Understanding the Exclusive Buyer Representation Contract In Minnesota
In the state of Minnesota licensed professionals, Realtors, Real Estate Agents, and salespersons are required to present the Agency Disclosure form to prospective clients at the first substantive meeting. This disclosure explains the types of representation available. These include:
1. Seller's Broker - The broker/agent represents the seller and owes all duties to the seller.
2. Buyer's Broker - The broker/agent represents the buyer and owes all duties to the seller.
3. Dual Agent - Both seller and buyer are represented by the broker/agent and both parties must agree in writing to this representation.
4. Facilitator - No party is represented in the transaction and the broker/agent only performs certain actions such as paperwork. Certain duties are still owed to both parties such as confidentiality and accounting.
I Want To Be Represented As A Buyer, What's Next?
After you have reviewed the agency disclosure with your Realtor and you wish to be represented as a buyer in your real estate transaction the next step is the review and sign the Buyer Representation contract. The purpose of the Buyer Representation Contract is for the buyer to give their broker/agent exclusive right to locate and/or assist in negotiations for the purchase, exchange of or option to purchase property at a price and with terms acceptable to the buyer.
The first part of the contract will lay out the basics such as the parties involved (buyer and broker), the date, and how long the contract will last.
Next it outlines the obligations of both parties, buyer and broker/agent.
Broker's Obligation: Broker shall make a reasonable effort to locate property acceptable to Buyer. Broker shall use professional knowledge and skills to assist in negotiations for the Purchase of property. Broker shall assist Buyer throughout the transaction. Broker shall act in Buyer's best interest at all times, subject to limitations imposed by law or dual agency. Broker shall comply with all fair housing and nondiscrimination regulations.
Buyer's Obligation: Buyer shall work exclusively with broker for the purchase of property. Buyer shall promptly furnish to broker accurate and relevant personal financial information to ascertain buyer's ability to purchase property, if requested. Buyer shall cooperate with broker in finding a property to purchase. After a purchase agreement has been accepted by seller, buyer is legally obligated to purchase the property. If Buyer refuses to close the purchase for any reason other than the failure of the seller to perform, subject to contingencies, buyer shall pay broker all compensation due under this contract.
Beware those real estate agents that say things like "work with me as a buyer, it is free". While this may be ultimately true 90% of the time, the buyer representation contract spells out what the broker is owed for their services for representing a buyer.
As a buyer you can choose to pay your broker in a few different ways, by retainer fee or a percentage of the purchase price, or both.
Retainer Fee: Buyer pays the broker and upfront agreed upon fee. This shall be the total sum owed or reduce the total of the buyer's obligation a the time of closing.
Percentage of the selling price: This is the most common form of buyer representation compensation. The buyer is obligated to pay the broker a certain percentage of the sales price at closing, (i.e. 2.7%). If the seller's broker is offering compensation to co-operating brokers this will reduce the buyer's obligation to their broker. If there is not any compensation offered to the buyer's broker then the responsibility falls on the buyer to compensate the buyer's broker per the agreed upon compensation in the Buyer Representation Contract.
So please understand that in most often the buyer's broker gets compensated from the seller's broker to satisfy the buyer's obligation to pay their broker. But there are instances where this may not happen. For example, buyer wishes to purchase a For Sale Buy Owner Home (unrepresented) and the seller will not offer compensation to buyer's broker.
Another case where the buyer may be responsible for the buyer broker's compensation is by entering into a purchase agreement with another broker while still under contract with the current broker.
Other Items Covered Under This Contract
Types of property - Which types of property would you like to purchase, i.e, residential, land, farm, investment property, etc.
Closing Services - THE BUYER HAS THE RIGHT TO CHOOSE WHAT TITLE COMPANY THEY WISH TO PERFORM CLOSING DUTIES. The buyer may, however, wish for the broker/agent to arrange for a qualified agent to conduct the closing if they wish.
Dual Agency - This is where you will agree or not agree to enter into a dual agency situation if it were to arise. Once again, dual agency is when both parties, buyer and seller, are represented by the same broker and it is not possible for the broker to provide all duties owed to both parties. Specifically, it is not possible for the broker to negotiate for one represented party to the detriment of another represented party. Dual Agency must be agreed to by both parties in the transaction.
Cancellation - While there are specific contract dates you are agreeing to if you are unhappy or decide not to purchase a property check with your broker before you sign regarding their cancellation policies. It should be fairly easy and straight forward to cancel a buyer rep contract. There also may be a period of time after the contract ends to cover certain properties that were shown under the contract and compensation would still be owed.
The biggest takeaway I would like you to understand that buyer representation is not 'free' to you as the buyer. Your buyer's broker/agent may get compensated from the seller in most cases but if they do not, they are owed what is agreed to in the Buyer Representation Contract. So please understand what you are signing.
Please contact me with any questions or for more information.