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2007-02-11 15:51:00

Buyer Broker Listing Agreements

You must understand the form you use to be able to use a buyer broker listing agreement most effectivley.

Past Experiences

Bill listed his first buyers with the Buyer's Broker Employment Agreement produced by Professional Publishers.  In 1983, it was the only form available.  He shared with these first buyers the benefits of being exclusively represented in a real estate transaction.

He and the buyers then listed on the form all the things the buyers were looking for in a property. They listed what the buyers wanted down to the most minute details, so they could create a vision of the property.

Once they created a vision of their ideal property and signed the agreement, Bill took the buyers out and showed them a property he had in mind. The buyers did not want to make an offer on the property. They wanted to get a feel for the marketplace and look at other properties.  He showed them 37 other properties. What happened? They bought the first one!

Bill knows the form produces results.  He found out that while working with both potential buyers who signed a buyer's broker listing agreement and those who did not.  Every one of the persons who signed the buyer's broker listing agreement he used, the Buyer's Broker Employment Agreement, bought a property!  Only about 40% of the people who did not sign an agreement purchased real estate. Bill knew that if people signed, they were serious and committed. The chances were that if the people signed they were actually going to get what they say they wanted.  

Duration of Buyer Listings

How long should an agreement with a broker be effective?  A licensee may ask for anything from an afternoon to a six-month listing period.  Any listing period may be extended if necessary or desired.  Each period has its advantages and disadvantages. 

Half-Day Listing

The licensee represents you for half a day.  Licensees that are just getting involved in buyer-broker listing and are afraid to ask for a longer commitment may use this time period.  If you purchase a property that the licensee shows you during the day, then the licensee is entitled to a commission. 

  • The licensee feels good because you have a listing commitment to him, even if it is only for a short time. 
  • You find out if you can work effectively with the licensee. If you find you can not work well with the licensee you are  not stuck with the licensee for a long period.

Six-Month Listing

The licensee represents you for six months. This period usually gives you ample time to find the property, negotiate, and close the escrow.

  • The licensee feels good because he knows that you are  serious about finding a property and will be loyal to him.
  • You have someone who is loyal to you, so you feel good too.

How to Work with an Agent

You actually pay for both your broker and the seller's broker in the price that you pay for your home.  You pay even though the licensees may not receive the money directly from you. You determine how you structure the payment, and the amount you pay.

Timing of Payment

How you time the payment of the broker may be important to you. There are several methods from which to choose -- no money up front, licensee paid when escrow closes.  If you do not pay money up front, you can choose whether or not to have and agreement with a licensee. 

  • *Have no agreement -- have the real estate professional work  for you for "free". The licensee is not paid by anyone unless the he is able to take a transaction all the way through so that the escrow closes. Then the licensee is  paid by whomever you agree he should be paid.

 - Brokers will readily accept you as a client -- they are accustomed to this method.
 - You can change licensees easily if you have not entered  into an agreement.
 - You may get poor representation in the transaction since the licensee is not loyal to you.

  • Sign an agreement with the real estate professional work for you.  The licensee is not paid by anyone unless the he is  able to take a transaction all the way through so that the  escrow closes. Then the licensee is paid by whomever you  have agreed he should be paid.

 - You get representation in the transaction.
 - Finding a licensee who understands buyer brokerage to represent you may be somewhat difficult at present.
 - You cannot change licensees easily if you have signed an agreement.

  • Retainer up front, balance due to licensee when escrow closes. 
    As we previously discussed a retainer is money you pay to hire a real estate professional to represent you. The fee acts as up front payment for the service the licensee will perform for you.  The retainer is usually only part of the total amount you agree to pay.  Often the retainer is one-half of 1% (0.005%) of the high end of the price range for property you desire.  There are several methods to handle payment of the retainer and the commission.
  • You or the seller pay your broker the difference between the amount due and the retainer at the close of escrow. Whether you or the seller pay your buyer's broker the difference  between the amount due and the retainer makes no difference. You pay the charge in what you pay for the property whether you pay it directly or indirectly.
      Seller pays your broker $6,000 at the close of escrow.
      Your broker rebates you $1,000 after escrow closes.

 * You get representation in the transaction.
 * You may be able to finance the retainer fee.
 * Most people like getting a "rebate" after the transaction is completed.
 * You need to pay your broker the retainer fee at a time when you may have little ready cash.

Amount Paid

There are several different methods for calculating the amount you pay the licensee.  Negotiate the method you use with the licensee who represents you. Since you actually pay the licensees who represent both you and the seller in the price you pay for your home, you may also dictate the method for calculating the amount you pay the licensee representing the seller.  Be aware that currently it is usually more difficult for you to

  • Establish what you will pay both brokers than it is to say what you will pay to the broker who represents you only.
  • Negotiate an amount with licensees if you use an amount that  differs from the usual commission they are accustomed to  charging. This commission is often three percent in many  parts of the country.

There are several methods of determining the amount to be paid, including

  • Pay only for the hours the licensee actually works for you.  Negotiate an hourly rate with the licensee. You can pay the  licensee hourly for part of the transaction such as locating the property, negotiation, and/or handling and closing the  escrow.  You can also pay the licensee on an hourly basis  for handling the whole transaction.
     Negotiate with your buyer's broker to pay him $100.00 per hour for the parts of the transaction you feel that you cannot handle -- negotiation and escrow. Your broker works  50 hours. 
      50 hours  X  $100.00/ Hour  =  $5,000

 - You can use the licensee for only the part of the transaction you are not able to handle.
 - You pay only for the hours the licensee actually works for you.
 - The charge is generally less than the usual commission rate would be.
 - You get representation in the transaction.
 - Currently, possible difficulty in finding a broker who will work for you on an hourly basis.
 - You cannot plan exactly what the charge will be.
 - The charge may be more than the usual commission rate in a few very complicated transactions.

  • *Pay a flat fee. In the offer to purchase state the exact  amount of commission (flat fee) you will pay no matter what the price of the property that you buy. Be sure to ask the licensee what he will do for that amount of money and how it differs from the service he would provide if you paid the usual commission.
     I will pay a fee $4,000 to my buyer's broker for the   entire transaction to purchase a property.

 - You pay less than the usual commission rate in most   cases --  if you offer less than the usual commission.
 - You get representation in the transaction.
 -  You know exactly the charge you will be paying.
 - A broker may refuse to represent you.
 - You may get less than the usual amount of   representation in the transaction.

  • Negotiate a less than usual commission with your buyer's  broker. Negotiate a percentage of commission with your  buyer's broker that is less than the amount that is usual in  your area.  Be sure to ask the licensee what he will do for  that amount of money and how it differs from the service he  would provide if you paid the usual commission.
      You pay a 2% commission your buyer's broker.
       0.02 commission  X  $200,000  =  $4,000

 - You pay less than the usual commission rate.
 - You get representation in the transaction.
 - Difficulty in finding a broker to accept a reduced   commission.
 - Possibility of not being represented as fully as you   would if you paid the full commission.

  • Pay your broker the commission usual in your area.
      You pay a 3% commission your buyer's broker.
       0.03 commission  X  $200,000  =  $6,000

 - Brokers will readily accept you as a client.
 - You get great representation in all parts of the transaction.
 -  This commission structure is easier to get accepted. Disadvantages:
 - You pay a higher amount than you might otherwise have to pay.

Method of payment

 Two methods are most commonly used to make a payment to a broker for services, including

  • Pay fee directly to your broker. You pay the fee directly to your broker. The seller pays no commission to your broker.

 - You get representation in the transaction.
 - You pay your broker.
 - Not the traditional method of payment. Some sellers and licensees may have a hard time understanding this  method.

  • Seller pays the commission to the buyer's broker.  The seller uses the money he receives from your purchase of the property to pay your broker.  You pay no commission directly  to your broker.

 - You get representation in the transaction.
 - The traditional method of payment of your broker which all real estate licensees understand.
 - You provide the money with which the seller pays your broker as part of the purchase price of the property.




Buyer's Broker Listing Agreements

Understand the buyer's broker listing agreement you use before you sign it.   

The Buyer's Broker Employment Agreement from Professional Publishers is a one-page legal-sized buyer's broker listing agreement. The Buyer's Broker Employment is described below.  Each section of the form has a specific purpose, as follows:

General Nature, Location, and Requirements of Property

Putting what you want in writing is the first step to actually having your dreams come true.  The success of this process has been demonstrated repeatedly.  Create a description of the property with the licensee. The licensee can be a sounding board for you.  Writing down your description of the property in can help you visualize your description and can give it a certain authenticity and reality.  Notice that there is a lot of blank space here at the top for you to create something wonderful.  Specify the general nature of the property, location, and requirements the buyers have for the property.

General nature.  List under General Nature the type of property  for which you are looking residential, residential income, commercial, agricultural, manufacturing.   

Location.  Items you decide to include under Location differ depending upon the circumstances but might include county, city or town, section of the city or town, school district, or geographic area.

Requirements.  List in the Requirements section the amenities that you are looking for such as approximate square feet; style; exterior; roof; age; lot size and lot character; type of view; number of stories; floors; rooms including living room, dining room, family room, bedrooms, den, and extra rooms; fireplaces; garage or carport; laundry; patio and/or deck; pool, spa, and/or sauna; television reception equipment; nature of sewer system and conditions it meets; and water source and any modifying factors.

Price Range, and Other Terms and Conditions

Use this area to list

  • The price range you are considering.
  • The financing terms you wish to obtain including the amount  of the down payment as well as loan interest rate, length,  points, and type.
  • Any other conditions you may wish to require such as  contingencies for sale of present home, obtaining  financing, and condition of the property.

Retainer Fee

The Retainer Fee section describes how much of a retainer you are going to give the licensee up front toward the commission.  Licensees generally ask for one-half of one percent of the upper end of the purchase price range as the retainer.
You pay a typical one-half of 1% retainer (0.005%) up front  to have the real estate professional work for you.  The high  end of the price range for property you desire is $200,000.
  0.005  X  $200,000  =  $1,000 retainer

The form states that the retainer fee is non-refundable.  It states that the retainer fee is to be used as payment for starting counseling, consultation, and research.

Like doctors and attorneys, licensees are entitled to compensation for the work they do whenever they do it.  Looking for the property is worth something.  If you decide you do not want to buy a property, the licensee should be paid for the time he spent with you.  The up-front retainer covers this and similar circumstances. 

Compensation to Broker

Compensation to the broker can be listed as a dollar amount, a percentage, or an hourly rate. 

Dollar amount.  If you enter a specific dollar amount (flat fee) you know exactly how much you will be spending for the services of a real estate licensee.  Be aware that using a specific dollar amount may limit the number of brokers who are willing to work with you. 

Percentage.  If you use a percentage, the amount you pay will depend on the price of the home you purchase. Real estate licensees understand percentages well --  MLS books usually list the cooperating broker's fee as a percentage.  Currently the commission to the selling office and the commission to the buyers' broker are both typically three percent in most parts of the country.  You can offer any percentage you wish.  Be aware that offering a reduced percentage might limit the number of brokers who are willing to work with you.

Hourly rate.  If you offer to pay an hourly rate, you will pay only for the number of hours the licensee actually works for you.  You will pay even if you do not purchase a home.  Be aware that offering an hourly rate might also limit the number of brokers who are willing to work with you.

The Present and Future

In the past in pre-Internet days licensees were prohibited from letting buyers see the Multiple Listing book. That prohibition was widely ignored.  Licensees jokde that the book would self-destruct if the wrong people touch it!  What if buyers saw a Multiple Listing Service book that had a section with FSBOs who would not pay a commission?  What if buyers got together with sellers and sold property without a real estate licensee involved?  A certain percentage do that now anyway. 

We think that the nature of the Multiple Listing Service will change.  By requesting and using buyer's brokers you can be instrumental in having the MLSs modified to work for you.  Our ideas on opening up the Multiple Listing Service are that

  • More people are going to list their properties than do not  list their properties. 
  • Sellers are going to put their properties in the Multiple  Listing Service. Sellers traditionally list their properties where they feel the properties will get the widest exposure to buyers. 
  • If sellers who will not pay a commission (FSBOs or For Sale  by Owners) are given an opportunity to put their properties  in the MLS, they will have to pay a fee to list their
  • If buyers who will not pay a commission are given an  opportunity to find properties through the MLS, they will have to pay to have access to the MLS.
  • The fees the buyers and sellers who will not pay a commission pay will make the cost less to the licensees who  participate in the MLS.
  • If sellers state that they are not going to pay a  commission, licensees will show the property only to buyers with whom they have an agreement that stipulates that the  buyer will pay the commission.
  • If buyers say they will not pay a broker to represent them  they may buy from a seller who is represented by a broker or from a FSBO.
  • Buyers currently call brokers who already represent sellers.

The real estate industry has trained buyers to call the  telephone numbers on real estate signs put up by the  sellers' brokers in the yards of the sellers' properties.  At best these buyers are going to get dual-agency, not exclusive representation, if they are represented at all. 

We feel that most buyers will see the value of the services provided by real estate professionals. Buyers in the future will likely have a licensee work with them on some type of hourly fee arrangement.  They may even just get help in the area or areas for which they require assistance, not necessarily the entire transaction.  Licensees will be paid a fee directly proportional to the amount of time they spend as are most other professions.

If you have not read Alvin Toffler's latest book, Power Shift, buy and read it.  Toffler wrote Future Shock in the 1970s and Third Wave in the 1980s. In both he discussed what he thought was taking place. In both he was pretty much correct.  In Power Shift he talks about the great shift of power around the world.  Toffler says that the three sources of power are violence, wealth, and knowledge. He maintains that the purest source of power is knowledge and the ability to convey that knowledge to others. 

Use the knowledge which you have gained from this material to have the power to find a buyer's broker to represent you and to save yourself thousands of dollars.

(Saul Klein in CEO of Real Estate Electronic Publishing Company, home of RealTown.)

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