Board of Realtors: Why are Brokers Asking Buyers to Sign Written Buyer Agency Agreements

A new Indiana law requires real estate brokers to obtain a written agreement from any buyers they are representing.

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(Aurora, Ind.) - In the past buyers were able to hire a real estate broker without signing a written agreement. However, that changed on July 1st when a new Indiana law took effect that requires real estate brokers to obtain a written agreement from any buyers they are representing. This was followed by new multiple listing service rules that were part of a settlement in two class action lawsuits. These MLS rules require REALTORS® to obtain a written agreement that includes specific disclosures about the buyer broker’s compensation.

At first glance this may appear daunting to some buyers who are not used to signing any paperwork in order to hire a broker. However, it is similar to what sellers have been doing for decades when they sign a listing agreement that authorizes the broker to represent their interests in the sale of a property. It also mirrors what attorneys, financial advisors, accountants and a wide range of other professionals do on a daily basis to document the working relationship they establish with their clients.

The new rules that have taken effect over the last 45 days simply establish the baseline requirements for buyer representation agreements. The new state law mandates that these agreements be in writing but recognizes they can be either on paper or in an electronic format. However, all such agreements must include a definite date of expiration that indicates when the agreement will end. A copy of this agreement must go to the buyer within three business days from the time of signing while the original along with all electronic copies must be retained in the broker’s office.

The compensation disclosure rules adopted by multiple listing services in compliance with the legal settlement include the following four additional elements:

· The broker must disclose what they charge for their services or how the amount of their compensation will be determined;

· This compensation must be stated in a manner that is objectively ascertainable and not open-ended;

· This compensation may be paid by a third party, thereby reducing or eliminating what the buyer may owe their broker, but the broker may not receive more money than what is stated in the representation agreement; and

· A reminder that these fees and commissions are fully negotiable and not set by law.

While these are minimum requirements for a buyer representation agreement, such contracts may also contain additional language about the services the broker will provide or common situations that arise during the home buying process. For example, the agreement may ask the buyer to identify the types of property they are searching for, reference the brokers’ agency obligations under state law, disclose the potential presence of home security surveillance equipment at properties the buyer may be shown, or identify those areas that are outside the scope of a real estate licensees’ area of expertise.

What is important to remember is that contracts are negotiable. This can be obvious in those sections where a check box prompts the buyer to make a choice or blank lines facilitate the inclusion of additional content. However, this also extends to the preprinted language that appears in these contracts. Therefore, the parties should discuss their expectations in advance and reach an agreement on mutually acceptable terms before the buyer hires their broker.

While it is true that these agreements obligate the buyer to pay their broker, buyers can condition their purchase offers on the seller agreeing to use a portion of these funds to pay this expense on behalf of the buyer. This isn’t much different than how these funds were used in the past, except buyers will now explicitly determine how much compensation their broker will receive. This is one of the benefits of utilizing written agreements to hire a broker rather than relying upon the implied contracts that were created in the past based upon the buyer’s actions.