The Court Has Spoken: Written Buyer Agreements Are Here to Stay

By T.W. Shortt, Broker, REALTY WORLD Knox Realty Group

What has changed for buyers entering the Hardin County housing market compared with only a few years ago?

Consider Steve and Mary, first-time homebuyers who contact Sam, a real estate agent recommended by friends. In the past, their first meeting might have focused primarily on financing, neighborhoods, and the homes they wanted to see.

Today, Sam must begin with another important conversation: representation and compensation.

Before touring homes, Sam will explain whom he represents, what services he will provide, how long the relationship will last, and how his brokerage will be paid. These terms will be placed in a written buyer representation agreement.

This is more than another form. It is a binding agreement that defines the professional relationship before the work begins.

A federal appeals court recently affirmed approval of the Sitzer-Burnett settlement. The decision left the original jury verdict undisturbed and reaffirmed the legal force of the settlement and its reforms. Those reforms include requiring written agreements before an MLS participant tours a home with a buyer and prohibiting offers of buyer-broker compensation through REALTOR®-owned multiple listing services.

For Steve and Mary, the agreement should answer several questions: Is Sam’s representation exclusive? What area and property types are covered? How long will the agreement last? How can it be terminated? What services will Sam provide? Most importantly, how much will Sam’s brokerage be paid, and could Steve and Mary be responsible for that payment?

Brokerage compensation is negotiable. It is not established by law, the MLS, the National Association of REALTORS®, or a local REALTOR® association.

Suppose Steve and Mary find a home listed for $250,000 by a brokerage other than Sam’s company, XYZ Realty. Their buyer agreement provides that XYZ Realty will be paid 2.5% of the purchase price for Sam’s services.

The calculation is straightforward:

$250,000 × 2.5% = $6,250

Assume the seller has not agreed to pay any compensation to XYZ Realty. That does not prevent Steve and Mary from purchasing the house, but their compensation obligation does not disappear. Under their agreement, they may be responsible for the $6,250.

If they use an FHA loan requiring a 3.5% down payment, their estimated cash requirement could include:

• Down payment: $8,750
• Estimated closing costs at 3%: $7,500
• Buyer-broker compensation: $6,250
• Estimated total: $22,500

This estimate does not include inspections, moving costs, insurance, or other possible expenses.

Sam could write an offer requesting that the seller pay the $6,250 fee or provide an allowable concession toward it. The seller could accept, reject, or negotiate the request. If the seller agrees to pay only $3,000, Steve and Mary could remain responsible for the other $3,250, unless XYZ Realty agrees in writing to reduce its compensation.

The buyers should also consult their lender because a buyer-broker fee generally cannot simply be added to the mortgage. Seller concessions are subject to loan requirements, the appraisal, and the purchase contract.

If Steve and Mary select a property listed by Sam’s own brokerage, Sam’s representation does not necessarily end. Depending on the brokerage’s agency policies and the parties’ written consent, separate agents may be designated to represent the buyer and seller. In other circumstances, dual agency may arise and require informed written consent.

Written buyer agreements can prevent surprises by explaining representation, services, and financial obligations at the beginning. The court has spoken. The former assumptions surrounding buyer-agent compensation are not returning. Written buyer agreements are here to stay.

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