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This is a question that came up in one of the online forums this week. I thought I would take a moment to explain this aspect of the Pennsylvania Association of Realtors Business Relationship Between Broker and Buyer, also known as the Exclusive Buyer Agency Agreement.

Paragraph 1 of the agreement discusses the term of the agreement. This sets the Starting Date and the Ending Date of the agreement.

Paragraph 2 of the agreement discusses the Broker Fee.

The first thing this paragraph establishes is that no Association of REALTORS® has set or recommended a Broker’s fee. This means there is no fixed industry-wide price for services and that the fee could be established through negotiation.

The second major point states that your broker will accept compensation from the listing broker. However, if the compensation offered by the listing broker is less than that negotiated between the buyer and his broker, the buyer will be responsible for the difference.

The third major point is the same as the second only it pertains to sellers who are unrepresented by a real estate professional.

Lastly, paragraph 2 of the agreement states that if the buyer enters into a sale of a home that resulted from the Broker’s actions during the term of the contract OR the property was seen during the term of the contract AND the buyer is not under an exclusive agency contract with another broker at the time of the Buyer enters into a sale contract.

So, how does one avoid having to pay a commission to their buyer agent from their own funds? Here are a few things to keep in mind.

  • Ask your agent to inform you when properties of interest are not offering compensation to satisfy your buyer agency agreement.
  • Ask your agent to accept the amount offered by the listing broker.
  • Your agent can ask the listing broker to make up the difference.
  • You could make a term in the agreement of sale that the seller should compensate you for the difference. Note that this solution must be acceptable to your lender under the terms of the mortgage agreement.
  • REALTORS® are bound by the National Association of REALTORS® Code of Ethics and Standards of Practice to  “cooperate with other brokers except when cooperation is not in the client’s best interest.” A REALTOR® may not withhold listings from you that meet your specified needs, requirements, and criteria, unless you request not to be shown properties that would require you to compensate your agent from your own funds.
  • Finally, and very importantly, is the issue of what is called procuring cause. If your broker’s action during the term of the contract results in your purchase of a home, your original broker is the procuring cause. If you have entered into an agreement with another broker, you may have to pay the commission twice! Make sure you explain to your new agent about homes you looked at during your previous relationship with the previous agent. It will allow your new agent to resolve problems before they happen. It could save everyone, especially you, some major headaches when you actually buy the home.

Now, the many different real estate professionals implement this in many different ways. Some agents don’t use buyer agency at all. As always, you should make sure you understand what it is your agreeing to before signing anything.

I personally think that suing my current or past clients is bad for business. I am also flexible in my compensation expectations on a case-by-case basis. I think you will find that most REALTORS® operate that way.

There are some though who will hold you to the letter of your agreements. Be sure to ask questions, make sure you understand what your obligations will before you make your offer. By law, your real estate professional is required to give you an estimate of your costs before you make an offer on a home. Make sure you get that estimate and make sure you understand each line item.

I wish you all the best. Good hunting!

Photo Credit: http://www.flickr.com/photos/julishannon/ / CC BY-NC-ND 2.0

© 2010, Joe Sheehan. All rights reserved.