• Tom Grisak

Flying Without a Signed Buyer Representation Agreement


In this blog, I'm going to talk about ...

  • buyer representation agreements,

  • why many agents are reluctant to ask for them,

  • why having one in your files is so important,

  • what can happen if you don't have one,

  • an agent who just lost a huge commission by not having one, and

  • how I handle Buyer Representation Agreements.

 

Exactly What Is a Buyer Representation Agreement?


It never ceases to amaze me how many buyer agents are out there flying by the seat of their pants and not worrying about getting a signed Buyer Representation Agreement (buyer rep agreement for short). Maybe they don't think it's a big deal because no-one ever asks to see it, but it's quite possibly the most important documentation you'll need if you get pulled into some sort of litigation.


We have a compliance department with Keller Williams (The Grisak Group is under their umbrella) and it's their job to to make sure the agents have all their paperwork, including the buyer rep agreement. They make sure the agents on our team have it on every transaction and if they didn't, I'd make sure.


Here's what happens when new agents without guidance and monitoring start working with buyers. They just assume they're representing the buyers and trying to get the best deal for them. They also assume everyone else involved on the transaction knows they're representing the buyer. That may seem obvious, but it's really not.


Consider this, the listing agent, who represents the seller, pays the commission to the buyer's agent. Because of that, how does the client know their buyer agent isn't working with the listing agent to get the best deal for the seller? Without a signed buyer rep, they don't.


The Texas Real Estate Commission is very express in their desire to make sure agents disclose to the public their role in any type of real estate transaction. That's what the Buyer Representation Agreement is for. In short, it states the buyer's agent owes their fiduciary obligations solely to the buyer, not the seller.


That's what any buyer working with an agent needs to see and sign. If the agent doesn't have that, they're considered a "sub-agent" of the listing broker and it's their duty to get the best deal they can for the seller. Surprise!


You may never pull that Buyer Representation Agreement out of your file. But if you end up in some type of litigation, I promise that will be the first thing the attorneys on both sides will want to see. They'll want to know who you represented on the transaction. I'll give a great example of that below.


Why It's So Important to Have Your Buyer Sign the Buyer Rep Form


Many lawsuits have been won against agents who couldn't produce the Buyer Representation Agreement. Showing a home, pricing it and negotiating the offer doesn't provide legal proof they were really representing the buyer's best interests.


What happens when a disgruntled buyer thinks they overpaid for their home and is looking for someone to blame? They can't blame the listing agent, they've done their job for the seller. But what about the agent they were working with? Who were they really working for?


Without the signed Buyer Representation Agreement, the buyer agent is defenseless. How can they prove they really were working in the buyer's best interests?


Always, always get the Buyer Representation Agreement signed and keep a copy of it. Chances are you'll never see it again, but you'll thank your lucky stars you have it if you get pulled into some type of commission dispute. That's the first thing the attorneys on both sides will look at. That's real estate 101.


How Not Having The Buyer Representation Agreement Cost My Friend a Lot of Money


I have a friend who is also a commercial broker. We entered the business about the same time, almost 40 years ago and we started out with the same commercial brokerage.


He's one of the most knowledgeable commercial brokers I know and a hard worker. A cold calling machine and he does well. He's also terrible about getting the Buyer Representation Agreement signed.


I've asked him countless times why he doesn't get the agreement signed right away and his answers are always the same. "I asked and he wouldn't sign it", "I didn't ask because I know he's working with other agents and won't sign", or "He likes me and we have a good working relationship".


Two to three times a year without fail for the past 40 years he'll call me up and say "I got screwed again". Although the stories are never exactly the same, the one common denominator is he didn't get a signed Buyer Representation Agreement. He was flying by the seat of his pants just hoping things would turn out OK.


I've asked him countless times why he's even wasting time with someone who won't sign the Buyer Representation Agreement. Red flags should be going up everywhere. My guess is he believes he's always in a defensive position and makes enough deals without getting the agreement signed. He just writes off the bad experiences when he gets "screwed". But this one really hurt.


A couple of months ago he told me about a big lease he was on. The commission would be about $190K to him.


He had cold called the local contact for a large company, got him in his car and showed him a building he really liked. They started negotiating with the landlord rep and worked out all the lease deal points. He told me he had a great relationship with the local guy.


Before anything is signed, the local contact called him and told him his boss at the corporate office had told him they were going to be working with another agent on the transaction. He thinks someone at the top saw that big commission and decided to bring in another who would wrap things up and charge the listing agent a fraction of the $190K commission. Those saved dollars freed up the landlord to give the company some free rent.


The landlord was happy because they had a solid tenant, the listing agent was happy because his commission was never affected, the agent who represented the buyer was happy because he had a deal handed to him on a silver plate with no work involved and he got paid too. The only guy who lost out was my friend and he'd put in all the work.


When he told me the story, my first question was "Did you have a signed Buyer Representation Agreement, but I already knew what the the answer would be. Sure enough, he said he never got it. He also told me he was going to talk to a real estate attorney and see if he had any rights since he found the building and had done all the work.


There is a defense for something like this called "procuring cause" and my friend was hoping that would save the deal for him. The appointment with the attorney was set up and documentation was reviewed. Then he asked to see his Buyer Representation Agreement with the company. When he was told he didn't have one, the attorney advised him to just forget about it, he has no defense then charge him $400 for his advice. I told him I could have saved him the $400 and told him the same thing.


Always remember, when there's money involved, anything can happen. People can surprise you. Loyalties can fly out the window. It's up to you to protect yourself and that all starts with an Buyer Representation Agreement.


If you're wondering if my friend would have had a case if he had a signed ERR, I think he would. There's no question he was the "procuring cause" and he could have made it very nasty for the company pulling the rug out on him like that. The landlord's listing agent would also probably have been brought into any lawsuit because that's where the commission would have come from.


Chances are, it would gotten very sticky and there would probably have been a nice settlement for my friend. As it is, he won't get a penny.


How I Get My Exclusive Agency Agreements Signed


Hopefully, by now I've impressed on you both the legalities and risks of working without a signed Buyer Representation Agreement. Here's how I handle situations where buyers are reluctant to sign it.


In the our initial meeting I never press them to sign the Buyer Representation Agreement. I'll give them one tour of the homes they want to see. I consider that a freebie. I want them to get comfortable with me and I want to get to know them as well.


However, after that first visit, if they want to continue our relationship, I'll explain the importance of the Buyer Representation Agreement, my commission will be paid by the listing agent, and why I must have it to go any further. If they're unwilling to sign after that, I'll thank them and suggest they get in touch with another agent.


My time is too valuable to waste on someone who either doesn't trust me and the services I provide, doesn't care that I'm required to have that document to protect myself, or both.