What is a Buyer Agency Agreement?
Buyer agency agreements are agreements between real estate brokerages and prospective buyers – for the purposes of this discussion, the buyer agency agreement will refer to agreements between the REALTORS® in a brokerage and prospective buyers. The buyer agency agreements can be standardized by the Commission (i.e., the New Home Construction Agreement referenced above), or individual brokerages can develop their own forms as long as certain requirements are met under The Real Estate Trading Act, 1980. Buyer agency agreements allow for the buyers to engage a real estate person. A real estate person is defined as a sales person, a broker, a branch manager, a corporation, or a partnership including a limited partnership that is licensed under The Real Estate Professional Act, 2009 and is registered as a real estate business .
The purpose of the buyer agency agreement is for the buyer to have a written engagement in place with the real estate person(s). The buyer agency agreement must be for a transaction that requires the license of a real estate person and the buyer is committing to work with the real estate person(s) to identify a property or properties. The contract must be signed by the buyer within 60 days from the start date for the term specified. The reason for requiring a form for the buyer agency agreement is so that all real estate professionals know what is in the agreement and cannot add their own terms to achieve a different result. It is important the parties know what type of engagement they have with one another.
When to Terminate the Buyer Agency Agreement
Dissatisfaction with services or financial disagreements are some of the common issues that may prompt either the buyer or the agent to terminate a Buyer Agency Agreement. There are a number of reasons that a buyer or agent may elect to terminate a Buyer Agency Agreement with little or no notice. These issues are typically included in the termination clause of the agreement, however, it is important to understand that the issues are negotiable. Even if the reason is included in the agreement, it may be possible to negotiate a mutually acceptable early termination. Common reasons may include the following:
Dissatisfaction with Agent’s Advocacy – If an agent has put forth the time and effort that you expect or needs and does not seem to be taking your needs into account, you may elect to terminate the agreement.
Financial Disagreement – If the agent is unable or unwilling to reduce their commission or otherwise agree upon the division of expenses, they may seek to terminate the agreement.
More Favorable Agreement – If you or your agent has been offered a better or more favorable Buyer Agency Agreement by a different agent.
Financial Hardship – If either the agent or the buyer is experiencing a financial hardship, either party may seek to terminate the agreement.
How to Legally Cancel the Buyer Agency Agreement
Termination of a Buyer Agency Agreement is generally a five-step process, as follows.
Step 1: Point Out the Problem.
Most Buyer Agency Agreements actually have section that provides for termination of the agreement in the event of certain specified problems. If your Buyer Client has some complaint about the representation, it should be noted in writing and given to the agent, with citation to the specific provisions of the Buyer Agency Agreement that are being relied upon and a request that the matter be rectified.
Step 2: Give Notice of Termination.
If the problem is not rectified to the full satisfaction of the Buyer Client within a short but reasonable time, some of the MLS forms provide a checklist of actions that must be taken in order to properly and legally terminate the Buyer Agency Agreement. If none of these steps are taken, the Buyer Client remains under contract. Parties considering termination should carefully study the same to know what ultimately will be necessary to terminate the Buyer Agency Agreement. While each association’s form must be studied, generally, we see the following actions required:
Formal written notice to: (a) the REALTOR who represented the Buyer Client or (b) the Designated REALTOR at that firm (Designated REALTORS are typically identified on the MLS system);
No standard termination form is used.
If at the very least, both (a) and (b) above, do not occur, the Buyer Client is still under contract and the Buyer Client may not take further action with either the seller or the seller’s firm unless and until the Buyer Agency Agreement terminates.
Step 3: Fill Out Listing Cancellation and/or Termination Forms. When a terminating agency agreement form is approved by a party, it is signed and submitted to the MLS for listing withdrawal.
Step 4: Take No Further Action With Seller or Seller’s Broker-Direct Dealings may Violate Ethics Rules.
Even if the Buyer Client is unhappy and at the point where he has formally terminated the Buyer Agency Agreement, a legal termination may not occur without (a) formal notice(s) to each of (a) and (b) above and (b) the expiration of the applicable agency agreement termination deadline(s). After that point, the Buyer Client is a free agent and it is OK for the Buyer Client to contact the seller and/or the seller’s agent.
Step 5: File Ethics of Professionalism Complaint.
If a terminated Buyer Client feels that the agent who used to represent him was not worthy of that representation or did not really put the buyer’s interests first, he should consider filing an ethics complaint with the state licensing board and/or the local association of REALTORS. Complaints may also be filed with the North Carolina Real Estate Commission and/or the NC Attorney General’s Office.
While most Buyers are surely not trained to perform their own legal work and may lack sophisticated knowledge of how to find the steps to legally terminate a Buyer Agency Agreement, this article addresses the steps in general. If you have questions on any of these steps, contact an attorney who is familiar with the issue of determination of Buyer Agency Agreements.
Risks of Improperly Cancelling Buyer’s Agent
As with signing the agreement, terminating it should be done in writing and there should be a mutual agreement on the time frame. An example of a properly written and agreed upon termination would be as follows: "Buyer Agency Agreement is herby terminated effective on September 15, 2012 at 5 p.m." Both parties should initial and date after the language they agree upon. However, as was often said by the character Jordan Belfort in Martin Scorsese’s Wolf of Wall Street (and Leonardo DiCaprio won an Academy Award for depicting this same character), the only thing that matters in business is: "How much money did you make?" This can also be the question that applies to improperly terminating a buyer agency agreement. So what are the financial implications?
The first consequence might not seem like a consequence to the party who has been wronged: namely, the commission for a home sale. A split of commission has effectuated between a listing agent (who creates representation for the seller and receives part of the commission from the sale) and the selling agent (the buyer agent who kicks back part of his commission form the sale to the buyer). The split is typically set up through MLS agreements, which often have very specific implications. For example, here in Texas, the Real Estate Commission, the statewide regulatory body, only allows the split to be legally implemented if there was an actual contract. Should there be a stipulated split in the MLS listing and no contract exists due to improper termination of the buyer agency agreement, the seller will be required to pay the entire commission amount to the listing agent.
To make matters worse for the wrongly terminated party, the time required to renegotiate a new buyer agency agreement means that this party may not even be able to collect the commission from a resulting sale of the home. This financial inconvenience, along with the time dedicated by the wrongly terminated party, could cause prohibitive financial consequences.
At this point we can conceptualize the second potential consequence of improperly terminating a buyer agency agreement. Taking into consideration an example where the selling agent has signed a proper written termination with the buyer, but misrepresents to the listing agent through not disclosing the termination, the selling agent might be liable for collateral damages, namely, potential tort liability through fraud or negligent misrepresentation to the listing agent. These causes of action could result in a lawsuit against the selling agent.
The reasons for improper termination of a buyer agency agreement go on, so it is crucial to be familiar with the processes involved in real estate. This is especially true when legally binding agreements are in effect. If one party were to approach an attorney, he or she might advise reconsidering the decision before the buyer agency agreement is improperly terminated, especially if a final sale is on the line.
How to Format and Use the Buyer Termination Form
The following is a termination form you might find useful. It is written with the idea in mind that your buyers or sellers have decided not to buy or sell any property they have been actively looking at, i.e. property in which you made an effort to show to your client so they are entitled to the refund of your earnest money deposit.
You can use this form even if the reason for termination includes a lack of motivation or indecision on the part of the buyer or seller, because you can safely argue that you used best efforts to earn the commission by showing properties, perhaps by getting the them into accepted offers, and they forfeited your only opportunity to purchase by not making a decision. Further, the section regarding reason for termination is general enough to include times when the client’s desire to buy or sell basically evaporates. In that case , be sure to list any specific property identified by MLS number in that column – it can help show that you did everything humanly possible to show your client that maybe they weren’t ready to "do the deal."
Fill in the name of the client, address the property they were interested in, check the termination box, sign and date, and you are ready to present it to your client’s broker. It’s an annual termination, meaning that you can’t collect a commission after the date you fill in. In other words, you can’t renew the termination agreement.
There are four fields you need to fill in:
- Address of property you were showing.
- Name of buyer or seller.
- Date of termination including time.
- Reason for termination.
While it’s a fairly simple form, the important thing is to get your buyer or seller to sign it acknowledging that they have changed their mind about buying or selling their property. Make sure you give them a copy, and take it back to your office so you can present it to their broker.
Seek Legal Representation Prior to Termination
Using the buyer agency agreement form and the termination of buyer agency agreement form is not as easy as it sounds. In particular, the termination of buyer agency agreement form should be read carefully and advice should be sought before signing the form and sending it to the agent. We have seen situations where people waited until the end of the buyer agency agreement term to attempt to get out of the agency relationship by terminating the agreement. In some cases, problems and issues arise due to the fact that, by that time, the property has already been purchased.
Again, care should be taken before any termination is signed and sent. Also, a person who has entered into a buyer agency relationship should not assume that he or she should sign the form and send it off to the agent because that is what is recommended. A property is one of the largest purchases that most people make in their lifetime and so proper care and attention should be given to terminating a buyer agency agreement.
Conclusion and practice tips
Properly terminating a buyer agency agreement with a client or customer can be a simple process if you follow a few best practices:
• It is always best to have your listing terminated with the same form that was completed and signed to initiate it. Handshake deals may be okay for family and friends but not when it comes to industry managed forms. The use of the proper industry managed form is our first recommended best practice.
• Make sure that the form you are using properly identifies your firm as the brokerage that initiated the buyer agency. Do not send an REC-8 form out on behalf of your brokerage unless your firm’s name is on the form. You do not want your firm saddled with problems that arise with other firms after the termination, because the termination form was for another brokerage. This is the second recommended best practice.
• Make sure that the form you are using is not changed. Changes to the form, even if required by your brokerage, change the form into an altered form, which cannot be used without violating copyright protections. Even changing font size, spacing between paragraphs or cut and paste changes invalidates the form . This is the third recommended best practice.
• Make sure that you have obtained your clients signature(s) on the termination form prior to submitting it, unless you are doing so to initiate the termination request on the REC-8. Obtaining your clients signature will avoid any issues that arise from not having the required signature(s) on the form. This is our fourth recommended best practice.
• Ensure that your clients are aware that the REC-8 form cannot be used until the person(s) requesting to terminate have fulfilled their obligations under their contract with their buyer agent, or until a tribunal (e.g., the Courts, or the Discipline Panel of RECO) issues an order terminating the agreement. Unfortunately, it is not possible to terminate a buyer agency agreement while there is a pending trade dispute with RECO. Make sure that your clients understand this to avoid calling in frustration and blaming the agent for the delay. This is our fifth recommended best practice.
Following these simple best practices will go a long way in making sure that you properly terminate a client’s buyer agency agreement, while avoiding some of the pitfalls that can come up.