What is a Buyer/Tenant’s Representation Agreement?
A Buyer’s or Tenant’s Representation Agreement is an Agreement that says the Broker or Agent will represent the Buyer (or Tenant) for the purchase or lease of real estate. It can be for a designated duration of time, a specific geographical area, a particular type of property or one specific property.
The Agreement creates no obligation on the part of the Buyer or Tenant to purchase or lease real estate yet it assures that the Agent will be paid a commission in the event a Buyer or Tenant does make a purchase or sign a lease agreement.
And finally, when signing a Buyer/Tenant Agreement, a Customer becomes a Client.
Let’s begin by defining the difference between being a Customer and a Client.
1. An Agent has very little fiduciary duty to a Customer.
2. An Agent is held to a much higher standard of fiduciary obligation to a Client.
3. A Buyer’s Agent is looking out for the Buyer's best interests. The Seller’s Agent is not; he is working for his Client.
4. If the Agent is representing both Buyer and Seller as Clients, his obligation is to represent both equally.
5. It gives the Buyer (or Seller) the right to decide if they want the Agent/Broker to represent both Buyer and Seller.
6. An Agent is required to disclose, negotiate, operate and otherwise work on a Client’s behalf, but not on a Customer's behalf.
7. With a Client, the Agent has the assurance of the Buyer’s seriousness, as well as the guarantee of receiving a commission, which therefore places the Client in a position of top priority.
8. The Agreement increases the Buyer’s awareness. A Client will have a full understanding of the scope of services to which the Agent is obligated, as it will be clearly outlined at the time of signing.
Dispelling the Opposition to a Buyer’s or Tenant’s Representation Agreement
The typical reasons given by those who oppose signing the Agreement are easily overcome with proper education and explanation.
1. Signing the Agreement does not limit a Buyer’s purchasing options. In fact, the Buyer can do all the shopping for properties he wants and still be confident in the fact that he has a knowledgeable Agent who will protect his interests should they enter into the negotiation and contract stage.
2. Typically, there is no cost to the Buyer to have the Agreement, and unless there is a specific arrangement otherwise, the Agent’s commission comes from the Seller.
3. While the Agreement is binding to both parties, most Buyer Reps are willing to end the Agreement (and therefore the obligation to and from each party) in the event the relationship isn’t going well. The Buyer, however in that case, is still obligated to pay a commission to the Agent on any properties he or she has shown the Buyer.
4. There is equal and mutual protection to both parties with respect to their interests. The Buyer can hold the Agent accountable for performing fiduciary services (some of which they would not be aware of without the contractual definition) and the Agent has the assurance that he or she will receive a commission for services rendered.
5. Some Buyers don’t want to feel they are being “tied down” to one agent, and mistakenly think that getting several Agents to work for them will get them a better deal. Part of the strength of the real estate industry is their communication network, and a Buyer working with several sales representatives will quickly be revealed and will not be taken seriously.
What Buyers often Don’t Know about Real Estate Agents
It is important to note that finding a property is only the first part of a real estate Agent’s job. Helping the Buyer through the transaction is where the real benefit to a Buyer’s or Tenant’s Representation Agreement lies.
Real Estate Agents, like lawyers, do not sell products, but knowledge and services. These intellectual assets are what make them qualified to represent a Client. They have the education and knowledge to navigate through the myriad aspects of the real estate market, from concept to closing. And (just as an attorney) their knowledge can help save the unsuspecting real estate Buyer thousands of dollars, months of grief and an endless stream of red tape.
It is all the more difficult in the arena of Commercial Real Estate where Agents must understand commercial demand analysis, traffic counts, visibility, growth and development patterns, city & county codes & restrictions, expansion possibilities, zoning, profit & loss statements, rent rolls, cap rates and other core information vital to the CRE Investor. They are not simply searching for a 3 bedroom 2 bath house in the right school district…their database of knowledge requires extensive and ongoing hours of due diligence.
It goes without saying that an Agent who has a contractual relationship is going to be more committed to the job. Before they begin the often tedious task of searching for the right location, demographics and price range for your investment, they want to be assured that they are going to be compensated for their time and effort. Their time is just a valuable as a lawyer’s time, and besides, most people work much harder knowing that they are going to have a payday at the end!
Cautions to be Taken Before Signing a Buyer’s or Tenant’s Representation Agreement
A Buyer must be sure to advise a Broker or Agent if they have signed a Buyer’s or Tenant’s Representation Agreement with another Party. If they do not, and a purchase of a property is made without the knowledge of the first Agent (with which the Agreement was made), commissions may be owed to that Agent as well as the new Agent.
Also, the Buyer must inform the Agent if another Agent or Broker has shown them a property (or properties) previously to avoid being obligated to pay both Agents a commission.
While a Buyer’s or Tenant’s Representation Agreement is not required, should problems arise between the Buyer and the Brokerage, both parties will benefit in that the contract agreement will outline the respective obligations for each party thus providing a reference which will, in most cases, avoid a costly and lengthy legal battle. It is a protection for both parties.
A Buyer’s or Tenant’s Representation Agreement is an Agency Agreement. Before entering into any agreement, the Broker or Agent will explain what an Agency Agreement is.
An “Agency” is a legal relationship that is established between a Buyer or Seller and a real estate Agent or Broker. In an Agency Agreement, the Agent represents the Buyer or Seller in dealings with third parties. The relationship requires the mutual consent of both parties.
A Single Agency, is where the broker represents EITHER the Buyer or the Seller, but not both.
In a “Dual Agency” the Broker represents both the Buyer and the Seller in the same transaction. If one Agent in a real estate office is working with a Buyer and another agent in the same office is working with the Seller, the Broker of the real estate office is considered a Dual Agent. The Buyer must be notified of this, and be in agreement, to allow Dual Agency representation.
An “Exclusive Buyer's Agent” describes a real estate Agent who never represent Sellers. Real estate Brokers who use this term typically do not take listings of property
As the real estate climate becomes more complex, it becomes increasingly more important for a buyer to secure knowledgeable and experienced representation.
In the field of Commercial Real Estate, finding a Realtor who is qualified and capable to enter into complex negotiations is imperative.
Due diligence on the part of the Buyer is critical before signing a Buyer’s or Tenant’s Representation Agreement. Spend some time with them and see if you work comfortably together. Asking questions about their experience, their references and their knowledge about your particular needs is not only acceptable but appreciated by most Agents! And don’t be offended when they ask you some tough questions in return. It will only help your business relationship in the long run…they need to know you are a serious Buyer.
If you decide to sign a Buyer’s or Tenant’s Representation Agreement, several key terms of the arrangement are vital:
Our Agents at McCoy Wright Realty are very experienced in representing both Buyers and Tenant’s. In fact, a quick search through our Sold and Leased Properties will show many Buyer and Tenant Representation transactions. (Please be patient as our Sold/Leased page is fairly new and not quite finished.)
If you are looking for commercial or investment properties in South Carolina or Georgia, please give us a call.