Buyer's Agreement Request from Agent - Is this normal for investors?

26 Replies

We have a couple from Keller Williams helping us to find our 1st investment property. I knew the husband from an adult hockey league and that's how we made the connection. My wife is also in the process of getting her license and will be listed as their "mentee" so that they get paid (by KW, not us) every time my wife does a deal in the future. This is a unique program to KW I believe. Anyhow, we also have a couple other realtors who have shown us homes and/or sent us many potential properties as well as 1 specific deal which won't require any agents at all. We've been looking for a couple months and have seen several homes and are getting very close to pulling the trigger.

SO, today I get a call from our KW agent saying that he forgot to have us sign their "Buyer's Agreement" and that if they got audited, he would get in trouble. He should have had us sign this awhile back when we started etc. Said it's not a big deal. (They don't know that we've had others helping us in our search...hey, the more eyes the better, right?)  Well, he emailed me the electronic doc and I went in to sign, when I realized that the contract locks me up until Jan 2016 (he filled that date in, not sure how he chose that) for exclusive rights for him to be my buyer's agent in all transactions for "single family homes / investment properties."  I can't sign this and will have to explain to him.  IS THIS A NORMAL REQUIREMENT OR PERHAPS A KELLER WILLIAMS REQUIREMENT OR IS HE TRYING TO LOCK ME UP SO THAT WE DON'T USE SOMEONE ELSE??

Sorry for the long story....any advice would be appreciated.

Thanks, 

Bill Morris

I wouldn't sign something like that.  Maybe sign something for the particular house he is helping you with but that is all.  Definitely not for more than a month or so.  What is he offering in return for locking all future purchases with him?  Half his commission at least I would want.  The way it is written you couldn't even use your wife for properties.

When faced with this situation I have adjusted the end date (14 months is a long time) and added a statement that the agent gets paid only for houses he has presented.  We discussed this and agree that if I bought a house from another source the he would not be paid.

This sounds like a standard buyer's agent agreement for a owner occupied purchase.  Keep in mind the majority of buyer's agents are working with homeowners who are using the buyers agent as their only source for properties.  He is trying to lock you up so that if you buy anything, even if he had nothing to do with it, he will get paid.

Agents will try to get typical home buyers to sign this so they don't waste a lot of time showing them properties, then they go find another agent to actually buy through at some point.  No investor I know would sign it, and I don't use it with buyers.  I decide whether I believe it will be worth working with them up front.  As far as the "if we get audited..." Routine, pure BS.  Brokers advise their agents to try and get these agreements signed, but there certainly is no requirement, and the over wheeling majority of buyers never sign these.  It's really a lame "excuse" for trying to get you to sign it, just like listing agents who say "my broker doesn't allow me to list for less than 6%" as opposed to saying "it's my decision, and I won't list it for less than 6%".

To my knowledge, that's not a normal agreement (definitely not a KW requirement).  Although I'm not 100% familiar how most agents write-up agreements with investors, it does sound like he's trying to loop you in to something you shouldn't sign.  Buyer's Agreements are normal, to ensure that you pay him for the transaction he helps you with... but 14 months and exclusivity to all transactions?  That's unreasonable.  

As @Jon Holdman suggested, I'd rewrite the contract to be specific only to your current transaction, and lower the amount of time it should take to find a property.  

I agree with @Wayne Brooks  

His "audit" comment is BS and you should totally cross check him into the boards.  As he is getting up, tell him you won't be requiring his services going forward.  Have your wife mentee with someone else.

I am 100% in favor of such an agreement for houses that the agent SHOWS to a prospective buyer, but most who use the agreements try to lock you in regardless. 

DO NOT AGREE TO THAT!!  It is NORMAL for some agents to request that, but tell them you will not sign that; it's not your problem that they screwed up in the beginning. In fact, that can be considered a deceptive practice even, since you had no awareness of this when you started working with them. 

You will end up having to pay them a commission out of YOUR OWN POCKET for any MLS property you buy when you use another agent. This sort of contract does not benefit you whatsoever.

Search the forums for "exclusive agent agreement" or similar terms to see other discussions, since you aren't the first poster presenting such an agreement. 

Agency can only exist in RE by written agreement, buying or selling if an "agent" has no agreement to act they are not in any agency relationship. So, yes, they must have an agency contract, a buyer's agreement or a listing agreement, there are also "agreements to show".

A buyer's agreement sets terms for an agent to represent only a buyer, a buyer may pay a commission of fee but on properties that are listed, the listing agreement provides compensation to any representative of a buyer and the buyer generally pays nothing to that agent, but could if additional amounts were agreed to. Any additional amount would be a "bonus".

A listing agreement is between the owner and the listing agent. Realtors use an agreement that provides for a co-brokerage arrangement, this authorizes other agents to enter upon the property to show or preview and sets the compensation to be paid to the listing agent-broker. Brokers have prearranged agreements that set commission splits among the members of their area brokers, the common commission is 6% with a split being 50/50.

An agreement to show is generally for an agent to represent a buyer when a property is not listed, such as a FSBO and the property owner must give permission for an agent to bring others on the property. These can be made with special agreements as to who will pay any commission, the buyer or seller can agree to pay the agent. These do not put an agent into an agency relationship with the owner but only give permission as mentioned.

These agreements can be specific and limited or exclusive.

Any of these agency agreements can be specific or limited to certain parties, for example a seller may list a property and reserve the right to sell without a commission being due the agents if they sell to a list od reserved potential buyers, an owner may have shown Joe the property prior to the listing and reserve or except out Joe from that agreement. These specific agreements will apply to a specific property and the term of the agreement may be limited in time, for only one showing or set for a specific period of time.

An exclusive listing for an agency relationship requires the client to only use that agent for all business they may do over a period of time. These may have limitations, such as excluded potential buyers or excluded properties and there could be other agreements made, such as paying only certain compensations to that agent and allowing other agents to be paid the customary commission on an exclusive listing agreement for say, 12 properties.

Listing agreements are generally exclusive to that agent/broker until the property sells or for a certain time period. If agreeable to the brokers, a "Co-listing" agreement may be made, this gives an exclusive right to list and sell a property to 2 or more agents in the same brokerage or even different brokerages. This co-listing arrangement is more common within the same brokerage with agents who work together, such as a mentor-mentee arrangement.

Exclusive buyer's agreements will cover any property a buyer purchases over a period of time. If a buyer were to look at a FSBO on their own, a commission would be due that buyer's agent (unless it had been excepted out) and the buyer would be obligated to pay the fee. As I mentioned, an agent must have an authorization to bring a client upon a property, if that agent goes on the property, they get the authorization to show and will try to obtain a fee agreement, but if the agent never goes to the property and the buyer purchases, the buyer will be responsible to pay the commission due.

Listing agreements are generally for 6 months, it depends on the market and can be longer. A Realtor generally won't go less than 6 months but may if they are in a market with expected quick turn around or sales.

Agency agreements also have "protected periods" that extend the agreement (usually for the same term as the agreement) in the event any transaction is made where the agent was the procuring cause of that transaction. If the transaction came about because of the efforts of the agent performing their duties and activities, such as advertising or making introductions to the parties, that agent will be due compensation under that original agreement.

It is illegal for an agent to accept any compensation without an agency relationship being established, it is also illegal for any agent to pay compensation based on any sale price or splitting commissions to any other party who is not a licensee. This does not preclude an agent for paying for any service provided in connection with a sale, they may pay a handyman to fix something required to close for example. Fees paid by agents become illegal if that fee is tied to a successful transaction at a sale price, they may be able to pay a birddog that finds them a list of possible listings. What they can or may pay is subject to their broker's approval, in fact, everything an agent does in real estate is subject to their broker's approval as the broker has responsibility for that licensee.

Back more to the OP's arrangement, that arrangement as to an exclusive agreement for 14 months is one I would generally not do as an investor, the term is excessive. Many agents want 12 months, most probably take 6 months. But, the thing is, that agent needs to plan the best use of their time over the year or into the future. They need X closings at an average sale price to budget for their business. If they work for you or with you, they could be working on offers for say 4 months without any success, the longer their exclusive relationship the more likely they will be compensated over that term.

As an investor, you really need to establish trust with those you work with, if they know that if you find something and that you will call them to handle the transaction, they may assist you as a "prospect" instead of as a client until it's time to make an offer or list, at which time they would need to enter into a formal agency agreement.

As to KW sandbagging commissions as some type of credit to be paid to you later on when you become a licensee, here, we would still view that as compensation, it is an inducement based on a sale price for you to do something else, to become an agent and is unethical if not illegal, IMO. Compensation is anything of value, that would include the promise of employment or future business arrangement in exchange for closing a transaction at any sale price. KW brokerages are usually a good franchise with good agent support, that doesn't mean every broker franchisee runs a good or ethical brokerage.   

All of this is subject to local custom, except that agents must have a written agency agreement to represent a client in real estate matters. :)  

Bill Morris,

"My wife is also in the process of getting her license and will be listed as their "mentee" so that they get paid (by KW, not us) every time my wife does a deal in the future."

Are they training your wife or sharing career experience?? If so that just isn't only a transaction value.

If you want someone to help you buy a property is one thing. If you want them to help you learn the ropes and your whole family as well that is a different ball game.

The one thing I do take possible issue with is you are using multiple agents and not telling the agent. I believe in UPFRONT 100% transparent relationships. Tell the agent upfront that you will be seeking properties from multiple sources. It is then the brokers/ agents choice to say they do not want to spend time on you or that is okay and they will still work with you.

On the commercial side I do not work with buyers that are all over the place.  Imagine getting a call from another broker when you check on a property for what you think is your client to be told this person is calling every agent in town. They are asking for reductions and commission with back door dealing etc.

The brokers/agents quickly learn that buyer is a "wheeler and dealer"  and has no loyalty or is above board and truthful.

Do you think a lot of brokers/agents will want to do deals with such a person? The answer is a big fat no.

I see in residential this type of market going on. In commercial it's all about sticking to a plan and executing the plan.  The direct sellers and listing brokers in my world want to know you have direct control of your clients and that they have been educated on the buying process and well qualified ahead of time so nobody's time is wasted.

I wouldn't sign such a long term agreement with a buyers broker. People should trust each other without tying long term legal chains to each other. Its all about relationships. If I find out a buyer isn't being honest with me then it's one strike and your gone. Too many buyers out there that are looking for service and the relationship to deal with games.

Bill,

Joel makes a good point about letting the agent know you are working with other agents.  As for that agreement, I would consider 90 days as a maximum agreement, and should be for property where he is the procuring cause.

Mark

The one thing I do take possible issue with is you are using multiple agents and not telling the agent. I believe in UPFRONT 100% transparent relationships. Tell the agent upfront that you will be seeking properties from multiple sources. It is then the brokers/ agents choice to say they do not want to spend time on you or that is okay and they will still work with you.

I absolutely agree with @Joel Owens on this.   And when I've been in this situation, I was totally up front that I was looking for deals from any source.  Now, I would NOT be working with multiple buyer's agents.  No point because they all access the same data.  But if I were to find a deal through my own efforts or from a wholesaler and bought it I would NOT pay the buyer's agent.  If the buyer's agent doesn't agree with that, no problem.  Then I would just not work with that buyer's agent.

Bill, 

Joel is right.  A smart Agent will politely excuse themselves from this losing equation. Working with multiple agents for the same purchase is an amateurs mistake.  If you find your Agent is not capable, find another agent (to commit too). YES they are trying to lock you up so you don't use someone else, obviously!      

Investors often want Agents to turn over rocks to look for the right purchase for them, yet they want to keep their options open to close a deal with another agent or a FSBO, I don't think so! I equate it to a man who wants to marry a faithful woman, but he hopes to keep on dating. Most women would kick him to the curb. =)

I recall finding an off market multiplex for an investor when I first got into real estate about 15 years ago. We met the Seller at the property and he showed us the units.  The investor got clever and tried to eliminate me from the deal.  The investor tracked down the owner without me to see if he could swindle himself a better deal.  The Seller called me and told me.  I was furious!  Interestingly, the Seller continues to be a very good client of mine.                  

You might get someone to just add you to their auto-prospecting MLS email notification list, BUT if you want an Agent to really work towards locating off market purchases for you......announce your needs at MLS meetings to shake loose pocket listings, send out mailings, knock on doors, turn over rocks, you better be willing to put a ring on it! LOL!

Yes, some Brokerages require Buyer Service Agreements with all Agents that work with Buyers.  You could limit it to a particular service area, if you are wanting mutlple agents because you are purchasing in multiple areas. 

Originally posted by @Bill Morris :

SO, today I get a call from our KW agent saying that he forgot to have us sign their "Buyer's Agreement" and that if they got audited, he would get in trouble. He should have had us sign this awhile back when we started etc. Said it's not a big deal. (They don't know that we've had others helping us in our search...hey, the more eyes the better, right?)  Well, he emailed me the electronic doc and I went in to sign, when I realized that the contract locks me up until Jan 2016 (he filled that date in, not sure how he chose that) for exclusive rights for him to be my buyer's agent in all transactions for "single family homes / investment properties."  I can't sign this and will have to explain to him.  IS THIS A NORMAL REQUIREMENT OR PERHAPS A KELLER WILLIAMS REQUIREMENT OR IS HE TRYING TO LOCK ME UP SO THAT WE DON'T USE SOMEONE ELSE??

Sorry for the long story....any advice would be appreciated.

Thanks, 

Bill Morris

Man, I am going to have to try that line...

This is bogus. It is a suggestion from major brokerages that buyer's agents try and get some kind of contract to ensure that the buyer agent is compensated for the amount of time spent with the buyer. This can even include some fee paid at closing (typically to compensate for another bogus "MLS fee" that listing agents charge). I am currently in a situation where a buyer I have been working with for 6 months is working me in Clearwater and another agent in Tampa. Had I gotten this agreement I could have saved myself some grief, but I personally feel that it is an affront to my integrity to lock a buyer down with a contract rather than my personality and work ethic.

Originally posted by @Doug Merriott :
 I am currently in a situation where a buyer I have been working with for 6 months is working me in Clearwater and another agent in Tampa. Had I gotten this agreement I could have saved myself some grief, but I personally feel that it is an affront to my integrity to lock a buyer down with a contract rather than my personality and work ethic. 

 Doug, is this an investor or personal home buyer?  Those two cities are on different sides of the bay right?  I can see an investor wanting a local agent in each one who really knows their area.

@Doug Merriott   Thanks Doug.  This guy is a friend and I actually want to use him. That said, if someone else finds us a good deal or if we find one on our own, that's just the breaks.  I will explain to him and I do feel guilty (my wife constantly tells me I shouldn't) for all the work he and his wife do for us. I look at it as a long term relationship and hopefully we will do many deals over the years AND my wife will be their mentee so they will hopefully make money from that as well. I would never have him show me a house and then buy through another agent and I think he knows that.

@Joel Owens   Joel, I completely agree and we should have told him from the start that we had another couple guys helping us out. That said, he has been our "go to guy" and I'm certainly not trying to work any angles. We'd just like to have as many eyes out there as possible looking for potential deals. Richmond is a huge area with literally dozens of neighborhoods spread out all over where we could possibly find properties. He and his wife are not training my wife. She is currently taking her exam online and once that is done, she will do a KW training program. They will obviously be there for her when she has questions, as they do now, but primarily they will get paid every time she completes a real estate transaction for basically doing nothing. Like I said, we are friends with these guys and I do agree we made a mistake not being upfront in the beginning. I am fixing that today. They have shown us 90% of everything we've looked at, but as a new investor I only think it's prudent to have as many potential contacts out there as possible. He is our "main" guy and I'm sure we will do several deals with him over the coming years.

@Paul Ewing   my situation is with a home buyer. The two cities are on different sides of the bay. I personally prefer not to work Tampa, but for a homeowner it would not matter as much.

@Bill Morris  that is how it should work. It would be nice for you to use your friend exclusively, if he is worth his salt and you are very clear about your criteria then there should be little that happens in his market that he does not know about. However if you do find one on your own or if you are brought a deal and there is no margin for him then you should not be obligated to give him 3% regardless. 

Hi @Bill Morris  

The short answer to your question is, yes, it is technically required by law in Virginia to have a buyer brokerage agreement signed at the time a substantive conversation takes place about representing you. The definition of substantive conversation is debatable, and not all Realtors have the form signed at that time. But, technically it is not unusual for him to ask you to sign it. It should have been presented at the time he started showing you property though.

Not the case in all states.

Bill,

In the Commonwealth of VA, it is required by law to have a written "Buyer Agreement", signed by the buyer and broker when the search begins. Your agent is late in getting this to you, but a written agreement is required. The agreement has to have a start and end date, and spell out the terms of the agreement, but of course most of the terms are negotiable.

You could make the term for one day, one week, one year, etc. You can also make it for one property, or properties in a certain area, etc.

If you have seen properties with other agents, I'm surprised they have not requested you sign an agreement.

Most agents use the "Exclusive Right to Represent Buyer Agreement" which states that you have to work with that agent and no other during the term of the agreement. Another option that may work best for you is to ask him if he is okay with using the "Non-Exclusive Right to Represent Buyer Agreement". This will give you the right to work with other agents at the same time as long as the other agents agree to use the same form.

I hope that helps you.

I could keep quiet until you said "that's just the breaks."  You indicate this is your "go to guy" and that you "will do many deals with him in the future" BUT your indicate your wife is getting her license and that they will just be collecting referral fees for her closings.  

They have shown you 90% of the homes you have toured, that makes it even worse!  Just take a moment and think about it.  Would you rather be the agent that shows 100% of the homes and gets paid, or the Agent that shows them 90% of the homes and doesn't get paid?         

When your wife is a licensed agent and working for commission, you will both have a different perspective.  Maybe your friends will accept your admission gracefully and help you feel better about abusing your relationship.  Who knows, they might offer to continue to help you because they are so invested already, with the time they have already spent on this purchase for you. Plus, they won't want to sacrifice all of those referral fees coming their way.

   

@Bill Morris   here in Michigan the agreement is supposed to be signed before you reveal confidential information but I've never seen it with a date that long. Usually they are on a deal by deal basis. I have one investor who I do multiple deals with but I just use the same agreement for every offer we submit.

@Bill Morris  

I am an agent with Keller Williams Realty.

As @Bill G. Stated it is a standard agreement which allows the agent to receive a commission. The time frame is what you may have a problem with. I would suggest you sign an agreement where it applies to only one property or maybe expires after a month as @Paul Ewing stated. 

As you begin to gain trust with the agent you can sign for longer terms but you should also instruct them that you are working with different agents. 

Its like your going steady and you start cheating and don't tell your partner you are seeing other people. I know investors that work with different agents but its more geographical.

Its more of a way to protect yourself due to wasting time, gas and energy showing properties and the buyer decides to buy from somewhere else.

As Chris Brown put it "These Buyer's aint Loyal"

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here