What Are the Basics of a Texas Buyer Representation Agreement?
The Texas Buyer Representation Agreement is an essential tool in the Texas real estate market. It is a legally binding employment contract between a Texas real estate buyer and a real estate broker licensed by the Texas Real Estate Commission. The most fundamental purpose of the Texas Buyer Representation Agreement is to ensure that the real estate broker’s compensation gets paid by someone. Where did I come up with this idea? I blame my undergraduate degree in economics, I guess.
The Texas Buyer Representation Agreement comes into play when a real estate buyer wants or needs the assistance of a professional real estate broker. For someone who is just starting out and has never gone through the process of buying a house, the Texas Buyer Representation Agreement establishes the working relationship between the buyer and the real estate broker.
The primary purpose of the Texas Buyer Representation Agreement is to ensure that a "commission" gets paid to the real estate broker who assisted the buyer in purchasing residential real estate. Generally speaking, in residential real estate sales, the seller pays the commissions for both the seller’s real estate agent and the buyer’s real estate agent out of the sales proceeds. However, if a buyer purchases a home directly from the builder, the builder may not be offering to pay a commission to the buyer’s real estate agent selling the home. Therefore , the buyer’s agent’s commission must be paid directly by the buyer as part of the sales price. This is why the Texas Buyer Representation Agreement is so important—it provides that the buyer will pay their real estate agent’s commission when they do not get paid by the seller.
In this new blogging age, one vital remaining function of the Texas Buyer Representation Agreement is that it serves as a record of the client’s written consent to have the real estate broker represent the buyer’s interests in the sale or attempted sale of residential real estate. This provision is an obligation of the real estate agent in Texas, see Texas Occupations Code section 1101.557, and does not arise out of a greater duty of the attorney. The Texas buyer can take his or her checkbook and go out and buy a house without signing anything at all, and retains the right to sue the builder for any problems the buyer may experience with the house after the sale closes. However, if the real estate agent is involved, the Texas Buyer Representation Agreement should be used to establish the relationship between the broker and the Texas buyer.
What the Texas Buyer Representation Agreement is not is a real estate agent’s written list of services that the real estate broker promises to perform for the buyer. The services renderred by a real estate broker in Texas are set forth in the DTPA TREC form promulgated by the Texas Real Estate Commission, and are not part of the Texas Buyer Representation Agreement.
Important Components of the Agreement
The Texas Buyer Representation Agreement is essential for clarifying the duties of both the buyer and the real estate agent. With this agreement, the real estate agent agrees to fully represent the buyer while the buyer agrees to work exclusively with that agent for a specified period of time. There are four essential elements to the agreement:
- Scope of Services. This part of the agreement outlines the duties expected of the agent and establishes protections for the buyer. It covers full service, including assistance with finding a lender for pre-approval, helping in negotiating the best price and terms, and navigating through closing.
- Agent Responsibilities. This part enumerates the actions the Realtor will take to represent the buyer, including searching listings, preparing contracts, identifying important provisions that benefit the buyer (e.g., due diligence provisions) and alerting them to any contingencies or earnest money requirements that arise.
- Buyer Responsibilities. The agreement outlines various aspects of the process for which the buyer is responsible, including following instructions presented by the Realtor, being forthcoming about finances and personal preferences, and securing the necessary funds for earnest money and other potential costs associated with the property.
- Compensation for Services. The final section covers the issues surrounding payment for services rendered, including compensating agents who represent the seller in the transaction and payment for those services if the buyer backs out of the agreement.
Perks of Using a Buyer Representation Agreement
Professional real estate brokers or agents will attempt to deliver favorable guidance to buyers on the homes for sale in their market. For buyers without an exclusive buyer representation agreement, they could be getting guidance from agents more concerned with scoring that quick sale and making a commission than providing insight that will protect them from making a serious financial abandonment. With the lack of an exclusive buyer agreement, both the seller and the buyer are receiving guidance from an agent the seller has hired. The agreement is meant to establish who is representing who in the job to help a buyer find the right house.
The fiduciary relationship of the real estate agent to the seller may cause a conflict of interest for the agent. The initial real estate contract between the owner (seller) and the buyer is based on the buyer trusting the agent’s fundamental job to enforce the role of representative to the seller. Without private protection provided by an exclusive representation agreement, the buyer may lose confidence in their chosen representative due to a new disclosure of a conflict of interest. The profitability of the sale may take priority over the basic need of the buyer to gain a full understanding of why a certain price is being asked for the listed property.
Sales commissions are split between the broker providing the listing and any broker who brings in the buyer. A buyer whose needs and preferences were detailed in an exclusive representation agreement could be overwhelmed with large numbers of listings the agent believes the buyer would love. Even though a list of 200 homes for sale flows off the agent’s tongue like water from a tap, the buyer may not have a precise grasp of what they are looking for in a home until they look at one or two. After studying various listings, a buyer becomes familiar with various neighborhoods and recognizes the homeowner priorities for those areas. What was important to the buyer may change several times as various listings are visited and conditions affecting price become clearer with the experience of walking through the properties.
With an exclusive representation agreement in place, the agent’s sales push is greatly restricted. Presumably, items of concern regarding a property would be disclosed by the agent and additional processes would unfold guided by the seller’s listing agent. Costs, comparable prices, and potential for profit in the appreciated market of the buyer’s choice would be discussed and addressed before a sale is concluded. If the buyer is alerted to a possible title problem, yet finds the deal on a special house too tempting to pass, the agent can explain the closing terms and the after effects of a purchase that will become apparent to the buyer once the dust settles for the sale.
How to Get the Agreement in PDF Form
The Texas Buyer Representation Agreement is available for download in PDF format from the Texas Real Estate Commission’s website. The Official legal form can be downloaded here. This form is further delineated by the fact that it has a revision date of 10-21-13 and effect as of 9-1-09.
Modifying the Agreement for Your Unique Situation
Buyers and agents can customize the Texas Buyer Representation Agreement PDF to match their specific circumstances or real estate needs in order to create a mutually beneficial arrangement. This may include the addition of a clause addressing an issue that was not covered in the original agreement; for instance, to award listing agent commission if the buyer decides not to buy the property . A buyer may want to add a clause indicating a specific subdivision/area or price range where they will not purchase a home.
The agreement is not limited to residential property; it can be used for office buildings, retail centers, lease transactions or even for buying businesses or land. The form also allows for the buyer to add a custom compensation clause here.
Common Questions and Misconceptions
Any document of this magnitude is bound to create confusion and misunderstanding. Errors are bound to happen, so we have set aside these commonly asked questions and answers to help you understand the finer points of the Buyer Representation Agreement and clarify its necessity.
Q: I don’t need a Buyer’s Agent until at least two weeks after I place an offer on a home. Can’t we wait until then to sign the Buyer Representation Agreement? A: Making an offer before signing a Buyer Representation Agreement exposes the Buyer to serious liability. Say your agent makes an offer on your behalf without a signed Buyer Representation Agreement and the offer is accepted. The seller’s agent assumes you have not entered into a Buyer Representation Agreement with another real estate professional. As a result, the seller’s agent may not share the MLS commission with your agent. If the listing agent is entitled to the entire MLS commission, then your agent may bill you for their commission. A Buyer Representation Agreement is in your best interest and important to the success of your transaction.
Q: In the event that I cancel my buyer agency agreement, can I still work with my real estate agent? A. Yes. If a buyer agency agreement is cancelled, the parties are at liberty to continue their relationship under a different arrangement. A buyer agency agreement is just a contract. A contract can be written, verbal or implied. All contracts serve one purpose: to protect and ensure that all parties against default and breaches of contract. If for any reason a consumer cannot or does not want to work with a particular agent, they have the right to discuss and potentially enter into a different working relationship with another agent.
Q: If a signed customer service agreement is in place, prior to entering into a buyer agency agreement with a specific agent, is the consumer legally bound to fulfill the terms of the agreement if they now choose to work with another agent? A: Once a customer service agreement is terminated and voided, then both parties are free to work together or with another agent.
Q: I am buying a newly-constructed model home development by a national builder. I don’t think I need a Buyer Representation Agreement because I am working with the sales representative at the development and they will receive a commission from the builder. A: The Buyer Representation Agreement establishes and defines the relationship the buyer has with the real estate agent and importantly, outlines the rights of the real estate agent. Some builders will not pay a commission to the buyer’s agent unless there is a signed Buyer Representation Agreement stating (a) the specific property you are purchasing, and (b) the percentage of commission you and your agent are entitled to receive if the purchase goes through. The Buyer Representation Agreement is a legally binding document that applies to the specific transaction. The buyer’s and seller’s agents are paid from the commission on the overall property. The amount of commission each agent receives is negotiated and agreed upon by the buyer, seller, or both agents with their clients. If you have a signed Buyer Representation Agreement with your agent, the developer should compensate your agent as per the agreement.
The Legal Aspect of the Agreement
The contract imposes legal obligations on the real estate agent, and on the buyer. It also protects the interests of the parties.
By entering into the agreement, the Texas buyer appoints the agent as its agent. This means that the agent has a fiduciary duty to the buyer. In other words, the agent must work in the buyer’s best interest and act within the bounds of the law. Some examples of the real estate agent’s duties include: The Texas buyer is also legally bound to meet its obligations under the agreement. For instance, the buyer must accept the property, offer a reasonable price for the property, and pay the purchase price. If you are an agent and breach the agreement, the buyer can cancel the transaction and hold you liable for damages . Although it is not very common in practice, the buyer may also be able to collect damages in court if your actions were particularly egregious. On the other hand, if the buyer breaches the agreement, the real estate agent cannot collect a commission. In fact, the agent may even have to return the commission received if it can be shown that the money was obtained through misrepresentation or fraud. The Texas Buyer Representation Agreement PDF is a fairly standard form used throughout the state, and is most often used in residential transactions. Understand its terms before signing or advising clients to sign it, as both the buyer and seller may be bound by it. If you have any questions as to the obligations created by the agreement, especially when representing a buyer who is purchasing commercial property in Texas, consult a real estate lawyer immediately.