What is in a contract? Or more specifically, what is in the contract between a buyer agent and their client?
If you don’t have the answer to that question now, you better find it, and soon, because what is—or isn’t—in the agreements you sign with clients will now make a huge difference in both your long- and short-term business outlook.
What you probably do know is that as of Aug. 17, all REALTORS® must have a signed written agreement with a buyer before showing a house. There is plenty of nuance in that—if you’re hosting an open house, for instance, you can still speak to a prospective buyer, according to NAR. It is also not clear how state laws that require buyer agreements intersect with the new contract requirements, especially since those laws apply to agents who are not REALTORS®.
Even if the specifics depend on local regulation, there are plenty of broad priorities and practices agents need to be aware of. How you structure your contract can dictate everything from your compensation on any given deal to your overall value proposition. Making mistakes with that contract also has larger consequences than many other parts of your job.
While you definitely need to consult your own local expert—legal counsel, state association or broker—there are plenty of general principles that can help ensure the agreements you sign with buyers are a boost to your business and not a headache.
“Whether it’s for one house, one day, one month, one year, it’s an enforceable binding contract,” says Mike Litzner, broker/owner of Coldwell Banker American Homes. “So if you slap it in front of (a client) and don’t offer transparency, I think that’s kind of obnoxious. And that’s where we get a bad reputation as an industry, when they compare us to used car salesmen—or even worse, lawyers.”
While agents, companies and brokers have so far been split on whether short agreements or longer contracts are more advisable, Litzner emphasizes that clients are going to take signing a written agreement seriously. Agents, therefore, need to take it just as seriously, and make sure they’re “slowing it down” to the point where a prospective buyer client feels comfortable.
In fact, Litzner urges agents to present their agreement as an “opportunity” for the buyer, letting them know what you and your company offer above and beyond the competition.
Some agents and companies have talked about experimenting with adding specific, personal touches to their contracts. eXp’s new CEO, Leo Pareja, previously compared the “creativity” possible with mandatory buyer agreements to how listing agents have personalized their contracts. Specifically, Pareja referred to how he used to have a “satisfaction guarantee” clause, allowing sellers to back out at any time (as long as there wasn’t an accepted offer).
Leah Tozer, associate broker with Daniel Gale Sotheby’s International Realty, says that the independence that agents receive and enjoy is an important and positive aspect of the job, but makes this kind of creativity a tricky proposition.
“So I’d want to make damn sure that anything I put in my buyer representation agreement, that if we’re going to promise it, we better be able to deliver it because it’s a black and white,” she says. “I don’t know if the differentiation is going to come down to the legally binding contract.”
Because putting something like a satisfaction guarantee or some other quantifiable deliverable in a contract is fraught, Tozer suggests agents can put these types of stipulations, or other more marketing-focused promises, in separate documents. Doing this both protects the agent in the case of a legal dispute, and helps keep the dry, mandatory, legal documents separate from what is (hopefully) a more unique, personal commitment the agent is making.
“Easiest way to get out of a contract if you’re a consumer is if they’re not delivering on what they’ve put in their legally binding contract,” Tozer says.
One of the biggest controversies heading into the new mandatory buyer contract era is how they should be structured. Most companies now have seemingly capitulated to the idea that having more than one type of contract will be the best way to empower agents.
But how should those various agreements be used? Is it more advisable to start by asking your buyer to sign a one-house or one-week contract with no compensation, and hope they sign a longer deal with guaranteed payment later? Should agents prominently advertise that they offer different types of services, or only present themselves as full-service, full-time professionals?
Tiffany Balanoff, a top agent with Douglas Elliman, says the kind of agreements you are willing to present to your clients should reflect your own skills, values, brand and goals.
“I have a hard time not being me, not being all in on something,” she laughs.
Balanoff says she is willing and prepared to offer specific, more limited services where she is not on-call or working full time for a particular client, if they specifically ask for it. That hasn’t been something most people have wanted, though, according to Balanoff, because most buyers understand the “pace of the market” currently requires an agent that is ready at a moment’s notice.
Another important element of any contract—make it clear that parties can mutually decide to part ways, if for more personal reasons the relationship isn’t working out. That really helps people feel the kind of trust they need to sign a legally binding contract, she says.
“In two weeks, if we’re not getting along, let’s go our separate ways. Not a big deal. Personalities don’t always click or mix, so you have to be flexible,” Balanoff says.
But it is important to be careful how or if you write that into the contract, and how you represent that verbally. You don’t want to allow a client to believe they can dump you and hire their aunt after you’ve already written an offer that was accepted. Ensuring you are using an agreement that has been carefully vetted and is in compliance with all your local laws and rules will always be the most important step.
Soup to nuts
Frank DellAccio, broker/owner of CENTURY 21 AA Realty and longtime MLS board leader, says that so far, consumers understand that buyer agents aren’t going to work for free. Remembering that, and approaching relationships with prospective buyers knowing they want to come to a fair arrangement can help you feel more confident about what might be a new process.
DellAccio describes the process from both sides of the transaction—explaining to sellers that buyers are being asked to pay for their own agents now, but they can potentially attract more buyers by negotiating concessions.
“You think sellers are sympathetic to that? Absolutely. Because you know what? Remember, they’re buyers, too. They’re buyers at the end of the day,” he says.
With the buyers, DellAccio says he frames the conversation as a question of maximums. The percentage or dollar amount that an agent writes into the buyer contract is the most the buyer would have to pay, but there is a very high chance that will be offset by the seller—in part or in total.
As the market shifts toward balance, DellAccio says that conversation becomes even easier, as agents can explain to a buyer that sellers will be motivated to cover that compensation.
“At the end of the day, it comes down to what the seller nets. It’s really net dollars,” he says.
When and where, though, do you put compensation in your contract and buyer presentation? Particularly for repeat buyers, who might remember being told that buyer-agent services were free, or who didn’t sign a contract last time they transacted, it might make more sense to have compensation front and center.
Anthony Lamacchia, broker/owner and CEO of Lamacchia Realty, adds that in the current moment, everyone is thinking and hearing about real estate commission and compensation.
“Nowadays, when it’s in the damn news and (people) are asking or (people) are nervous, yeah. I mean, that should be talked about. Being transparent and open and bluntly honest with (both) a seller and a buyer is the way it ought to be,” he says.
But in the long run, brokers and agents say that a buyer contract should probably start with the elements that include your value—specifically, the commitments you are making to a client as part of the agreement. That means that once you discuss your fee and how the buyer has to be responsible for it, you have already had a chance to go over the promises you are making, and the work you will do if the buyer signs.
You also don’t want to structure your presentation or contract where the fee is shunted to the bottom (the NAR settlement already requires that it be “conspicuous,” without fully defining what that means). Mary Alice Ruppert, associate broker for Howard Hanna | Coach REALTORS®, says that naturally, compensation ends up “somewhere in the middle” of a discussion or contract.
“I think that you really have to convey value before you can convey cost,” she says. “I like to try to convey who I am first, who we are, who our organization is, what we do before we jump into that aspect of it.”
Another thing that likely needs to be conveyed in a buyer agreement is agency. Every state has very different rules, definitions and responsibilities assigned to agency, and so that aspect of the contract must be localized and vetted by legal experts on the ground in your region. Where and how you talk about that might be up to you, however, and can make a big difference in winning a new client.
You can also supplement your contract with further educational materials, providing a foundation that can help prospective clients understand the basics before they even look at a contract or hear your presentation.
In Connecticut, the state REALTOR® association (CT REALTORS®) worked directly with the state government last year to come up with a simple, separate form that describes what agency means in the state, and the duties and responsibilities of an agent.
Joanne Breen, a past president of CT REALTORS® with 40 years experience as a broker, says she sends this form to prospective clients ahead of any meeting or discussion, just so they have a little background information before they get to the actual legally binding contract.
“(The form) educates them on what it means when I represent you as a buyer agent, what it means if I’m a dual agent, what it means if I’m a designated agent. We have all different forms of agency, and this explains it all,” she says. “Does it take the place of sitting with an agent, and having an agent go over all of that? No, but it’s a great starting point for the agent to have.”
