Signing an Exclusivity Agreement.

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Signing an Exclusivity Agreement.

Chance B.
Haltom City, TX · Member since 2021 · 36 posts · 16 votes

Hey All, I am looking to purchase my first property (which will be residential), but the agent I am working with sent me over an Exclusivity Agreement. I am concerned because in the agreement it states that is the seller "refuses or fails" to pay the commission, that the client (me) will be responsible for paying the broker. It also states that The client (me) may be "unknowingly recorded or otherwise monitored without consent." It also has some stuff about a "protection period" basically stating after the contract ends if myself or a family member purchases property from the broker I will be held responsible for the fees the broker was originally entitled to. We haven't nailed down a specific address yet but the contract spans multiple counties. I have read other posts but they all seem to be 1-3+ years old and I know things change, is this something that is normal or should I walk away. I haven't been or plan on "shopping agents." I have seen mixed reviews from "if their time is valuable they make you sign it so they don't waste their time" to "only bad agents make you sign, if they are good, they won't have to worry about you leaving."  Sorry for the long post but your input is very much appreciated.

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Irene Nash
Realtor · Member since 2018 · 138 posts · 174 votes
4y

@Chance B. Speaking as an agent I'm going to voice an opinion that's unpopular (with agents), which is that if you are dealing with a competent agent who you enjoy working with this should be fine, but if you're not, the agreement ties you to someone who isn't great to work with. 

I've seen my own family members, in other states where I was not licensed and just there for informal advice, sign these agreements two different times with absolute shmoes. So after 30 minutes of blibber blabber about real estate the client commits to 3 or 6 months with just this one agent, with no idea of what they're really like and little or no way to get out of the agreement. I realize this may not be the case with you and your agent, just saying it happens.

A little explanation about the terms:

The 'refuses or fails' is so the agent doesn't shafted if they work hard for you for months and then you buy a FSBO with no buyer agent commission offered.

The 'monitored without your consent' hopefully refers to homeowner initiated stuff like Ring doorbells, but if the language doesn't make that clear it's worth asking.

The 'protection period' is so that untrustworthy buyers don't get an agent to work hard for them for months, ditch the agreement or let it expire, then go on to buy a property the agent helped them find and/or investigate without the agent getting paid for their work. Usually it refers to a property you've seen with the agent, but I've seen them include any house in a specific county during the protection period, shown or not shown.

How long is the protection period? I think if it were me as the client I'd ask for a trial date range for the agreement, i.e. one week, and just explain to the agent that you want a chance to see how you work together.

A fair compromise, IMO, would be that you'd use the agent if you bought a home you saw with them, but the option would remain for you to leave with no strings attached at the end of the week. I would not sign an agreement that included homes the agent hadn't shown me in a county. (The whole point is to make sure the agent gets paid for work done, not work that wasn't done.) And I'd probably offer to pay them something for their time that first week if I decided to not sign on for longer, seeing as they did spend the time.

Good luck!

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  • Chance B.
    OP
    Haltom City, TX · Member since 2021 · 36 posts · 16 votes
    4y

    Thank you Peter, Kevin, Joe and Jack. I can see from both perspectives. 

    Jack: I had the same thought at first as the car salesman, but then I got to thinking. Really, their jobs are the same sell you a product and make a percentage. But a realtor (I feel) has much more responsibility. Not only are they a bound fiduciary, but they actively search an ever-changing inventory whereas a car salesman wants squeeze out as much as they can from their lot of a limited number same "cookie-cutter" cars.

    3Reply
  • Curtis WatersBusiness Member
    Rental Property Investor · Charlotte, NC · Member since 2013 · 291 posts · 176 votes
    4y

    As an agent I only work with those who want to work with me.  I give my buyers a 30 day cancellation option.  In North Carolina  - the agent must get a buyers agency agreement signed in order to represent a client.

    1Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    4y

    @Chance B.

    As a principal, you can add or delete language in any agreement. You may want to make the agreement "property specific", meaning it only applies to properties he/she actually shows to you. I'll add that if you're buying without actually seeing the property, you're setting yourself up for a bad start. I would also limit the length of the agreement to 2 to 4 weeks initially, until you know for sure that he/she meets your needs as far as competency, availability, etc. Don't get tied into a long-term contract only to find out you guys don't get along. Also, the agent should only get paid what the listing brokerage is willing to pay. If there is a property you like and the listing broker is paying less than your agent will accept, tell them you'll have another agent show you the house that won't require you to pay more than what the listing agent will pay. All any agent has to do it set your criteria up in the MLS system and you'll be emailed properties daily. It's not like the agent is personally viewing all these properties in advance, so it's not much work on their part initially. Also, if you decide to sign on to a longer-term agreement, always leave yourself a way out. What if your agent gets sick, quits, gets fired, etc? Who will the broker assign to you? Someone whom you have no choice but to work with? Or what if you simply don't get along after a couple of weeks or a month? Have you vetted the competency of the agent? Can you confirm they have a thorough understanding of contracts, surveys, title issues, deeds, contract administration, etc. Not all agents are created equal.

    3Reply
  • Chance B.
    OP
    Haltom City, TX · Member since 2021 · 36 posts · 16 votes
    4y
    Originally posted by @Guy Gimenez:

    @Chance B.

    As a principal, you can add or delete language in any agreement. You may want to make the agreement "property specific", meaning it only applies to properties he/she actually shows to you. I'll add that if you're buying without actually seeing the property, you're setting yourself up for a bad start. I would also limit the length of the agreement to 2 to 4 weeks initially, until you know for sure that he/she meets your needs as far as competency, availability, etc. Don't get tied into a long-term contract only to find out you guys don't get along. Also, the agent should only get paid what the listing brokerage is willing to pay. If there is a property you like and the listing broker is paying less than your agent will accept, tell them you'll have another agent show you the house that won't require you to pay more than what the listing agent will pay. All any agent has to do it set your criteria up in the MLS system and you'll be emailed properties daily. It's not like the agent is personally viewing all these properties in advance, so it's not much work on their part initially. Also, if you decide to sign on to a longer-term agreement, always leave yourself a way out. What if your agent gets sick, quits, gets fired, etc? Who will the broker assign to you? Someone whom you have no choice but to work with? Or what if you simply don't get along after a couple of weeks or a month? Have you vetted the competency of the agent? Can you confirm they have a thorough understanding of contracts, surveys, title issues, deeds, contract administration, etc. Not all agents are created equal.

     Guy, excellent post with tons of information. There are many things that I did not think about and you make very valid points.

    2Reply
  • Michael K GallagherBusiness Member
    Real Estate Agent · Columbus OH · Member since 2018 · 1k+ posts · 1k+ votes
    4y

    Hey @Chance B. I exclusively work with investors in my business and as you can imagine no investor wants to be tied down to a single agent.  So I essentially operate where if I write the offer and or bring the client the deal then we have a "exclusive" contract on that property.  They sign an exclusive agreement essentially just on that property.  It just brings some officialness to the agreement and I actually need it for my broker's compliance documents.  They require it as part of the transaction.  

    Some other thoughts that may or may not help understand things: Any property you find on MLS will come with an established buyer broker fee/commission. Where you tend to see a seller refusing to pay the commission, is in an off market situation or a commercial situation. In both cases what usually happens, granted it can differ by market, is that the "buying agent" would come to you with a deal thats off market, and usually will have an idea of what the seller wants for price. Then they would most likely tack on a "fee" or "commission" onto the sales price when they bring it to you. So while yes you are technically paying the commission, but its all rolled up into that one number. Then there is language in the contract or LOI, whichever is being used, pertaining to the buyer broker fee. Its not an additional charge you pay. Unless you'd like to work it out that way.
       

    [email protected]614-362-2231
    1Reply
  • Chance B.
    OP
    Haltom City, TX · Member since 2021 · 36 posts · 16 votes
    4y

    Thank you Michael

    0Reply
  • Irene Nash
    Realtor · Member since 2018 · 138 posts · 174 votes
    4y

    @Jack Bobeck It is absolutely not the same as buying a car, although the car example is a great one. Every Toyota 4-Runner that came off the line last year was exactly the same, barring color and upgrades in some that made them exactly the same as all the other 4-Runners with upgrades. The same goes with plane tickets - once you're on the plane, a coach ticket to New Zealand feels the same regardless of whether you bought it at Fred's House 'o' Cheap Flights or from a full service travel agent.

    A house is completely different. Houses that look very similar on paper (same neighborhood, style, square footage, year built, beds and baths) can have very different market values depending on things like interior light, flow, ceiling height, privacy, yard space, neighbors, curb appeal, master bedroom size, kitchen counter and cupboard space, parking options, driveway slope, proximity to noise or businesses, parks, schools, etc. - to name just a few things. I constantly point out features to my buyers that will either add or detract from functionality and market value - these are all intelligent people and many are repeat home buyers, but they still find the information very useful.  Bottom line is that people always know when they like a house, but they often need help figuring out when they shouldn't like a house.

    I don't have my buyers sign rep agreements but I get most of my business from referrals and previous clients - if they were all cold leads it might be different. Contrary to what you said, a buyer who's reasonable to work with will have the attention of a good agent for far more than a day, but if the buyer is flitting around trying to work with a lot of other agents at the same time a good agent will wish them well and move on.

    0Reply
  • Jack Bobeck
    Rental Property Investor · Jacksonville, FL · Member since 2008 · 784 posts · 528 votes
    4y

    @Irene Nash you know this for a fact about 4Runners? Lol

    Hey we’re on BiggerPockets, not firsttimebuyersfordummies……if you NEED a realtor to hold your hand with regard to values of crown mounding or air handlers, hey go for it. Preach to the lackeys on the Facebook groups who NEED the hand holding, otherwise BP is for the Investors. We don’t need a Realtor because we already KNOW the value of a property, said values of the cosmetics. We’re NOT your 1st time home buyers. Go preach your benefits analysis to those people.

    Smart investors know the value of a home based on comps from the local MLS. What things are selling for per sq ft based on the condition of the home. Smart investors don't NEED a Realtor, if we did, we could pick one of the green ones that just passed their license. The license is still nice and shiny. Smart investors already know the value of a property BEFORE they get a Realtor involved.

    Soon thankfully robots can open doors for investors. We don’t need the pencil pushers.

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