A Primer on Buyer Broker Agreements
A buyer broker agreement is a legally binding contract between a licensed real estate agent, known as a "buyer’s broker," and a client, who is the individual looking to purchase a property or home. This agreement outlines the expectations and obligations of both parties and establishes a fiduciary relationship between the buyer and agent.
The purpose of a buyer broker agreement is to formalize the working relationship between a buyer and a real estate professional. By entering into this agreement, a buyer agrees to work exclusively with the particular broker or agent, and the agent commits to act in the best interest of the buyer throughout their property search and purchase process.
For example , if you signed a buyer broker agreement with a realtor in Florida in April, it likely extends for three or six months (when you signed) from the date of the contract. This means that your assigned agent must work on your behalf to find you a home or other real estate property to purchase until the contract is up, unless you agree otherwise to modify or terminate your contract. Notably, some buyer’s brokers may lock out a client from future purchases that occur after the contract expiration date. They reserve the right to pursue compensation for their services during the term of the buyer broker agreement, should the client successfully negotiate a deal after the expiration date.
Key Aspects of Florida Buyer Broker Agreements
Buyer broker agreements in Florida almost always lay out three essential components: Scope, compensation, and duration. From our experience as attorneys for both buyers and sellers, we can tell you that sometimes, the devil really is in the details.
Before we review these components, there’s one thing to get clear on. In Florida, there are no set commissions for real estate agents. If any agent or broker tells you this, they are not being truthful (or at the very least, are mistaken).
Scope refers to the services that a real estate agent is going to provide to a buyer. Depending on the agent’s specialty, this could run the gamut from merely showing a property, to engaging in exclusive representation (which is a continuing relationship), helping buyers negotiate below-market prices, or even in some cases performing a sort of buyer-broker arbitration if the buyer’s offering price was rejected. Whatever the scope of services, this should be clearly laid out in the written document.
Compensation also needs to be clearly stated. Some buyer brokers will seek to take a percentage of the total sale, in the same way as most of the seller’s agents. But not all buyer brokers work in the same manner, so whatever fee setting process is going to be used needs to be very clearly delineated. Again, this is something that goes without saying, but must be present in any agreement.
Finally, duration. Naturally, how long the buyer is going to expect the agent to perform these services is something that should also be explicitly stated in the agreement. If it is an indefinite term, make sure you know how long the term lasts, and exactly how it can be terminated.
The Advantages of a Buyer Broker Agreement
It is important that both parties carefully consider the advantages and disadvantages of entering into a buyer brokerage agreement before signing. The key benefit of having a buyer brokerage agreement in place is that it will provide the buyer/broker with better service because all of the parties are contractually obligated and know what to expect from each other. Typically, a written agreement will define the scope of the broker’s authority, as well as what the broker may expect from the buyer. It encourages the buyer to work with their broker, and greatly improves the odds that the broker will provide a high level of service and confidentiality. Confidentiality is often not a concern with a real estate transaction, yet it is a concern that can save the buyer a significant amount of money or even their life.
Another advantage of a buyer broker agreement to the buyer is that they owe no obligation to pay compensation when working with the broker. The broker’s compensation is paid by the seller per Florida law and if the seller will not pay for the buyer’s representation, it is not an obligation of the buyer.
The broker benefits in a number of ways when using a buyer-brokerage agreement. First, the agreement helps the agent avoid misunderstandings with the buyer later on. When the terms of the agency relationship are set forth in writing, none of the parties can turn on the other at the end of the deal. Further, a buyer-brokerage agreement allows the broker to show the buyer any property that is listed without fearing that the broker has violated the MLS rules and regulations regarding showing commission. Commission structure is important to many buyers who are viewing a specific piece of property. They will not buy if they feel that it costs them too much money. Under the terms of a buyer-broker agreement, the amount of the commission that the buyer is responsible for is established and the seller cannot change this at closing when they realize that they didn’t have to pay out the 3% but more like 1%. It protects the agent.
It is counter-intuitive, but the way to set your fee is to treat every client the same. Ask yourself, how would I treat them in the absence of the buyer-broker agreement? For example, many agents charge (or pay) 2% for buyer-sides and 3% for seller sides. They pay or save sellers more money because sellers always end up paying the most money. But really, you should not do that. Agents should be paying buyers 3% and sellers 2.5% or 2% to make up that difference from the listing side. No one likes to feel like their agent is getting extra money and scamming them.
A buyer may have the same concerns as the seller in a transaction. It is highly recommended to pay a fee on the buyer-side (as is common), so if a buyer refuses to pay, the agent still has a contract with the seller that mandates that the buyer pay for the buyer’s professional services. I have had buyers who refuse to pay then realizing they are being frauded by the seller and then they have to be sued into default with no home they love.
Legal Requirements Under Florida Statutes
As previously discussed, a Florida buyer broker agreement actually imposes legal obligations on behalf of the parties. In this section, we will explain the legal obligations of the buyer under these agreements.
Fiduciary Duties of Buyer’s Brokers to their Buyers In Florida, all licensed real estate agents owe Broad Fiduciary Duties to their Buyers. Specifically, this means that all real estate agents must deal honestly and fairly with the Buyer (pursuant to Florida Statute 475.803(1)). This broad fiduciary obligation extends to all acts of the Buyer’s agent—duty to disclose what is reasonably known by the buyer’s agent, the duty to account for funds, the duty to conduct all negotiations honestly and in good faith, the duty to present all offers in a honest manner, the duty to seek to understand the needs and wants of the buyer and to communicate them to the seller’s agent, etc. These are just a few examples.
Disclosure Obligations of Buyer’s Agents to their Buyers Florida law does not require a real estate agent representing a Buyer to disclose to the buyer any information or knowledge about a property or transaction that has not been previously disclosed to the buyer, unless specifically requested by the buyer. However, any agent must not knowingly provide false information. In other words, it is violation of Florida law for one to misrepresent facts about the property to any party involved (including the Buyer). (See Florida Statute 475.801 (1)(a)).
While an agent may be obligated to inquire of known facts related to the property (i.e. zoning, easements, unpaid liens, etc.), an agent cannot be held liable for not discovering facts and agreements within a property’s community (such as covenants, restrictions and association rules). This means that in a lot of cases an agent will not be responsible for any small details hidden in the pages of a property’s community rules. (See Florida Statute 475.801 (2)).
Selecting the Best Buyer Broker in Florida
When it comes to selecting the right buyer broker in Florida, there are several criteria that buyers should consider. One of the most important factors is experience. A seasoned broker will have an understanding of the local market and a deep well of resources to draw from. Additionally, their experience can translate into better negotiation tactics and asset knowledge that could save you thousands of dollars.
Track record is also essential in choosing the right buyer broker. Look for a broker with a history of successful transactions in the area, particularly for the type of property in which you are interested. Ask for references and check online reviews to see how other buyers have rated their experiences.
Compatibility is another crucial factor in choosing the right buyer broker in Florida . It can be helpful to work with someone who shares your values and goals for a property. You will also want to choose someone you find easy to communicate with and who listens to your concerns and preferences.
Another important criterion for selecting the right buyer broker is credentials. Make sure that any potential brokers you consider are licensed in Florida and have the necessary certifications. Additionally, they should be familiar with the rules and regulations that govern real estate transactions in the state.
Finally, consider the fees and commission structure of any potential buyer broker. Ensure that you completely understand how they are compensated before agreeing to work with them. That way, you can avoid any unexpected surprises later on in the process.
Common Buyer Broker Agreement Misconceptions
A frequent misconception is that a buyer broker agreement obligates the buyers to purchase a property, when in fact it just establishes the responsibilities of the agent as a fiduciary, as well as outlining the procedure for contract offers. The buyer can still walk away from any deal they are not happy with.
Another common misunderstanding is that a buyer broker agreement obligates buyers to pay a fee or any compensation to the buyer’s agent. In fact, Florida law provides commercial and residential brokers are entitled to payment of their commission, unless the broker agrees to accept compensation from another source. This means it is entirely possible for a buyer to contract with a buyer agent and NOT pay them a fee.
The buyer broker agreement does not limit a buyer’s ability to purchase a dwelling or make an offer on a home. Contract offers can be based on the property type, interests and goals for the home, or various other factors. A buyer can make an offer on any home and will not be charged for the agent’s services in doing so.
Ending a Buyer Broker Agreement
Terminating a buyer broker agreement is generally one of the key events or happenings that will occur during the course of the relationship between you and your buyer broker. In the event you determine that you no longer wish to work with your buyer broker, you can, in most instances, terminate the relationship on your own by doing so in writing. Almost all buyer brokers will have a termination document conveniently prepared that will allow you (the buyer/customer) to end the relationship in an instant. In that case, you simply fill out your name, sign, and your relationship is terminated.
The issues arise when the buyer broker seeks to apply an early termination penalty pursuant to the buyer broker agreement that was entered into at the time you began working with the buyer broker. Typically, and following this line of reasoning, a buyer broker could argue that the early termination penalty should apply even if the agreement is voluntarily terminated.
These agreements may see a couple of different early termination penalties. The first is a penalty that simply states that the buyer must continue to work with the buyer broker until the expiration date of the buyer broker agreement. Perhaps more common, however , is a situation in which the buyer broker agreement awards the buyer broker a pre-determined commission for any homes purchased by the buyer (it’s important to note that there is no obligation by the seller to pay a commission to the buyer broker under the terms of many buyer broker agreements), even if the transaction is not consummated until after the buyer broker agreement expires.
The courts have addressed the issue of early termination penalties in Florida real estate broker agreements in a variety of contexts. In Cruce v. Britton, the Court held that a buyer who made a good faith effort to find a home was not required to pay an early termination penalty for not finding a property before the expiration of a buyer broker agreement. In City First Mortgage Corp. v. Alarcon, the Court concluded that a buyer who obtained financing through a broker, and later terminated the broker/customer relationship, was not liable to pay an early termination penalty that was based on a commission for any transaction that occurred after the expiration of the buyer broker agreement. Finally, in Arana v. Nations Bank of Florida, the Court held that a mortgage broker’s claims for a commission based on a buyer obtaining financing through the lender was barred by the statute of frauds.
