Recent changes from the nationwide commission lawsuit agreement by the National Association of Realtors (NAR) required agents to enter into written contracts with buyers before house tours. However, a new report found that some agents use language to avoid the settlement terms.
Tanya Monestier, a contracts law professor at the University of Buffalo, analyzed buyer representation agreements from 19 state and local Realtor associations. In her analysis, Monestier found that some terms used in written agreements would allow buyer's agents to collect more compensation than initially agreed upon with the buyer.
Under the NAR settlement, the buyer's agent may not receive any compensation exceeding the amount stated in the written contract.
In addition, Monestier also noted that some terms outlined in the agreement were confusing and could force buyers to behave a certain way during the transaction.
"I do not claim that the forms are a representative sample of all the forms out there-but have reviewed enough of them to be able to identify patterns and problems," she wrote in the report. "Most of these forms are not understandable to the average home buyer or seller. You should not need to hire a lawyer to understand a listing agreement or buyer representation agreement."
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Provisions Buyers Must Look out for in Representation Agreements
Overall, the report highlighted ten terms in written agreements that buyers must look out for, including:
- Require buyers to pay compensation to their agent if a transaction does not close due to a buyer's breach. Buyer's breach usually occurs if they fail to meet financial obligations in a transaction or the buyer fails to deliver the property deed according to the agreed terms.
- Possibly allow buyers and agents to modify the compensation upward than agreed to in the buyer representation agreement.
- Provisions that allow agents to collect "bonuses" from sellers
- Charge an extra fee if the seller is unrepresented (for example, properties "For Sale By Owner")
- Allow the buyer's agent not to credit the amount sought from the seller to the compensation the buyer owes. According to Monestier, this term would lead buyers to commit themselves to paying their agent's full compensation while also allowing their agents to collect cooperating compensation.
- Any provision that creates a range for compensation (for instance, a minimum and maximum amount of compensation to be provided by the buyer)
- Provision that would allow the buyer's agent to collect anything being offered by the seller's agent
- Any provision that scares a buyer into taking an action
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