The New Buyer Representation Agreements: Don’t Be Caught Off Guard

Before being shown any homes, a hopeful buyer signs a buyer representation agreement with the agent. This document is standard now, and that’s surprising some buyers.

The form lays out the terms of the relationship between a real estate professional and the client. Once it’s signed, the buyer’s agent owes fiduciary duties to the buyer. This means the agent must act in the buyer’s best interest.

So, why would a buyer hesitate to sign? Let’s take a look.

Agent Commissions at the Core of the Agreement

It’s been two years since the National Association of REALTORS® (NAR) settled a class-action lawsuit dealing with agent commissions. The lawsuit came from sellers who questioned having to agree to pay the commissions before they could list their homes.  

After the settlement, NAR set forth a new practice. Buyers now sign buyer representation agreements up front. The agreements spell out to buyers how the fee structure works.

Now, some buyers are objecting to the agreements. Why are buyers being taken aback?

• Some buyers say the contracts come as a surprise when they go to tour a home. They don’t want to feel forced to hire a particular agent the first time they look at homes. They might not be prepared to commit to terms they haven’t read before.

• Some say they didn’t understand the terms they were being locked into when they signed. After signing, the buyer must adhere to a broker’s various requirements.

It seems buyers take issue with surprises (no surprise there!), and they don’t feel comfortable with some of the terms they’re signing up for.  

What Should Buyers Know Before They Sign?  

The first thing to know is that you don’t have to sign. Read the document over, and make sure the terms are fair. Learn from what some surprised buyers have reported:

• Buyer representation agreements include exclusivity clauses. How long is yours? You can’t fire your agent during the time you’ve agreed to exclusively work with the person. (A period of 30 to 90 days of exclusive representation is common.)  

• What does the contract say about what you can and can’t do during the period you’ve committed to working with this agent? Some agreements expect the buyer to pay the brokerage if the buyer rents a home during the exclusivity period. Look for rental costs and fees that the broker might expect in this situation.

It’s true that anti-consumer buyer representation agreements do exist out there. Even in the best case, a contract is full of legal language. And that language is binding. You shouldn’t feel surprised or rushed through the signing. A good agent takes the time to explain each part of the agreement to you—and not in the heat of the moment, when you’re seeing your potential new home.

In a nutshell: You do not have to sign a representation agreement with an agent unless you want to use that agent to represent you. You do need to sign a buyer representation agreement before an agent can work diligently for you. Expect a real estate agent to tell you about this document in a consultation before your first home tour. Expect to be given ample time to read it and make a decision.

Now that you know you’ll be signing an agreement before touring your first home with the agent, you have a very good reason to vet agents in advance. Once you sign an agreement, you’re essentially saying you trust the agent you’re hiring. Be sure that’s the case.

What if you see a home without an agent representing you? The seller’s agent is allowed to show you a home, as long as you and the seller understand that the seller’s agent does not represent the buyer.

Can hiring a real estate attorney rather than a broker save you money? And if it can, will the savings be worth it?

Make No Mistake: The Terms of Your Agreement Are Negotiable

There is no fixed price for an agent’s services. Professionals may set their fees. And the prospective client is free to decide whether they want to work with this or that professional. This is why a preliminary consultation with an agent matters. How are you going to negotiate (if you want to) in the heat of the moment, when someone is showing you a home?

According to the National Association of REALTORS® itself, in its Consumer Guide to Written Buyer Agreements, “Compensation between you and your real estate professional is negotiable and not set by law.”

NAR adds: “Only sign an agreement that reflects what you have agreed to with your real estate professional.”

What does this mean, in practical terms?

Maybe you want the exclusivity clause (your obligation to work with this one agent only) to be shorter. OK! You’re free to ask for this. You might even be able to get an agreement that works just for one property you’re looking at.

If the agreement states that the agent’s fee is 3% of the home purchase price, you are free to ask the agent to adjust that to 2.5% if you have another good agent lined up who will agree to 2.5%. In most areas, 3% is on the high end, so this scenario is plausible. The Federal Reserve has seen “the average rate falling from about 3 percent in the late 1990s to about 2.7 percent today.” In any case, the agent should state a precise percentage for the commission—not a vague range.

Keep in mind that most real estate agents aren’t trying to create financial anxiety in their clients. Agents, too, are having to adjust to the new buyer representation agreement rules. And while the fee is negotiable before the agreement is signed, that doesn’t mean the client controls the commission. As we’ve noted, agents are at liberty to set their own fees.

How We Buy Homes With Real Estate Agents: Has Anything Essentially Changed?

In general, what a buyer is likely to sign won’t differ substantially from the long-running standard agreements used in many states. The key language may not have changed. What’s different now is the rule that a signed buyer representation agreement must be in place before the agents can show us the homes.

The message from the 2024 NAR settlement is that the party who lists a home for sale does not have to pay the buyer agent’s fee. They might still offer to pay it—many sellers do—but they’re not required to agree to this when listing.

And wasn’t the buyer always covering the fees when closing on a home, even if indirectly? Today, those fees are still part of the buyer’s closing costs. Essentially, not a lot has changed—although certainly, buyers are now more likely to understand and negotiate the agent’s commission.

At the end of the day, an agent does a lot of work to match a hopeful buyer with the deed to a home. That’s nothing new. It’s only fair that agents be properly paid for the time and knowledge they invest in their clients’ journeys. At its best, a buyer representation agreement ensures clarity and enables agents to perform their best work for the new deed holder.