Georgia Exclusive Buyer Broker Agreements Explained
What Is An Exclusive Buyer Broker Agreement?
An exclusive buyer brokerage agreement is a type of agency relationship between a broker and a buyer by which the buyer contracts with a broker or firm to act as the buyer’s agent in connection with the purchase of real property. An exclusive buyer brokerage agreement is identical to an exclusive seller brokerage agreement except that the relationship is reversed. The broker is an agent of the buyer, not an agent of the seller.
A buyer brokerage relationship is created by a written agreement between a buyer and a real estate firm. Once created, it gives the buyer exclusive rights to work with the real estate firm.
Georgian have the right to represent themselves in a real estate transaction. A buyer may purchase real property without being represented by a brokerage firm or agent. Without representation, a buyer will be limited to the information that is publicly available regarding the property.
This information is often insufficient for the buyer to make an intelligent business decision about the value of the property. Furthermore, the buyer will have less access to properties on the marketplace. In today’s real estate market, most properties are listed for sale in the Multiple Listing Service (MLS). Many individuals have access to the data in the MLS , but only brokers and their licensed professionals can post properties in the MLS. You can search for a property using online listing services and information from public tax records. This information may not be sufficient to make an intelligent decision about price because the value is affected by the comparable sales of similar properties in the area and you will not have access to that information.
Real estate agents have many tools available that they can use to obtain and analyze this sales data. They can search for any recent sales in the area, any properties that are currently on the market in the area, any properties that have sold in the past year and any properties that are currently pending. Any listings or sales that have occurred in the last nine months will be in the system. In addition, agents have access to the sales prices in the MLS (with the exception of attorney sales which some MLS’s do not include in their data). The final sales price is not disclosed until three to four months after the closing. Therefore, the agent’s research will disclose sales prices that are current, allowing them to determine the true market value of the property.
Unless you select a Disclosure Agreement, the exclusive buyer brokerage agreement is a contract that covers multiple transactions. Some professionals specify this in the Agreement and only desire to negotiate one transaction and have a fresh start with each transaction. Others use the Agreement to cover as many transactions as possible within a specified period of time or until a set nonrefundable minimum fee has been paid. An exclusive buyer brokerage agreement can be terminated by expiration, performance or mutual agreement.
Essential Elements of Georgia Exclusive Buyer Broker Agreement
An Exclusive Buyer Brokerage Agreement (also known as an Exclusive Buyer Agency Agreement) in Georgia typically contains specific clauses and details that both the buyer and broker need to understand. These details include the following sections:
Duration
Like agreements in other states, such as those in Pennsylvania, Georgia’s agreement usually runs for a set period of time. In Georgia, a typical term is four months, but it can run anywhere from a couple weeks to a year, if the buyer and broker agree. This clause specifies the start and end dates of the contract.
Compensation
The agreement includes the compensation structure for the broker. In Georgia, this section outlines the percentage or fixed amount the agent may receive at the closing of a sale. The compensation is typically subtracted from the sales proceeds and paid from the seller’s proceeds (or possibly from the lender’s proceeds), although other arrangements could be considered by the parties directly.
Termination
If the buyer wants to terminate the contract, this section describes how that will be accomplished. It also outlines the circumstances under which the broker can terminate the contract. Generally speaking, termination occurs when a buyer withdraws from the contract (often because they’ve found a home elsewhere). An agent can terminate the relationship for various reasons, such as a breach of the agreement by the buyer.
Bonding provisions
This section of the agreement details the bonding arrangement employed by the agent. This ensures that if the agent mishandles finances or loses funds that belong to the buyer, the insurance company will step in to cover those losses.
Mediate versus arbitrate
Disputes may occur and this section lets you choose how you want to settle them—whether through mediation or arbitration. Mediation is a voluntary process in which a neutral third party, the mediator, helps the parties reach a mutually acceptable resolution. Arbitration is a more formal process in which the arbitrator has the legal authority to effectively render a judgment.
Buyer’s duties
This describes all of the tasks and required actions of the buyer. Such duties may include keeping in contact, being available for showings, asking questions about properties and reporting nuisance problems.
Commission from cooperating broker
Depending on the arrangement, buyers may agree to compensate agents that bring the buyer to them via the Multiple Listing Service (MLS). This is especially likely to be included in agreements for a certain type of buyer known as a "designated buyer."
Inclusion of these and other clauses in exclusive buyer brokerage agreements is the norm in real estate law and practice and understanding these clauses will increase the likelihood of a successful outcome.
Advantages of an Exclusive Buyer Broker Agreement For A Buyer
The benefits of an Exclusive Buyer Brokerage Agreement in Georgia
Purchasing a home is one of the largest and most important investments you may ever make. To ensure that your interests are protected, Georgia real estate law requires that the agreement between a buyer and an agent must be in writing. Under Georgia law, the employment agreement between a real estate licensee and a client (Buyer or Seller) is called a "Brokerage Agreement." To clarify the applicable type of Brokerage Agreement, paragraph one of the "Georgia Real Estate Commission Approved Buyer Brokerage Engagement Agreement (Exclusive)" states that the agreement is solely for the benefit of the Buyer. (My emphasis!)
Without the Exclusive Buyer Brokerage Agreement written on the GREC approved form, you may not receive proper representation or protection from the agent you hired to help you purchase the property. Some of the advantages of having a Buyer Brokerage Agreement include the fact that the agreement addresses Fiduciary duties owed to you by the agent, confidentiality, agent’s areas of expertise, compensation, and scope of services.
So, why should a buyer consider entering into a Buyer Agency Agreement?
First, it is important to note that it is the seller that is paying the commission to a buyer’s agent. So, even though you are hiring an agent to represent you to help you buy your dream home, you do not have to pay the buyer’s agent. In fact, the seller is paying the commission.
When you work with a buyer’s agent without an exclusive agreement in place, effectively you are working with a seller’s agent. The reason for this is that when there is no Buyer Brokerage Agreement in place, there is noone to protect your best interest and instead the listing agent is deemed to be the seller’s agent. When buyer and seller sign an Exclusive Buyer Brokerage Agreement, they have clarified the principal-agent relationship between buyer and the agent and affirmed their expectation that the buyer’s agent will represent them and their interests. Additionally, by having the exclusive buyer brokerage agreement, the buyer is ensured that their agent will be working with them exclusively and will be available to help them in other aspects of the transaction and beyond. For instance, many times a buyer’s agent is needed after the closing is completed and throughout the years after the closing, when a buyer may need their agent’s assistance in selling their home or buying a second home or investment property.
When buyers and sellers enter into improperly prepared contracts with real estate agents, they are limited by the agreements they have signed. There are numerous types of agreements, but the "Exclusive Buyer Brokerage Agreement" is the only agreement that is directly beneficial to the purchaser. By signing the GREC Approved Buyer Brokerage Agreement, the buyer is ensured they will receive proper representation and protections through the purchase process and throughout the duration of their relationship with their buyer’s agent.
Georgia Law Requirements for Realtors
Realtors in Georgia have legal obligations to their clients. Agent duties are generally set out in the written agreement between agent and client (the listing agreement or buyer brokerage agreement). The law also requires realtors to do certain things including:
Georgia law requires a real estate broker to disclose all known material adverse facts in writing to all parties having contracted with the broker for brokerage services. The broker must also make a reasonable and timely attempt to discover adverse material facts pertinent to the transaction. Georgia law goes on to define the term "adverse material fact" as "a fact that is of such significance or importance that it affects or would affect the ability of a reasonable person to make an informed decision regarding the decision to acquire an interest in, obtain an option on, offer to acquire, or sell real estate." (O.C.G.A. § 43-40-25(b(2)).
Real estate brokers and agents in Georgia owe their clients specific duties such as:
The duty to keep confidential all information obtained in confidence by the agent in the course of the relationship unless released in writing or as disclosure is required by law (O.C.G.A. § 43-40-25(5)(D)).
The duty to exercise reasonable skill and care in representing the interests of the agent’s clients in a real estate transaction. (O.C.G.A. § 43-40-25(4)).
The duty to treat all parties honestly and fairly. (O.C.G.A. § 43-40-25(1)).
We have compiled a summary of the important Duties Owed to All Parties as well as Duties Owed to Clients and Customers under Georgia law.
Misunderstandings Related to Brokerage Agreements
Common misconceptions about exclusive buyer brokerage agreements in Georgia are widespread. The most common misconception of this type of contract is that it will ultimately make the house buying process more expensive. This is categorically untrue. If a home buyer enters into a buyer brokerage agreement with an experienced buying broker, he or she will actually save money.
Realtors are required to show all homes which the buyer wants to see. Again, if the buyer is not under contract with an experienced buying broker, they will probably pay his or her commission which can increase the cost of the home.
First, it is important to mention one of the most misunderstood concepts about real estate sales in Georgia. Here is how the saying goes: If you aren’t paying for it, you are on the menu. This popular saying is generally referred to when discussing Realtors. In a typical real estate sale, the seller is having the home sold for him or her and the seller pays the Buyer’s Brokerage with commission paid to the listing brokerage. So the motto "If you aren’t paying for it, you are on the menu" generally applies to home sellers. So, if someone is buying a house and selling their current house, they are truly on the menu.
However, there is a myth that buy purchasing a home without representation. Many buyers believe that is acting as a ‘power player’ by buying a home without a broker or a Realtor. Let’s be clear. Buyers are not ‘saving’ commission if they don’t have a buying broker. In fact, they are actually paying a buyer broker out of the seller’s pocket . How can this be true? In Georgia, commissions are negotiable. Although most buyers assume that a total commission of 6% is standard, it is not. More and more frequently, buyers and sellers are negotiating fees. If a buyer enters into a contract without a broker, then he or she and the seller have probably negotiated out the commission and the seller is paying an even lower commission.
If a home buyer enters into a Buyer Brokerage Agreement with an experienced buying broker, he or she actually save money. The purpose of the agreement is to allow an agent to present a written contract to the seller on behalf of the buyer. As part of the contract, if the seller does not pay the commission, a buyer is responsible for it. This is industry standard and not illegal. When the commission is paid from the seller’s proceeds at closing, it is not a problem.
Think of your Buying Realtor as a home inspector and the contract as a detailed inspection. There are terms in the contract that are critical to the buyer’s financial and legal well-being. You do not want to absentmindedly allow a seller or their broker to plug inappropriate language into your contract. Here are a few examples of terms to watch out for. Even worse, here are some common myths about exclusive buyer brokerage. They are myths because they absolutely are not true. These common myths are caused and perpetuated by unscrupulous Realtors.
The truth is that an Exclusive Buyer Brokerage Agreement is a great deal. It protects everyone involved in the home buying deal.
Selecting the Proper Broker in Georgia
When considering a buyer agency relationship in Georgia, there are some shop questions that should be asked when selecting a broker to enter into an exclusive buyer brokerage agreement with. Here are some suggestions:
- Type of Brokerage: Are you interested in a company who has multiple agents or one with a team concept? A multiple agent situation may give you more flexibility with scheduling and allow you a better number of available showing times with more agents; however, a team concept may allow you to have a consultant per se who will be your authority during the process and stay with you throughout the process until you are under contract.
- Compensation. How do they calculate the commission they will receive from a company as a result of your requirements? Most buyers don’t realize that brokers receive compensation from the selling company. This amount, which is stated in the multiple listing system, is not negotiable. However, the exclusive agreement may detail what type of services are provided, so as to have a smaller commission disbursed to the broker. In this situation, you will want to ask if the services they will provide are satisfactory to you, and maybe even ask to have a reduced commission under 2%. The advantage to this is knowing that you are not paying the agent an option or retainer fee. On the sales side of a contract, this arrangement would be equivalent to the seller providing the commission for a buyer’s agent’s compensation.
- Experience. Ask the broker to detail their experience on a percent scale and qualify it with numbers where possible. For example: 296 checkmark boxes next to selling properties, 12 total properties sold in my career, 10 years’ experience representing buyers in residential real estate transactions, or any variation that shows your agent has been successful at helping buyers successfully purchase property.
- Availability. What kinds of hours can you expect from your agent? Are they consistent and does this fit into your schedule. If you work 9-5, availability until 8 or 9 pm each evening may be the ideal time to look at properties, though availability two days a week for 8 hours could also be a great option. Working weekends is a common expectation but how does the availability fit into your schedule?
These are just a few questions that can be asked. It is important to note that your research shouldn’t end here. Buying a home is one of the most expensive purchases you can make, so spending time to choose the right broker to assist you is the best investment you can make.
How To End An Exclusive Agreement
The requirements to terminate an exclusive agreement in Georgia are detailed. A party working under an exclusive buyer-brokerage agreement can terminate the agreement with 30 days’ advance written notice to his or her broker. Where the above notice is provided, the broker will be unable to pursue the compensation outlined in the agreement until the 30-day period has expired, and the termination notice does not impact the buyer’s obligations or responsibilities related to specific properties or exclusivity with such properties. While this allows a party to lawfully terminate a buyer-brokerage agreement with notice , a strict adherence to meeting all other obligations under the agreement is a requirement, as is not working with any other broker during the notice period.
A broker cannot enforce its rights even after a 30-day notice is provided if a buyer contacts a listing agent after a buyer terminates its buyer-brokerage agreement. If a buyer is still bound to a contract on a property when the agreement is terminated, the listing broker and agent must honor the prior exclusive agreement and continue to enforce the contract with the buyer.