Buyer broker contracts are designed by competitors behind closed doors. They are anti-competitive and anti-consumer forms for which you should never let your clients sign “as is.” Also, many brokers like to wait until an offer is written before asking clients to sign these “fiduciary” contracts that have no cancelation provision. Some even slip them into the same e-signing session as the purchase agreement. Both practices violate Minnesota licensing law. Have your clients ask to see the fee agreement right away and find out early if they are willing to negotiate. If not, encourage your clients to move on.

Two rules before you get started negotiating a buyer rep contract:

First Rule: Don’t use a friend, relative or neighbor unless you are willing to negotiate their fees and you are willing to sue them when they mess up (they will).

Second Rule: NEVER use a large brokerage firm because large firms can’t provide undivided representation and they are far less likely to negotiate their terms or pricing. They also routinely exploit their fiduciary relationships to steer clients into overpriced and biased affiliated businesses like mortgage and title.

Some things to consider negotiating:

  1. Right to Cancel – No Buyer Representation Contracts allow buyers to cancel. If your client is not happy with an agent, they should be able to cancel their contract at any time – it is a fiduciary contract afterall…. I routinely represent buyers being held hostage or being sued by buyer brokers who have refused to cancel. Change this to allow the Buyer to cancel at any time (except after a valid offer is signed). When brokers are in competition for a client, they all will agree to this.
  2. Commission Due Upon a Successful Closing – Most buyer rep contracts obligate buyers to pay a commission even if the buyer backs out of a transaction. Change this to be ONLY upon a successful closing.
  3. How They Get Paid – Nearly all contracts allow brokers to collect whatever is being offered by the listing broker. The listing broker can even offer secret bonuses to the buyers’ fiduciary that are not timely disclosed and never negotiated between the buyer and their broker. Strike this language. It creates an insurmountable financial conflict of interest and is anticompetitive as hell. 
  4. Negotiate the Buyer Brokerage Fee – Negotiate a set fee (around 1% is more than fair or a flat fee) and instruct the broker to rebate the remainder to the Buyer at closing. Make sure to inform the lender. Most transactions average about 10-20 hours of work and the fees brokers collect are just not commensurate with the service that they provide. I charge around this amount for full service and always make far more than my hourly rate.
  5. Junk Fees – Look carefully in the compensation section of the contract. Most brokers sneak in a substantial junk fee ($300-700). They have all kinds of names for this fee. Don’t let your clients agree to pay this – EVER.
  6. Dual Agency – This is why you want to select a small firm. Train your clients on why dual agency is bad. It is one of the worst betrayals possible by a fiduciary and dual agency negates all the reasons why your client hired the agent. Dual agents are prohibited from advocating or advising their clients. The brokers get a double commission if they can manipulate clients into dual agency situations. If your client becomes interested in a listing offered by the brokerage firm, have them cancel the buyer rep contract (see number 1) and hire someone else to represent them. If an agent tries to downplay the seriousness of dual agency, advise your clients to cancel immediately.
  7. Affiliated Services – Just say no to allowing the broker to select whomever they want to handle the title or mortgage services. Otherwise your clients will be steered into an overpriced and biased service provider. Instead, make them engage in a due diligence search that excludes all firms that are affiliated with them or their brokerage. This is what brokers used to do. 
  8. Arbitration – NEVER let your clients agree to arbitration. The Realtor arbitration system strips consumers of many rights, reduces the statute of limitations to two years and puts your clients in front of a potentially biased decision maker. 
  9. Home Warranties are Junk – They offer little protection and are some of the most complained about products on the market. Realtors or their brokers often get substantial kickbacks on these and they even have included these awful products right in the Realtor Purchase Agreement forms.