October 24, 2017

Why We Ask for Written Buyer Agency Agreement

sign_contract_signitureSo, you’re ready to start shopping for a new home! You meet with an agent, and the first thing he or she does is push a form in your face asking you to sign on the dotted line, committing you to work with them exclusively. It’s annoying and you may want to walk, but it’s actually in your best interest to have a written agreement when an agent is showing you properties.

Believe it or not, agents don’t like to push this paper in your face either, but we have little choice. As of 2012, it’s the law in Virginia that we have a written agreement with our buyers, and these agreements must be made at our first face-to-face scheduled meeting.  D.C. also requires a buyer representation agreement to be in writing.

In Maryland, agents and buyers may work without a written agreement, but buyer agency in that case is “presumed” if you and the agent act like you have a client-agent relationship. But that relationship must be put in writing before you submit offers to sellers. Even with presumed agency, Maryland buyers must be provided with, and at least be asked to sign, a disclosure about whom agents represent before agents show homes.

Without a buyer representation agreement, you can act as an unrepresented buyer—i.e., a customer, rather than a client—and you will have to sign an unrepresented buyer agreement. In that case, the showing agent may perform ministerial acts for you, such as showing you homes and doing paperwork. But unless you are willing to compensate them for their time, they may have to become a sub-agent working for the seller in order go get compensated, and this they must disclose to you.

The status of being a customer rather than a client affects the agent’s fiduciary duties to you. Our code of ethics requires that agents treat all customers honesty, but we have no fiduciary duties to look out for the customer’s interests. To the contrary, agents must look out for the person they represent, which without buyer agency agreement, may be the seller who is paying their fee. That means if you tell the agent who is showing you homes any private information that would benefit the seller’s position, such as how much you are willing to spend, that agent has a fiduciary responsibility to communicate that information to the seller!

This all may seem rather odd, particularly if you looked for home in Virginia before written agreements became mandatory. To explain this more fully, we need to go back in time a bit.

Prior to the 1980s, all real estate agents generally represented the sellers. The agents showing homes to buyers were sub-agents to the seller, and all buyers were customers. However, this proved confusing to buyers who misunderstood and believed the had representation and would communicate information to the showing agent that advantaged the seller. During the 1980s, states began require that real estate agents disclose who they represent, and buyers began to demand representation.

Accordingly, Virginia and other states passed laws that created buyer representation or “buyer agency,” and the regional real estate associations drafted the forms to serve this purpose. But these agreements did not completely eliminate sub-agency. Rather, buyers simply have the option to sign a buyer agreement or operate as customers.

Until 2012, Virginia did not require buyer agents to get their agreements in writing until a contract was written. In that case, the agent and the buyer could do a written agreement or simply presume they were in a client-agency situation, which could be formalized later in writing. And many times, this worked well because agents did not have to force buyers to sign before they were comfortable. But other times, it created confusion about whether the agent was a buyer agent, a sub-agent to the seller, or a dual agent serving both. That is why Virginia lawmakers decided to make the written agreement mandatory.

This agreement can be signed on a piece of note paper or even a napkin, but we use the form developed by our local association because it clearly outlines the relationship, how we get compensated, and our responsibilities to our buyers. For buyers who fear commitment, we can set a short term for the agreement, but we must have it in writing.

Disclaimer: The information in this article is provided as background information only. The author is not an attorney and is not qualified to offer legal advice.

For more information of agency representation see this post.

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