NAR SETTLEMENT FAQS - Updated July 12, 2024
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9 tips for getting prospects to sign a buyer-broker agreement
The times, they are changing, and no matter what the outcome of various litigation is, as well as the aftermath of NAR’s settlement, it’s time we as an industry move toward solidifying our buyer relationships in writing.
We prepare endlessly for listing appointments, teeing ourselves up to the seller with our track record, professional biography and accomplishments, client testimonials, marketing savvy, and plans of action, yet we haven’t homed in on a similar approach with buyers as much as we should.
We have largely been operating on a wing and a prayer; no matter how hard we have worked to prove our worth for buyers, in the end, some simply “go in a different direction.” No matter how many times we have diligently followed up and reached out, they ghost us, never to be heard or seen again.
We troll tax records and closed MLS listings trying to discern what they might have bought and with whom. We scratch our heads and replay every interaction we had looking for “signs.”
Why did they seem all in and suddenly pull back? With every prospect we interact with, we get better at figuring out that person’s “vibe,” and our gut instinct is usually never wrong as to what they’re like to work with. Any seasoned agent can usually sniff out a disloyal person within a few minutes of meeting them. Body language, tone and attitude are very telling.
It’s high time that we shift our mindset to “listing” buyers, just like we do a seller’s home, through the use of buyer agency agreements. The upside of using these agreements is expectation management for both buyers and agents.
As we all know, sometimes we must get uncomfortable to get comfortable. Although conversations about implementing these agreements with buyers might seem awkward, they don’t have to be. Here are nine ways to get a buyer to sign a representation agreement.
1. Not a one-size-fits-all approach
Just like sellers, every buyer and their personality is different. Size up the buyer before you plunk buyer agency documents in front of their face. Tailor your conversation and presentation to the buyer’s personality in a way that will resonate with them.
Some people are more “big picture” and don’t want to be bothered with every little detail, and some want to go over every word and sentence in the agreement. Some buyers might be somewhere in between. No matter, all buyers want to ensure they are not obligating themselves to something they don’t understand or cannot commit to.
2. Introduce the buyer’s agreement and related documents
Explain to the buyers that buying and selling a home is typically the single largest transaction people make in their life and this is not something people do very often. As such, all real estate transactions are documented with the appropriate paperwork.
Ask the buyers if they have ever sold a home before. If they have, you can parallel their signing the listing agreement documents as a seller to signing the buyer representation agreement as a buyer.
If they have not sold a home before, explain to them that when you list a home for sale, you have the seller signing documentation called a listing agreement, which is an employment contract that allows you to sell their home. This is very similar to that, except it’s an employment agreement that allows you to work with them to purchase a home.
By doing so, this documents what your obligations and responsibilities are to them and also goes over what the buyer will need to do as part of the buying process, this way everyone knows what is expected of each other.
3. Foster transparency and accountability
To the above point, explain that you want to make the real estate transaction process as transparent as possible, and it’s important for them to know how everything works regarding representation and compensation. Emphasize that this is the single largest transaction most people make in their lives, and you are committed to handling this with the utmost care and diligence.
Show the buyer the forms you would like to go over with them. Buyer forms vary from state to state and local Realtor associations. Besides the buyer’s representation agreement itself, there may be several other forms you would like to include in your buyer presentation package.
Highlight the key sections of each document so it looks less confusing for them as well as yourself when you explain everything. Consider highlighting the sections that apply to the buyer in one color and those that address the broker/agent side of representation in another color.
Go over how the buyer representation agreement protects them as well as you, the agent. Explain how you start working on a buyer’s behalf, long before you may ever be compensated and that compensation without an agreement is never guaranteed.
Let them know you are considered an independent contractor whose compensation is purely commission-based and only when you write an offer that gets accepted and successfully bring the transaction to closing, which means it has been funded and recorded (in states where applicable), are you and your brokerage compensated.
Unlike most full-time jobs, it’s important that they know what independent contractor status means. Just because you are an agent with XYZ Company (or if you have your own brokerage) does not mean that you are paid a salary every two weeks. The buyer needs to understand that your work hours are dictated by client needs and therefore can be all the time and anytime.
There is no paid vacation time, no benefits package, and all expenses incurred by you from board dues, gas, marketing, signage, business cards and paying taxes, social security, and all else are on you personally.
Explain to the buyer that utilizing a buyer’s representation agreement allows you to provide a higher level of service and dedication from their agent. You are essentially at their service and on call for them during their entire home search, no matter how long that takes, no matter how many showings, questions, running down information on various properties, offers written and negotiated or canceled.
Tell them that though you are not an attorney (unless you are in fact one also selling real estate, and some agents are), you are essentially acting as their legal representative to facilitate the transaction.
The buyer also needs to understand that they need to be transparent when asked if they are under a representation agreement with another agent or if they have an established relationship with an agent and have not entered into a written agreement.
If they have seen other properties with another agent and are under a representation agreement, explain it’s important that all is documented as to what properties were shown to them by that agent, otherwise, they could be obligated to pay compensation to more than one agent. Explain the sections of the agreement that go over this.
4. Timeframes and cancellation
Before you get too deep in the weeds, touch on the fact that the buyer’s agreement can be canceled by you or them at any time, and show them that form to put them at ease. Explain the reasons why either of you may want to cancel — perhaps the working relationship is not a good fit or the buyer’s search criteria is not flexible with the realities of today’s market for their price range.
Give a couple of examples of this. Maybe the buyer has not moved forward with getting prequalified or preapproved with a mortgage lender or provided proof of funds (if paying cash), which both they and you will need to move the homebuying process forward with confidence.
Also explain to them the fine print associated with cancellation, such as what would not be a legitimate reason for the cancellation, like if the buyer sees a property with you during the timeframe the agreement covers, but opts to write an offer with another agent or a listing agent.
Let them know that if that property falls in the search criteria established — the area of the agreement that covers the type of property, price range and general location, or that you introduced them to the property, area, etc. — they could be obligated to pay compensation in that instance.
Read the fine print on your buyer’s agreement with respect to this as some agreements give you an option for exclusive versus non-exclusive. Non-exclusive is not as protective as an exclusive buyer’s agreement. Keep in mind that as buyer representation agreements become mandatory (tentatively scheduled for July) the specifics they include may change.
With regard to the length of the buyer agreement, there is not a one-size-fits-all approach, depending on the buyer. If you sense the buyer is hesitant, consider offering a shorter timeframe so you can both get comfortable with each other and the home search process.
Explain how this will allow you to showcase all that you do for them, and they will have the option to extend the agreement at the end of the initial time period so you can continue your working relationship with confidence.
5. Demonstrate your value
Use this time to shine with your buyers to instill confidence. Create and customize your own list based on all that you do or highlight the most important items from the National Association of Realtors’ “179 Ways Agents Who Are REALTORS Are Worth Every Penny Of Their Compensation.” Many state and local Realtor associations have this content as well.
It’s important to explain all that goes on in a real estate transaction from the initial search to the offer process, negotiation, transaction management and overseeing the closing process.
Show the buyer the offer documents utilized in your local area along with any advisories and disclosures typically used. Explain how you navigate these with buyer clients, and ask if they would be able to make sense of these on their own.
Do they know how to structure an offer that protects their interests while balancing the need to make their offer attractive at the same time? Discuss escrow deposits and what is required in your market, where the funds are typically held, how contingencies and, ultimately, closing on a property (or not) can affect those funds.
Review contingencies that come into play in a transaction and how your job is to ensure that all contract timelines are adhered to in order to ensure that the buyer’s escrow deposit is protected and not jeopardized by tightly managing that process and requesting extensions where needed.
A few questions to discuss:
When it comes to inspections, do they know what inspections would be suggested or required and costs involved?
Have they budgeted appropriately?
How would they make sense of those inspections as far as what issues are major versus minor and are some deal-breakers that could affect the value of the home down the road?
Do the buyers have a good grasp of costs and repairs identified on inspections?
Buyers need to know that every transaction is unique and no two are ever alike. There are a myriad of factors involved between the property itself, the seller(s) and the listing agent.
If you are a seasoned agent, share a couple of challenges you’ve experienced on the buyer side of a transaction and how you worked through them so they can understand why they need you to hover over and look out for their best interests.
If you are a newer agent and don’t have these “war stories” yet, borrow a couple from seasoned agent colleagues or ask your manager for some situations that arise where a buyer would certainly regret not having representation.
6. Representation matters
Buyers may be wondering why they need to sign a buyer agreement at all.
The thought, “Can’t they just get all of this by going through the listing agent?” may be running through their head. It’s important to address this concern, whether they address it or not. You may want to bring up this exact question and explain the differences between representation vs. no representation.
Show them what a no-representation disclosure looks like that is used in your market, and compare that with the obligations and responsibilities outlined in a buyer’s representation agreement that has representation.
This will illustrate to them how not having representation can hurt them because, ultimately, when it comes to buying a home, they don’t know what they don’t know (but should know) that could cost them far more than just financially.
It’s important to let buyers know that the listing agent is hired by the seller and works for them through their employment agreement called a “listing agreement.” Their job is to get the best price and terms for the seller.
Looping buyer representation into the mix by a listing agent creates a precarious professional position for the agent. Explain if the listing agent representing both parties is allowed in your state and if so how.
Let the buyer know that even if representation of both the buyer and seller by the same agent is permitted in a transaction, it really walks a fine line for all involved because it can be very difficult for both the buyer and seller involved in the transaction to feel as if their interests and concerns were represented and advocated for.
Remember, the listing agent already has a relationship with the seller established, so a buyer coming into the mix is not on the same playing field in that situation.
How do you know the negotiation that is transpiring is really in your best interests and are your interests being protected?
What can you push back on?
What can and should you be asking for or not?
What terms are considered reasonable or not?
What’s the 35,000-foot view of things from above?
It’s hard to get that perspective when you don’t have a trusted professional guiding you every step of the way.
You should also address the risk of a listing agent facilitating offers with more than one buyer not represented. This can also be a risky situation for all involved.
How will the buyer get a fair shake, and how will you know where your offer stands?
What leverage do you as a buyer have in this situation?
Will you know what it will really take to have your offer selected?
Do you know if the information you are being told is accurate?
Who is going to advocate for you?
This is where you need to also explain that sometimes it’s not about the best price or terms, but about the relationship and reputation of the agent representing the buyer that gets the deal done.
Be prepared to share examples of this and how you were able to overcome the odds to get buyers you worked with to have their offer accepted amidst a sea of competition.
By signing the buyer’s agreement, the buyer will always have an enthusiastic and dedicated advocate in their corner who will hold others in the transaction accountable to ensure the buyer’s interests are protected and that all involved fulfill their obligations.
7. Compensation
Use the buyer agreement to help get the buyer comfortable with your compensation. Buyer agency agreements allow for a variety of compensation arrangements from upfront fees to various commission schedules that the agent establishes.
This is where you as an agent must determine how you want to establish compensation.
Review your compensation with the buyer to go over in what situations you would get paid and how much.
Explain that every situation and circumstance is different, and show them the form you would use to modify the terms of the buyer’s agreement should you need to. It’s important to let them know while a buyer’s agency establishes a framework of representation and compensation, things can and do change as you move through the transaction process, and this is why you can modify terms.
8. Helpful Q & A
Consider putting together a question-and-answer sheet with some of the most common questions and concerns that will likely come up, and you know they will.
This will address the various concerns and hesitations swirling in a buyer’s head that they may be hesitant to ask. They will appreciate your anticipating these concerns to help put them at ease.
There is a lot of information coming at a buyer when explaining these agreements and they may hear or interpret what was said differently than what was meant. Having a questions and answers sheet will be a handy reference that they can come back to.
Here are some questions you may encounter:
How does this agreement impact me?
What does signing this agreement obligate me to do?
What if I want to get out of it?
Can I sign more than one agreement with different agents? What happens if I do?
What if our agreement is over and I see a property that I want to buy the next day or a week later? Do I owe you anything?
What if I come across a property on my own that I want to buy during the terms of our agreement?
What if I buy the first home you show me? Will your fee differ?
What if I go under contract with a home with a listing agent directly and I don’t like the way it is going, can I get you involved at that point?
What if I cannot afford to pay you?
What if I don’t want to pay you or don’t feel that the service you provided matches the fee you expect?
How will this agreement be enforced?
This is not an exhaustive list of questions, and certainly, agents may be hesitant to include such direct questions on such a document. However, it’s best to confront these issues before you start working together because you know buyers are thinking about these things.
Rather than discuss them, they may elect to say nothing, go radio silent and fade away or sign the agreement only to find a way to get out of it a short time later, after you have started working on their behalf.
9. Provide reassurance
Assure buyers they are not signing their life away. Tell them you want this to be a mutually beneficial and productive experience. If either of you are not feeling the relationship is working the way it should, either of you can cancel.
If terms need to be modified along the way, let them know you can both have an open dialogue to see what works best and change the agreement accordingly. Assure them that this agreement allows you to work for them rather than against them as deciding not to have any representation will feel like the latter.
The intent of the agreement is to establish some “rules of the road” so both parties have a roadmap to work from. Agents working with buyers have a right to expect compensation for the time and effort they have put in, while at the same time, the buyer has a right to expect certain things from their agent.
In closing, who and how a buyer’s agent ultimately gets paid remains to be seen as of this writing. We don’t have all the answers as we navigate through this uncertain time. These suggestions are by no means a finite list and will continue to evolve with how these lawsuits and settlements evolve.
Certain legal requirements, disclosures and best practices may very well come out of all this that will have to be incorporated into buyer representation. New ways of doing business may follow, and it will be a learning curve for everyone — agents and consumers alike.
Buyers will wonder why every agent they engage with is discussing the importance of buyer representation, and they may initially react like a deer in headlights when faced with the prospect of signing something after years of never having to do so.
They will need to be re-educated on the buying process and how to work with an agent in light of this situation when they realize buyer representation is not limited to a specific agent or brokerage asking for an agreement to be signed.
At the same time, the reality is, we as an industry have limits on how these agreements can be enforced. I addressed several considerations in my recent article 58 questions agents should be asking about commission lawsuits.
Ultimately, real estate is a relationship business, and we could do everything right as far as explaining buyer representation agreements and offering to be flexible with a buyer to get them comfortable, only to be screwed over in the end. There may be some buyers who, no matter how all of this is explained, may simply not want to sign anything.
Even though they understand that an agent doesn’t work for “free,” they may be hesitant about the financial obligation. Having an upfront discussion with a buyer will at least force their hand as they may not want to commit now or ever. It might be they ultimately use an agent who is connected in their sphere somehow — their cousin’s mother-in-law’s daughter.
Rather than devoting significant amounts of time and energy to that buyer with the “hope” we may be able to sell them a property, it’s better to know upfront who will or will not commit.
As we shift to a buyer agreement environment, we will have those moments where we think, “If we had just been able to work with a buyer without the pressure of an agreement, perhaps we would have been able to make some headway,” but that is something we will never really know.
The buyer representation agreement process may seem clunky right now, so the best way to get comfortable with it is to practice, practice, practice.
Practice on yourself, on a family member or friend, or with other colleagues so all will become automatic.
Practice answering the tough questions and refine your Q&A sheet. The best agents can have tough conversations with ease, and the ability to have those conversations in a comfortable manner is the perfect reason a buyer should want to sign a representation agreement to ensure they have someone always watching out for their best interests.
Agents who can do that tend to command more respect and authority versus those who wilt like a flower in the face of adversity.
By Cara Ameer
REMINDER: Our NAR Settlement REsource Library is available at blakeuniversity. For security purposes, you must be logged into your BHHS gmail for access.