Question: At what point in the home buying process should I sign a Representation Agreement with my Realtor and what exactly does it mean?
What is a Buyer Representation Agreement?
Formally known in Northern Virginia as the Exclusive Right to Represent Purchaser Agreement; it’s a contract between a home buyer and an Agent and his/her Brokerage (firm) that establishes an exclusive relationship between both parties stating that the Buyer is not working with another Agent and the Agent holds a fiduciary responsibility to represent the interests of the Buyer, nobody else.
Why it’s Important for Buyers
- Fiduciary Responsibility: A Representation Agreement ensures your Agent is legally bound to represent your best interests at all times and is not in cooperation with the Seller/Seller Agent (legal without an Agreement). In the course of working with an Agent, you’ll divulge confidential information about your finances, what you’re willing to pay, and more. You want to make sure it’s contractually protected and only being used to promote your interests.
- Purpose: You can define the scope and purpose of the Agreement as narrowly (specific property address) or broadly (residential real estate in Virginia) as you’d like. For example, if you’re simultaneously searching for a condo in Rosslyn and a vacation house on Lake Anna, and using two different Realtors, you can/need to specify those parameters in each Agreement.
- Termination: The contract establishes the expiration date and terms for voluntary early termination.
- Transparency: Many agents/brokers charge a flat transaction fee and some require a minimum commission on each sale, which must be funded by the Buyer if the commission split with the Seller’s Agent does not. This information must be disclosed in the Representation Agreement.
Why it’s Important for Agents
- It ensures an exclusive client relationship during the term of the contract so that your Agent knows that while he/she is committing time and resources working for you, you’re committed to working exclusively with them.
When Should I Sign?
At the very latest, you need to have a signed Representation Agreement by the time you submit a bona fide offer, but it’s in the best interest of both parties to sign the Agreement once you’re each comfortable establishing a formal working relationship. For me, that’s usually once I’ve met face-to-face with a client and established a good working relationship. While you shouldn’t be expected to sign a Representation Agreement before you’re comfortable with them, you also shouldn’t expect an Agent to spend an entire weekend working for you without a signed contract.
Buyer Representation Agreements are an interesting part of this industry because there are so many different ways they’re actually used/not used in practice by agents. Too many times, both sides feel threatened or uncomfortable discussing the Agreement, yet it’s second nature in every other industry that when two parties decide they’d like to work together, they sign a contract laying out the terms of the relationship. Transparency and trust are always good for business and it’s no different with a Buyer Representation Agreement.
I’m sure there are a number of readers who have declined a request to sign a Representation Agreement and I’d be interested in hearing your reasoning or hesitation in the comments section.