Subagency occurs when a listing broker extends his or her agency relationship with the seller to agents outside of the brokerage. These cooperating subagents owe their fiduciary duty to the seller. If subagents of a listing broker find a buyer for a property, that buyer is treated as a customer, not a client.
A written agreement isn’t required for an agent to work on behalf of a buyer, but without one, there’s a greater risk of misunderstandings between you and the buyer and potential issues involving subagency and your commission.
REALTORS® should use written agreements when possible, according to the Code of Ethics, and the Residential Buyer/Tenant Representation Agreement (1501) available only to Texas REALTORS® can serve as a tool when communicating with your client and, in certain situations, help ensure you’re fairly compensated.
What is a buyer representation agreement?
The Residential Buyer/Tenant Representation Agreement provided to Texas REALTORS® defines the relationship between a broker and buyer. It covers the exclusivity of the representation, the market area in question, the term of the relationship, each party’s obligations, and information about fees, mediation, and limitations on liability. The agreement also includes a section clarifying that the client is not already represented by another broker for the same market area and whether an employer or relocation company is providing a benefit to the client.
Why use a buyer representation agreement
A buyer representation agreement is between a buyer and broker—not between a buyer and a sales agent. If you’re a sales agent and switch brokers, the clients who’ve signed agreements with your current broker don’t transfer to your new broker unless your current broker agrees to release the buyers from their buyer representation agreements.
A buyer representation agreement helps get the agent and buyer on the same page about the nature of the relationship before any issues arise. It can be used as part of a presentation to buyer prospects or to familiarize new clients with the terms and concepts involved in a real estate transaction. For example, your buyer might not know what it means to be represented by you and mistakenly agree to be represented by another broker for an overlapping market area. Clarifying the exclusivity of the buyer representation agreement should help avoid confrontations with other brokers claiming to be the buyer’s agent.
The Residential Buyer/Tenant Representation Agreement’s section about broker’s fees covers commission due to the broker, additional compensation, and who may be responsible if the listing broker doesn’t pay a cooperating commission. There’s also a blank for other fees, which can be used if the parties would rather agree to separate task-based compensation.
How a buyer representation agreement can help you
- Present and explain the agreement at the first substantive meeting along with the Information About Brokerage Services form, which is checked in the addenda section of the agreement.
- Explain how agency relationships work and that a written agreement clarifies that you represent the buyer exclusively and will work in the buyer’s best interest only.
- Tailor the agreement to what the buyer is comfortable with, such as restricting the market area to specific properties or using a shorter or longer term to accommodate any special circumstances.
- Remind the prospect that at any time the agreement can be changed by mutual consent using Amendment to Buyer/Tenant Representation Agreement (1505) or ended by mutual consent using Termination of Buyer/Tenant Representation Agreement (1503).
If there’s a dispute about compensation with a listing broker, a buyer representation agreement can demonstrate you represent the buyer and support your claim to a commission. For example, without a written agreement to represent the buyer, a listing broker might argue that you’re operating as her subagent and not entitled to the offer of compensation specified in the MLS.
If it lists a specific market area or properties, a buyer representation agreement provides documentation to support whether you were the procuring cause of the sale.
A buyer representation agreement is not a silver bullet for either of these scenarios, but it can support your claim to a commission.
The Residential Buyer/Tenant Representation Agreement includes a protection period that covers what compensation you might have a claim to if the buyer purchases a property shown by you during the term of the agreement and is not represented by another broker at the time.
Asking buyers to sign a written representation agreement can also weed out prospects who are not serious.
Using a written buyer representation agreement not only keeps you in line with the Code of Ethics, it starts your client relationships on the right foot by addressing key issues, such as the duration and geographic scope of your representation, important industry terms, and compensation, while potentially protecting you from future problems.