In this chapter:

> Buyer loyalty

> Review the buyer representation agreement

> Compensation considerations

5. The Buyer Representation Agreement

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• Similar to your pledge of performance to buyer, buyer’s agreement is buyer’s pledge to you.

• See Figure 5.1.

BUYER LOYALTY

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• Provisions include:• Property type, description, and

price range• Scope of work• Duration of relationship

REVIEW THE BUYER REPRESENTATION AGREEMENT

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• Provisions (cont.):• Consent to show properties to other

buyers• Exclusive or non-exclusive• Potential of disclosed dual agency situation

REVIEW THE BUYER REPRESENTATION AGREEMENT

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• Provisions (cont.):• Fair housing policy• Cancellation provisions• Miscellaneous

REVIEW THE BUYER REPRESENTATION AGREEMENT

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• BALANCING ACT: Clarifying Scope of Services in the Agreement

• Important to define limits of the services that will be performed

REVIEW THE BUYER REPRESENTATION AGREEMENT

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COMPENSATION CONSIDERATIONS

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Buyer representation agreement should set forth circumstances

under which will you get paid, how much, and by whom

COMPENSATION CONSIDERATIONS

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• Best interest of your clients to always try to negotiate your fee so that seller or seller’s broker pays your fee.

• Ultimately, however, your clients are responsible for your fees.

• MLS-listed property? • FSBO, not MLS listed? • New construction? • When “overage” is created? • When offer of compensation

is less than what is in agreement?

What If’s

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COMPENSATION CONSIDERATIONS

• BALANCING ACT: Veteran’s Administration Loans and Compensation

• Buyer's rep compensation not allowed if financing is from the VA

• Discuss with buyer upfront

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Determining Payment

1. All parties must know and understand who represents whom

2. All representatives must speak and act in a manner consistent with their legal relationships.

3. All parties must know, understand, and agree to how the brokerage fees will be paid.

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Determining Payment

• Work on “contingency fee” basis, which means fee is paid only if purchase is completed (also known as a “success fee”).

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Determining Payment

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Fees can be determined using:•Price of property•% of purchase price•% of list price•% of purchase price + % of amount less than listing price

Determining Payment

Fees can be determined using:• Hourly fee or hourly fee plus expenses• Hourly fee plus non-refundable retainer• Either of the above• Salary

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Fees can be determined using:•Hourly fee or hourly fee plus expenses•Hourly fee plus non-refundable retainer•Either of the above•Salary

Determining Payment

• BALANCING ACT: Payment of Fees and Accounting Considerations

• Re non-contingency fees and retainers, does payment into the same escrow as sales deposits? Check state laws and requirements.

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Determining Payment

• BRIGHT IDEA: Commission Protection Clause

• Include in buyer representation agreement

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Ways in Which Payments Are Made

• When seller agrees to compensate• Seller pays listing broker and authorizes

broker to share commission • Seller provides written authorization to

listing broker to share brokerage commission

• Some buyer’s reps prefer to receive compensation from buyer

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Ways in Which Payments Are Made

• When seller refuses to compensate• Buyer compensates for fee in amount

offered to seller for property• Include provision in purchase contract that

seller agrees to pay specified fee to buyer in order for buyer to pay buyer’s rep

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Ways in Which Payments Are Made

• As a reminder, buyer’s representatives cannot use purchase contract to renegotiate agreed-upon commission.

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Ways in Which Payments Are Made

• When the seller is not represented• Buyer compensates for fee in amount offered to

he seller for property• Seller and buyer’s rep enter into commission

agreement• Include provision in contract that seller agrees

to pay a specified fee to buyer in order for buyer to pay buyer’s rep

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After-the-Fact Referral Fees

• Relocation companies and networks earn referral fees when they direct relocating employees to real estate brokers.

• Customarily, broker agrees to pay referral fee to relocation company for each referral. However, problems may arise.

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