Exclusive buyer representation agreement & buyer's compensation

Baltimore, MD · Member since 2017 · 30 posts · 6 votes

I am just learning about real estate investing, and I recently met someone at a local real estate investor meetup that has been investing in real estate for 9 years. He recently became a real estate agent, and he knows our area well (Baltimore County MD). We talked and decided that he could help us find our first rental property to owner-occupy. He wants me to sign an exclusive buyer representation agreement that contains a clause for a 3% compensation to be paid to him at closing. Is that standard? Is it possible that all or part of that may be paid by the seller? Also, does exclusive mean that I shouldn't look at any properties without him being there after signing this agreement? I will also ask him these questions. I just wanted to come here to see what this community thinks.

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Russell BrazilBusiness Member

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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

Yes it is standard. You will not end up paying anything as the buyer as the money will end up being paid by the seller. The agreement in it has language that typically says the amount you offpay is offset by the coop fee offered from a seller. If the coop fee were 2.5%, he could technically ask you to pay the rest, but in reality it does not happen. If he puts 2.5% though and 3% is being offered, hes technically not due the full commission, so most people put 3% or per MLS. I typically write mine as per mls.

Being exclusive, you should only use your agent. If you dont sign an agreement...then "your" agent would then act as a sub agent to the listing agent and will represent the seller technically. So they can still help you shop, but they would need to act in the best interest of the seller and not you.

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y
Yes it is standard. You will not end up paying anything as the buyer as the money will end up being paid by the seller. The agreement in it has language that typically says the amount you offpay is offset by the coop fee offered from a seller. If the coop fee were 2.5%, he could technically ask you to pay the rest, but in reality it does not happen. If he puts 2.5% though and 3% is being offered, hes technically not due the full commission, so most people put 3% or per MLS. I typically write mine as per mls.
Being exclusive, you should only use your agent. If you dont sign an agreement...then "your" agent would then act as a sub agent to the listing agent and will represent the seller technically. So they can still help you shop, but they would need to act in the best interest of the seller and not you.
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Christopher Phillips
Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
9y
Monica Young The agreement is setup for a few things: 1. A higher level of confidentiality. Difference between a client and just a customer. 2. Only he can represent you as a buyer, not other agents that might try to get your business. 3. The seller normally provides commission for buyer's agents. If that is not provided, like a FSBO that won't pay out, or if less that then agreement % then you would be responsible for the difference. However, it wouldn't need to come out of pocket. The offer would be increased by the % needed so that it comes out of the proceeds at closing and not out of your checkbook. You don't absolutely need to sign it and you can negotiate the terms. Some agents only show homes if you sign it to protect themselves, especially if unscrupulous agents or FSBOs try to do a deal without the agent.
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Monica Young
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Baltimore, MD · Member since 2017 · 30 posts · 6 votes
9y
@Russell Brazil
Thanks. That was a good explanation of the compensation. There is some language in this agreement that says if I see any signs or advertisements for properties being offered for sale, I will not contact the seller or their agent, but will first contact my broker who will provide information about the property and make arrangements to see it. Does that mean I shouldn't ever look at anything without him?
@Christopher Phillips
Thanks for that explanation. I was wondering if the % could be built into the offer.
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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y
@Monica Young You can go to open houses and such, just when they ask you if you have an agent you tell them yes. If you were to call another agent up when you see a sign, and they dont know you have an agent, then that listing agent could end up very easily breaking the law without realizing it. As an agent, I can not have conversations with the client of another agent without that agents permission. If I were to do so, even unknowingly, that other agent could file an ethics complaint against me with the board.
All the forms an agent is typically going to give you are standard forms that our board lawyers draw up to comply with state and county laws. Sometimes they may be written by the brokerage, to also incorporate corporate policy, but those are typically based on board forms. Your agent has almost no purview in altering these forms though.
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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y
@Monica Young Since you are new it may be a good idea to have an agent on your side. Personally I am not going to sign an exclusive agreement with an agent. But I have the experience of hundreds of deals and don't need an agent to help me evaluate a property or guide me through the process.
The probable reason your agent wants you to contact him or her when looking at properties, is so that it is clear that your agent is due a commission. If you contact a listing agent directly, your agent that has helped you, may not get fair compensation.
PS: Welcome to BP. you will find lots of people here to help. Make sure you learn everything you can here so that you are not totally relying on the agents judgment.
PPS: Russel beat me to the punch on the point about your agents commission. Russel may not know the Baltimore market as well as others but he is a great guy to follow here. He always gives solid advice.
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Monica Young
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Baltimore, MD · Member since 2017 · 30 posts · 6 votes
9y
@Russell Brazil
That answers my question. Thanks again.
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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y
Just one thought here that did pop into my mind @Monica Young and @Ned Carey is that there is a line in the agreement if it is a standard form that describes the purpose of the agreement. So when I work with say an investor like Ned, I limit the scope of the agreement to the individual property. Here is copy and paste from one of my agreements for someone seeking a primary residence.
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Monica Young
OP
Baltimore, MD · Member since 2017 · 30 posts · 6 votes
9y
@Ned Carey
Thanks for your reply. I thought it was a good idea too. I actually started talking to him to pick his brain about REI because he's been doing it so long and he mentors people. When I told him our plans to owner-occupy, he thought he'd be able to help with our first purchase. I'd been getting listings sent to me by another agent, but I hadn't signed any agreements with them. BTW, I like your company name :)
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Monica Young
OP
Baltimore, MD · Member since 2017 · 30 posts · 6 votes
9y
@Russell Brazil
That's here, but he left it blank. We are looking for a primary residence. I'll talk to him about that.
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Christopher Phillips
Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
9y
Monica Young An example of building it into the offer: $100,000 price Say the listing pays out 2% to the buyer's agent, but the buyer agreement says the agent should get 3%. The offer would be increased 1% to $101,000 to include the extra percentage. It is perfectly fine to talk to owners and other agents, but your agent should be the one to present any offers. Many times people will try to convince you that you'll get a better deal by leaving out your agent and that's "usually" not the case.
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Monica Young
OP
Baltimore, MD · Member since 2017 · 30 posts · 6 votes
9y
That makes perfect sense. Thanks @Christopher Phillips
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