Understanding the New Buyer Broker Agreements: What Every Homebuyer Should Know

On August 17, 2024, significant changes have been introduced to the way home buyers interact with real estate agents. This blog will break down the new Buyer Broker Agreements, providing essential information to help buyers navigate this new landscape effectively.

Buyer Broker Agreements, or BBAs, became mandatory for anyone looking to view properties. This might seem like an added layer of bureaucracy, but trust me; it's implemented to protect both buyers and agents. This is a nationwide change for all licensed REALTORS® that have access to the local MLS (Multiple Listing Service).

You might feel that signing a piece of paper can feel very daunting. Standing in front of a real estate agent, you might be wondering what you are really committing to when you discussed the Buyer Broker Agreement. To help you sail through your home-buying experience, let’s unravel the complexities of these agreements that are about to become the norm in real estate transactions. Get ready for an informative ride, filled with practical questions to ask before you sign on the dotted line!

To be clear, there are many brokerages and REALTORS® who have used these agreements for years, although today's paperwork has been rewritten from the original agreements. Prior to this requirement, many agents would not work with a buyer without getting the BBA signed. Or they would show buyers a few homes and then have them sign a BBA, giving the buyers a chance to get to know the agent to be assured that they feel comfortable.

Timeline of Changes in Real Estate

The landscape of real estate is continually evolving, influenced by market trends, regulatory updates, and consumer behavior. Understanding the timeline of these changes helps buyers grasp the current environment they are navigating.

• Pre-1990: Subagency was practiced, leaving buyers with no actual representation.
• Pre-2024: Traditional practices allowed buyers to engage agents without formal contracts.
• Mid-August 2024: Introduction of mandatory Buyer Broker Agreements for all buyers wishing to view properties.
• Post-2024: Ongoing adjustments as the market adapts to new regulations and practices.

Understanding Buyer Broker Agreements: The Basics

Navigating the world of real estate can be overwhelming. It introduces numerous terms and practices that can leave potential homebuyers scratching their heads. One of the most important agreements you’ll encounter during this journey is the Buyer Broker Agreement. So, what exactly is this agreement and why should you care about it?

Buyer Broker Agreements have become a crucial element in the home-buying process. These agreements formalize the relationship between buyers and real estate agents, ensuring both parties understand their rights and responsibilities. With the recent changes in real estate regulations, it's essential for buyers to familiarize themselves with these agreements to make informed decisions.

Defining Buyer Broker Agreements

At its core, a Buyer Broker Agreement is a contract between a homebuyer and a real estate agent. This agreement outlines the obligations of both parties. By signing this document, homebuyers secure professional representation, helping them navigate the complexities of real estate transactions. It ensures that the agent works on behalf of the buyer's best interests.

Grasping the significance of real estate agreements is crucial. Why? These documents are more than just paperwork.Knowledge is power—especially in the real estate market!

• Agent Duties: The agent is responsible for representing the buyer's interests, providing market insights, and facilitating transactions.
• Duration: Agreements can vary in length, typically ranging from a few weeks to several months, depending on the buyer's needs.
• Commission Fees: It's crucial to clarify how the agent will be compensated, as this may affect the buyer's overall costs.

Many first-time buyers feel lost and uncertain. Having a professional by your side can ease these worries. After all, buying a home is a significant investment! Is it not worth having expert guidance?

Types of Buyer Broker Agreements

Every state and the MLS in those states has their own agreements. There are two main types of Buyer Broker Agreements in Arizona:

• Broker Exclusive Employment Agreement: This limits buyers to work with a particular Buyer's Agent
• Buyer Broker Agreement to Show Property: If a buyer isn't comfortable signing an exclusive agreement with an agent they just met, this can be signed before touring a home(s). This agreement can provide comfort to buyers to let them know if they would like to keep working with an agent before signing an exclusive agreement with them.

Buyer Broker Agreement to Show Property

This form suits buyers who aren’t ready to make a long-term commitment. It allows you to explore properties within a smaller time frame - usually 30 days. It can also be used for one showing, whether it's just one house or multiples. These times can be negotiated for the first showing, a week or two, etc. This flexibility is ideal for those still evaluating their options.

When to Choose It

So, when should you consider this agreement? Here’s a quick rundown:

• If you're new to the home-buying process.
• When you're unsure about which agent to work with.
• If you want flexibility in your property viewings, although most agents are flexible.

Benefits for Cautious Buyers

Not everyone is ready to make a big commitment right away. Here are some benefits of the Limited Buyer Broker Agreement to Show Property:

1. Low Pressure: Casual viewings reduce the stress of making a decision.
2. Test Compatibility: You can assess if the agent is a good fit for you.
3. Time to Research: You have time to study the market and figure out what you want.

It’s a safe space for cautious buyers. You get to explore without feeling rushed. As the saying goes,

“Sometimes it’s best to take baby steps before diving in headfirst.”

Transitioning to a Longer Agreement

After using the Buyer Broker Agreement to Show Property (or whatever limited agreement your area uses), you may find yourself ready to make a more significant commitment. Transitioning to a longer agreement is simple once you’ve made your decision. Here’s what you can expect:

• Continuous Support: Your agent can continue assisting you with a broader range of properties.
• Expanded Search: No limit on the number of properties you can view, although there shouldn't be any limit on either ageement unless specified in the contract.
• Stronger Focus: You and your agent can strategize better with solid objectives.

Remember, as you move forward, you should still clarify any questions about fees. It's essential to communicate about how you will manage fees and negotiate if necessary. Now that you've had time to test the waters, you're in a much better position to decide how you want to proceed.

Broker Exclusive Employment Agreement

This is for buyers who have likely interviewed or have viewed properties with multiple agents and are ready to work exclusively with one. The timing of this contract is also negotiable between your agent and you and allows the viewing of an unlimited number of properties. You should only sign one of these agreements with one particular agent - this is a contract.

Implications for Homebuyers

As a homebuyer, understanding and signing a Buyer Broker Agreement has significant implications. Here are a few to keep in mind:

1. Clarifying Responsibilities: Both parties have clear expectations laid out. This can minimize misunderstandings down the line.
2. Financial Considerations: These agreements might assign financial responsibilities to the buyer.
3. Protection of Interests: Having a solid agreement helps safeguard your interests and ensures that your agent is incentivized to prioritize your needs.

As Neil Weichel of the Neil Weichel Group rightly stated,

"A buyer broker agreement is your ticket to having professional representation in what can often be a complicated process."

Understanding the fundamentals of these agreements is essential for any homebuyer. The upcoming changes could affect you significantly, especially if you're a first-time buyer trying to grasp the real estate landscape. With the right knowledge, you'll be equipped to navigate this new territory.

Keep in mind, before you can be shown a property one of these two forms needs to be signed. It is now the law!

Engaging with Your Real Estate Agent: Key Questions to Ask

When you decide to embark on the journey to homeownership, it’s essential to have the right real estate agent by your side. But what should you ask to ensure you’re making the best choice? It's not just about picking a name off the list; it's about engaging in a conversation that sets the tone for the entire process. Here, I’ll guide you through some crucial questions to strengthen that connection.

1. How Long Will the Agreement Last?

The first question that should pop into your head is: How long is this agreement valid? Understanding the duration of the contract is vital for clarity and peace of mind. Typically, agreements can last anywhere from one showing, a week, or as long as a year. Yes, some buyers take a year or even longer to find a place.

Don’t hesitate to ask about the timeline and whether there's flexibility if your circumstances change. After all, this agreement will dictate how long you’re locked into this working relationship.

2. What Are the Fees Involved?

Next, we must discuss money. What are the fees involved? While many buyers may assume the seller will handle the costs, there’s more to it. Understanding the fee structure upfront is crucial.

Knowing what you're responsible for can save you from unexpected surprises later on. And yes, it’s okay to ask explicit questions on costs.

3. Are the Fees Negotiable?

In my experience, it's always wise to ask, "Are the fees negotiable?" This question empowers you. It means you’re thoughtful about your budget. While some agents may have fixed rates, many are open to negotiation, especially in today’s competitive market.

4. What Happens if the Seller Doesn’t Cover the Fees?

This is probably one of the most important questions you can ask. What if the seller doesn’t cover the fees? What then? This scenario can lead to a tricky situation.

Imagine you’ve found a dream home, only to discover that the compensation structure falls short. If the buyer broker agreement says you're responsible for a fee that is a percentage of the contract price, but the seller is offering less, you're left with a gap. What do you do?

Clarifying this point with your agent beforehand can save you from a last-minute panic. Most buyers expect that their agent needs to be paid for the representation, fiduciary duties, and the time spent showing multiple homes and possibly negotiating multiple offers. Many buyers are asking their agents to only show them listings that are offering Buyer Agent compensation by the sellers. If the sellers are refusing, then the buyers won't view that property - it's off the list.

But what if you're in love with a home based on location and photos you've seen and want to see it just to make sure? Your agent can still request compensation on the offer. This wasn't allowed before in Arizona and many other states, but now it is. There are other ways to negotiate with sellers to get you the money to pay your agent, but of course, these are negotiations and the seller has to be on board. Your lender also needs to allow certain types of buyer concessions.

Every question you ask builds a foundation of clarity and transparency between you and your real estate agent. Feeling empowered in these negotiations is critical for a successful home-buying experience.

As Neil Weichel of the Neil Weichel Group wisely said,

"Ask the right questions, and your journey to homeownership will be smoother!"

Each question you pose invites more transparency into the process. As you prepare for discussions with potential agents, remember to keep these questions at the forefront of your mind. Understanding what to expect helps build a productive relationship right from the start.

What If I Refuse to Sign an Agreement?

Buyer Broker Agreements are now mandatory in all 50 states. If you find a REALTOR® that doesn't require you to sign one of the Buyer Broker Agreements, you are working with an agent that is breaking the law. If that agent gets caught, they will be fined and it can be up to $5,000 for each incidence.

Do you want to work with an agent that doesn't follow the law? If you really like your agent, do you want to get them in trouble and have to pay a hefty fine? They might even lose their license to practice real estate.

The Role of Agents

Now, let’s consider the role of agents in this process. Agents don’t just sell properties; they provide insights, guidance, and support. They are key players in our homebuying journey. Choosing the right agent can make a world of difference. This relationship is built on trust, and a clear understanding of agreements adds to that trust.

Commitment and Representation

Let’s reflect on the importance of commitment and representation in real estate. Signing a buyer broker agreement is a form of commitment. It signals our intention to move forward in the homebuying process. On the flip side, it also ensures that we are represented in a complex and sometimes daunting market.

What does this representation mean? It means that we have someone in our corner, fighting for our best interests. It creates a partnership centered around achieving our homeownership goals. We must thoroughly read these agreements, understand every clause, and know our rights. The process may feel lengthy but remember, it’s about ensuring we make informed decisions.

You Do Have Choices

So you might just be starting to look at houses. You might also be a nervous first-time buyer and don't want to get entangled in a lengthy Buyer Broker Agreement with an agent you just met. You have been given the choice above to sign The Buyer Broker Agreement to Show Properties.

As mentioned, you can sign it for one showing (even with multiple properties). If the agent you're starting off with seems to be a fit for you, you might want to sign for a week or even a month before committing to the regular Broker Exclusive Employment Agreement. These might be called different things in other states, MLS territories, etc.

Going Through the Listing Agent

You might think, "Well, I'll just view homes with the listing agent of each property. Then I won't have to worry about paying a Buyer's Broker." That might not be true.

The listing agent has a signed contract with the seller. If the seller isn't willing to pay a buyer's broker, then the listing agent will either become a Dual Agent using a form in Arizona called "Consent to Limited Representation ("Consent")" or you will have to sign a form titled "Unrepresented Buyer Disclosure".

If you sign the Consent to Limited Representation form, the seller must also agree and sign it. This takes the agent's fiduciary responsibility away from the seller, and you as a buyer will also not receive it. The agent can answer certain questions to either party as long as they are not considered to be confidential information. Some states don't allow this at all. Arizona allows it but some brokerages do not allow their agents to use this form or this type of representation. And why would a seller want to do this?

That will leave you with the Unrepresented Buyer Disclosure. It is exactly what it sounds like. The listing agent is giving full fiduciary responsibility to the sellers but not to you as the buyer. If you say something that can affect the seller positively or negatively, the agent is obligated to share the details with the seller. This could undermine your negotiating power with your offer, the home inspection, a low appraisal, or anything else that might come up prior to getting the offer accepted and then getting to the closing. You really don't have anyone on your side.

So, you decide to go through the listing agent as an unrepresented buyer so you don't have to pay a Buyer's Agent fee. Wait! Even without giving you fiduciary responsibility, the listing agent is now doing most of the work of 2 agents. If his/her listing agreement only pays them as the listing agent, then they might still require you to pay a percentage of the contract price, an hourly wage, or a fixed fee. You might not be saving any money at all, especially if you've disclosed something that gave the seller an edge.

Finding a Licensed Real Estate Agent Who is Not a REALTOR®

Yes, there are real estate agents that are not considered REALTORS®. What is the difference? A REALTOR® is a real estate agent that is a member of the National Association of REALTORS®. These agents follow a Code of Ethics and in most areas, this is the only way they have access to the Multiple Listing Service in their territory, the use of showing services, and electronic lockbox usage.

I have no idea how agents who are not REALTORS® get access to all of the available listings. Sure, they can go to some 3rd party real estate search websites trying to find the actual listing agent, but that seller and brokerage do not have to pay the agent that is not part of the MLS. With the new rules, the seller/listing agent does not have to pay any agent representing the buyer. Did you know that not all of these third-party real estate websites have access to every single listing in the MLS? Some agents/brokerages refuse to share their listings with these websites. You could miss the house of your dreams!

Do you think a non REALTOR® agent will work for free? Once again, they will charge you a percentage of the contract price, an hourly rate, or a flat fee. And I don't know how you'd even find such an agent. They are usually more prevalent in rural areas where MLS access isn't used like it is in large urban areas.

Look Exclusively at For Sale By Owner Properties (FSBO)

This is about the only way I can think of that you won't be indebted to a Buyer's Agent. The problem with FSBOs is there is no representation on either side unless the FSBO is using an attorney, who is working in the best interests of the FSBO only.

Real estate has been going through a long time period with low inventory. With higher interest rates we are no longer in a crazy Seller's Market, with homes remaining on the market longer than prior averages and multiple price reductions being made. This doesn't fare well for a For Sale By Owner. Even in a better market, most FSBOs end up listing with a Brokerage.

This means you'll have very little FSBO inventory to choose from, if any, and it could be a full-time job hunting them down. Websites that provide FSBO listings are usually not up-to-date and you could fall in love (online) with a house that is already sold and closed.

Conclusion: Empowering Yourself as a Buyer

The journey of buying a home is thrilling, yet it can be overwhelming. As we wrap up our discussion, it's essential to highlight a few key points that empower us as buyers. Understanding agreements is central to navigating the homebuying process.

Seek knowledge, ask questions, and don’t hesitate to advocate for yourself in the homebuying journey. Remember, the right agent and a clear understanding of the agreements can change the narrative of your homeownership adventure.

"Knowledge is power—especially in the real estate market!"

As we move forward, let us embrace confidence and caution. Our homes are some of our most significant investments; let’s treat them as such. By doing so, we prepare ourselves to tackle the homebuying experience effectively.

Give Judy Orr a call or send a text to 480-906-1500. Judy has 41 years of experience and decades' worth of happy clients.