself.
The Oregon exclusive agreement (there’s a non-exclusive version as well) is three pages long, much of which is the typical disclosures and legalese that have little to do with the meat of it. There are two big things that you’ll have to decide on: the duration of the agreement, and the compensation. Let’s take these as they appear in the contract. First, the duration:
These can be signed for a maximum of two years and a minimum of a few minutes. If you want to give a Realtor a tryout, a short duration (a day or a few) might be the right approach. If you’re ready to go steady, a longer duration that fits your timeline and goals would be wise.
The next section of the contract regards compensation:
Put simply, the buyer and agent will agree to a fee structure for the agent’s services, and the buyer will be responsible for their agent getting paid. We’ll get more into the mechanics of that in a moment. The holdback period on line 19 is essentially there to protect the compensation in the event a buyer finds a house and then decides to cut the agent out of the transaction. I don’t think it needs to be 180 days though.
Following the section above are a number of related clauses:
The passage above means if the agreement ends and the buyer signs on with a new agent, they won’t have to pay two commissions.
Here’s the part that outlines what really happens regarding the compensation. When a buyer makes an offer on a house, the agent is going to submit that offer with a request for payment of their compensation by the seller. This makes it essentially the same method that it was before these changes– the seller pays the buyer agent’s commission out of their proceeds. The difference now is that the amount they were willing to pay was not predetermined and advertised in the MLS. It will now, in most cases, be negotiated as part of the offer. If they agree to cover the entire amount requested (which can’t exceed the amount in section 4 above), then presto, the buyer doesn’t have to pay their agent directly. If the amount they agree to pay is lower than what was agreed to, the buyer will be responsible for making up the difference, whether by adding it to their closing costs or increasing the price of the house so that it can be rolled into the loan.
The buyer will always be able to decide what sort of terms they’re willing to accept while in the offer stage. There is no sticker shock at the closing table.
Now we get to some of the extraneous stuff:
The clause above is saying that if the buyer breaches a purchase agreement there may be damages payable to their agent. It doesn’t say that they’d owe this money if they use a contract contingency (inspection, finance, etc.) to terminate a purchase. For the record, I think that the appropriate amount to fill in on line 33 is zero.
Regarding the nonrefundable fee clause: it’s not for me to judge how others run their business (I do anyway), but personally I would never agree to pay this kind of junk fee. Realtors have expenses related to transaction management, and this fee is an attempt to pass it along to the client. I’m of the opinion that’s poor practice.
Next, the all-important question: how do you get out of this? Here’s what the contract has to say about early termination:
There are any number of opinions on what sort of termination fees should apply, everywhere from zero to a cost per door opened, or contract written, or anything else that can be thought up. I prefer to keep it simple: if it isn’t working out and the client doesn’t think I’m doing the job I was hired to do, we break up amicably, and nobody owes anyone anything. That’s how it was always done prior to this new arrangement. It is, at all times during the duration of the contract and even beyond, the agent’s job to demonstrate the value they’re getting paid for.
There are two more pages to the agreement that I won’t bore you with. There’s a somewhat unnecessary space to detail what kind of houses the buyer is looking for, and there are disclosures and descriptions of the responsibilities that each party owes each other. Some of those are helpful to outline and some will induce rolled eyes. There’s also a space for additional provisions, so that any out-of-the-box ideas can be codified.
Prior to these contracts becoming mandatory, it was standard for sellers to decide what the value of the buyer’s agent was. Yes, it was coming out of their money, but was it really? The buyer is the only one bringing money into a transaction. Semantic difference, perhaps. Now, it really is incumbent upon buyer agents to demonstrate the value they present to their client, since the buyer is now deciding. While it may be painful in the moment– and there will be plenty of agents not equipped to demonstrate their value, who wash out– ultimately I believe it will result in a layer of professionalism and accountability that wasn’t there before.
