Introduction to Buyer Broker Agreements
The Georgia Association of Realtors (GAR) Buyer Broker Agreement (Form FBS) is commonly utilized between anyone who is looking to purchase real estate in Georgia and a licensed Georgia real estate agent, agency or broker. As a formal agreement, it is designed as a binding contract (a legal document) between a buyer(s) of a home and the real estate agent or agency representing the buyer. It specifically pertains to a real estate purchase transaction and outlines the terms and conditions between them respectively.
Though it does address the purchasing of residential property, it may also be used in other types of real estate transactions . This form has been developed by the GAR legal team.
A Buyer Broker Agreement in Georgia serves two primary purposes. The first concern is protecting the rights and interests of the buyer. The second purpose of a Buyer Broker Agreement is to protect the rights and interests of the agent or agency involved. With an agreement in place, it clearly specifies the price range of the home, how much a commission will be required and how the parties will be able to transfer the funds if necessary. The commission could be negotiated to a lower rate than that which is standard to buyers and represented in the agreement.
Types of Buyer Broker Agreements
There are several types of buyer broker agreements that can be entered into both orally and in writing which will take effect, but which must be in writing to be enforceable. Such agreements in Georgia include the following:
Exclusive Buyer Brokerage Agreement ("Buyer’s Agent Agreement")- this is a written agreement with a defined time period for which the buyer broker would represent the buyer about residential or commercial real estate and is exclusive to the listed buyer. A traditional exclusive listing agreement granted to a listing broker by a seller concerning the sale of residential or commercial real estate is between a seller and a listing broker in which the seller grants the listing broker the right to engage a sub-agent another broker to assist in finding a buyer for the property being sold, and in the agreement the seller agrees to pay a commission to the listing broker if they bring a ready, willing and able buyer to the seller, and the seller accepts the buyer’s offer.
There are differences and similarities between an exclusive buyer’s agent agreement and an exclusive listing agreement between the seller and a listing broker.
Exclusive Buyer Broker Relationship Agreement- this is a written agreement with a defined time period entered into between a buyer and a broker in which the buyer shares information about a specific property to the buyer’s broker, and the buyer agrees to work with the buyer’s broker only as it pertains to that property.
Non-Exclusive Buyer Brokerage Agreement- this is an oral agreement with no defined time limit in which a buyer communicates with a broker, and the broker communicates to the buyer all offers and potential matching properties. The buyer’s broker is not working exclusively with the buyer.
Exclusive Buyer Brokerage Agreement with Reservations- this is a written agreement with an indefinite period in which the buyer will work exclusively with a buyer’s broker unless the buyer makes reservations to work other types for properties with the approval of their buyer’s agent. This type of agreement is rare and becomes cumbersome, acts as a barrier to other buyers, and could cause a potential buyer to purchase through another broker.
Extended Limited Agreement
This is a written agreement with a defined time period. Using this form is entirely up to the individual buyer and seller.
Note that these agreements can be verbally accepted and then enforced, but if denied by the buyer, it should be in writing to be enforceable.
Legal Requirements in Georgia
Buyer broker agreements in Georgia are governed by the Real Estate License Law, a part of the Georgia Code of Laws Title 43 (Professional and Occupational Regulation Chapter 40 – "Georgia Real Estate License Act of 1989"). Georgia is also a "caveat emptor" or "let the buyer beware" jurisdiction, which means that there is no duty on a seller to disclose any latent defects in a home (those which cannot be discovered through a visual inspection, or which are not obvious). In fact, there is a legal presumption that a buyer assumes all risks and defects of a house. This is why obtaining a professional inspection is extremely important in the purchase and sale of real estate, as a real estate agent is not a licensed inspector and not responsible for bringing any such defects to your attention.
To enter into a buyer broker agreement in Georgia, the agent will usually have you sign a form listing the homes from which you would like to choose and then checking the box next to the South 20 Realty Form listing the Buyer Broker Contract. A copy of this form can be found on the Georgia Association of REALTORS® website. Once signed, this becomes a legally binding contract between the parties, and usually binds you with an exclusive right to work with a particular agent on purchasing your future home.
As in selling a home, this contract must be in writing and contain the essential terms of the agreement. Be wary of the language used – the contract is usually written in favor of the agent and firm, so if you spot words such as "discretionary" or "can", the statement gives a great deal of control to the real estate company rather than you, even though it is written in your favor. One of the most common misunderstandings found in these contracts is the management of earnest money when you decide to take your business elsewhere – always review this section before any money is paid out for a potential property, and then follow the requirements of the contract to the letter.
If the contract terminated by the buyer, the agent will have no further responsibility. However, if the contract ended due to the fault of the agent, you may collect your earnest money deposit as long as you notify the agent in writing, and wait the 4-5 days for a response in order to find out if the agent will agree or object to the release.
In Georgia, you may choose to enter into a buyer broker agreement with an agent over the phone, but even if you say the words "[insert agent name] will be my buyer agent", this is a binding legal contract, so take care to listen very carefully to what you are actually agreeing to. The agent cannot create a buyer agent relationship between you and them without you being fully aware of the terms.
There is no requirement that the buyer broker agreement be used for all transactions in Georgia. Under O.C.G.A. § 10-6-32 "real estate brokerage activity" includes an agent who not only prepares an offer of purchase, but also provides and represents the buyer in a property search. This means that, yes, an agent can still be representing you even if you have never signed a written authorization or a property buyer broker agreement. However, in the amount of commission usually given to agents at the sale of a home, many agents will continue to work under an open buyer-broker agreement.
The attorney will also usually be called in to close a mortgage transaction. Although legally, in Georgia he or she may not draft or examine closing documents under O.C.G.A. § 15-19-51 (a), some attorneys in Atlanta will prepare a smaller contract for a home purchase if asked.
If you do not work with a buyer’s agent but ask to use a real estate attorney, you should be sure to choose an attorney who specializes in real estate. Your agent may actually suggest or recommend an attorney that they have worked with before, so that you are fully informed on the nature of the transaction.
As with any contract, once signed be sure to keep a copy for your own records. You may also want to have legal assistance in choosing an attorney to help you close your mortgage transaction.
Benefits for Homebuyers
When court has decided that a real estate agent is to be treated as a broker and not a mere finder, and the parties have agreed to be bound by the arbitrator’s determination, parties may not subsequently seek to litigate issues rather than litigate these issues in arbitration.
From the Buyer’s perspective, a buyer broker agreement makes sense because there are many benefits such as: In a traditional agent/principal relationship, the agent has an obligation to be loyal to the principal, act with care and competence at all times, and keep the principal informed of all information material to the property search. This is very different from the agent of the seller. The agent of the seller has an obligation to be loyal to the seller and advance the seller’s interest above all others, including the buyer.
The buyer broker has a duty to inform the Buyer of the cost of the properties being considered and not allowing the buyer to be surprised by the total cost of the purchase.
Buyers who enter into buyer broker agreements generally receive good and timely service from their buyer agents. They are satisfied because it is a "win/win" situation for both parties and superior customer service should be the expected end result.
Key Terms in the Agreement
The key components of a buyer broker agreement in Georgia should include the agreed-upon commission, the duration of the agreement, and the duties the buyer expects the broker to perform on his or her behalf. The agreement should specify the commission that will be paid to the broker. Many buyers believe that their agent will not be paid a commission if they are purchasing new construction. However, this is not true. While the builder may offer an incentive, such as upgrades, gift card, or future purchase credits, the agent will still be paid a commission by the sales person representing the builder. In this case, it may be a sub-2.5% commission divided between the buyer’s and builder’s agents in the MLS (multiple listing service) or the agent may have "co-op protection" in the listing agreement with the seller (builder). Agents often offer these incentives to sell more houses faster, and it does not affect the buyers’ bottom line (in fact it may save them money & time so they can move into the home sooner). Since some builders may offer $0 commission on homes which they have built "on spec" (i.e., without any custom features or colors chosen), the buyer’s agent should be compensated by the buyer if the agent is showing new construction outside the MLS. If not, this will in no way be a fairness issue, but rather a basic business decision by the agent . Simply put, the buyer should always understand whether his or her agent will be paid a commission and how much the commission might be. Some broker agreements are written for a specific period of time, like 7 days, 30 days, 90 days, or 6 months to 1 year. The buyer writing (and signing!) the agreement should read it thoroughly and agree with these terms before signing. If the buyer is not comfortable signing a contract for a specific length of time, then he or she should consider doing something else other than hiring an agent. As the late-great Martin Luther King Jr. often said, "Injustice anywhere is a threat to justice everywhere." That means that everyone has to sign agreements all the time. Buyer’s agents routinely sign exclusivity agreements with sellers who want to buy real estate. And we frequently represent them and they pay us, even though they get paid handsomely by the seller in most transactions. In Georgia it is perfectly legal for buyers to broker these types of agreements just as they are for sellers. The last thing that a buyer broker agreement will include are the duties that the parties intend for the buyer’s broker to perform. While, in Georgia, agents have a statutory duty to perform certain tasks such as assist in finding a house, real estate agents do not need a buyer broker agreement to perform those functions. Essentially, a buyer’s agent is under no obligation to work for you unless there is an agreement to do so.
Common Pitfalls to Avoid
Common mistakes buyers and brokers make when entering into buyer broker agreements as well as how to avoid them.
The most common mistake is failing to read the Buyer Broker Agreement before signing it. It might be three pages or more, and you might think you have a few minutes to look it over. But you should set aside an hour (which will include talking with your agent) to thoroughly read – and understand – the entire document, verifying that it accurately reflects the agreements you have reached with your broker. Another mistake is failing to discuss the term of the contract. This isn’t a marriage. If you’re unhappy with the buyer broker you’ve chosen, either because you don’t get along or have conflicting work ethics, you should be able to legally end the contract. If the exclusive agreement runs for six months or even one year – which is not uncommon – you could be stuck if you change your mind. Also, be sure to discuss the buyer agency engagement fee. Most real estate commissions are paid by the sellers, and are divided between the brokers and agents. If the buyer agrees to pay a commission or fee to their broker, that compensation must be stated in the Buyer Broker Agreement. It’s not unusual to ask for a small buyer agent fee for several hours of tracking down properties. The rates are negotiable, but make sure you understand everything before you sign the agreement. Many buyers might not know that they have the option to use an oral agreement instead of a written one. By law, a sales contract on property worth more than $500 must be in writing. So an oral agreement between a buyer and broker, such as over the phone, for example, is no longer valid after any property is purchased in Georgia. We recommend that you get any agreements in writing. A common reason that a buyer broker will leave his or her company is that the commission plan for the brokerage changes, resulting in a lack of interest in earning the higher commission. This change in commission can lead the real estate agent to break the contract. Buyers shouldn’t assume that large companies with high staff turn-over rates are able to serve them efficiently. Be sure that you are satisfied with everyone involved before signing the Buyer Broker Agreement. And finally, the most important thing a client can do to avoid mistakes when entering a buyer broker agreement is to ask questions. Don’t sign any agreement that you don’t understand from beginning to end. Make sure you and your broker are in complete agreement about all the parties’ responsibilities. A good broker will welcome your questions and know that he or she is representing your best interests.
Ending a Buyer Broker Agreement
If you have decided that your current buyer agent is not the right fit for you, you do have the option to terminate the agreement and find someone else. Sometimes the buyer and agent part ways amicably, or sometimes you think your agent is acting unethically or unprofessionally. Whatever the reason may be, it is a good idea to follow the proper steps when terminating a buyer broker agreement in order to avoid further problems later on.
As stated in the Georgia Association of Realtors (GAR) Buyer Brokerage Agreement, the agreement can terminate in one of three ways:
- Either the client or the agent decides to end the agreement after the expiration date
- The buyer notifies the firm that the agreement is terminated for any reason
- The firm notifies the client at any time that the agreement is terminated for any reason
It is important to remember that according to the terms laid out in the buyer broker agreement, if you decide to fire your agent, you must pay the fee per the terms of your agreement. In other words, if you fire your agent 90 days into a six-month agreement, you will still owe the remaining 90 days fees, or $1,125 (for an agreement based on the GAR Buyer Brokerage Agreement in Georgia), despite the fact that you have no agent working for you.
If the buyer and agent mutually agree to terminate the agreement, such contract can be prepared by either party:
1. For the buyer, the GAR Release Agreement
2. For the agent, the GAR Employment Agreement Cancellation Agreement.
Either form needs to be signed by all parties before being valid.
Frequently Asked Questions on Buyer Broker Agreements
It is very common for an industry or company to have problems or issues that remain under the radar until such time that consumer complaints reach a critical mass, at which time the public is made aware of a practice or a contract. Such is the case with The Buyer Broker Agreement in Georgia. Let’s begin our FAQ’s on the Buyer Broker Agreement (BBA)….
- Is a broker required to enter into a BBA with every buyer? No. There is no Georgia law requiring a written contract between a buyer and their real estate licensee. However, it is a good idea and of equal importance to have a written agreement to avoid misunderstandings and expenses down the road. A BBA is a written agreement and it establishes and clarifies your understanding with the buyer. It is a good idea in this litigious world and protects both parties.
- When I sign a BBA, does that obligate me to purchase a home. No. Buyers sign these agreements with the understanding that they will be protected from the outset in finding the right home. The Buyer Broker Exclusivity Agreement does not obligate buyers to purchase a home , but it does protect the broker they are working with if that broker is effective in doing what they do best, to represent you exclusively as a buyer’s agent.
- When I sign the BBA, I am always obligated to work with the broker I signed with. Not necessarily. On occasion, buyers change their minds and switch to another broker. That action will not succeed unless the buyer pays the first broker a commission as stated in the exclusive buyer contract. In short, the money has to follow the buyer. Typically, when there is a commission compensation negotiated with a buyer broker, the compensation is set at 2-3% of the sales price of the house. If the buyer finds another broker, there will be a commission due to both brokers if the buyer finds a house through one of them.
- Do I have to pay the buyer broker commission even if I do not buy a home or find it through the broker I signed with? Yes, the contract states that if you break your contract, you will pay a commission to your buyer broker. However, typically, the seller pays the fee and there is usually no fee charged to the buyer.
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