This summer, the TAR Agency Task Force visited six Texas cities and received comments from REALTORS® concerning "agency" issues. One of the most common comments was that many REALTORS® do not regularly enter into buyer representation agreements. The task force made the following findings about REALTORS®’ use of written buyer representation agreements:

• Many sales associates do not consistently enter into written buyer representation agreements with buyers whom they claim to represent. Instead, the sales associates often agree to represent buyers under verbal understandings.

• The buyer representation agreement is often not signed at the time the licensee begins to work with a buyer but is signed late in the relationship (perhaps at the time of contract).

• Occasionally, the Notice of Intermediary Relationship form (TAR 027) is used even though a written buyer representation agreement was not previously executed.

• Some licensees mistakenly believe that by marking or circling a paragraph on the Information About Brokerage Services form (TAR 043), the licensee and buyer have entered into a written buyer representation agreement.

• Some licensees mistakenly believe that marking the appropriate box in the broker information box below the signature lines in the standard contract forms constitutes a written representation agreement.

• The task force also found that many sales associates are not well-trained to make effective buyer representation presentations, although it did find that sales associates are generally well-trained to make effective listing presentations.

Why use it?
REALTORS® expressed several reasons why executing the buyer representation agreement early in a relationship is so important:

• The written agreement helps the prospect understand the level of services the sales associate will provide as well as the associate’s role. It can also help eliminate any misconceptions.

• A prospect should understand how you will be compensated and whether the prospect is or is not obliged to pay any part of the associate’s compensation.

• An agent may spend a significant amount of time showing properties to a prospect. You should receive a commitment as well.

• If there is a possibility that the prospect will choose to purchase one of the firm’s listings, the authority for the broker to become an intermediary must be expressed in writing. The Notice of Intermediary Relationship form specifically refers to the buyer representation agreement and listing agreement (which the form presumes were previously executed). It is critical in an agency relationship for the sales associate to discuss what role the sales associate will take if the prospect buys one of the firm’s listing.

• There are several disclosures and statements the law requires licensees to provide to prospects or that licensees should otherwise provide. The written buyer representation agreement serves as a good checklist.

• Effective use of the buyer representation agreement helps agents weed out prospects who are not serious buyers.

• The buyer representation agreement helps avoid commission disputes between REALTORS®.

• The buyer representation agreement helps avoid a claim by a relocation company for an after-the-fact referral fee.

Why many agents don’t
The task force asked REALTORS® why sales associates do not regularly execute written buyer representation agreements when they first begin to work with a prospect. Here are some of the responses:

• At the first face-to-face meeting, the sales associate may not want to bombard the prospect with too much agency (legalistic) information. Some sales associates are afraid that they will "run the prospects off."

• The buyer representation agreement is too complicated. It scares prospects.

• A prospect may be concerned that the sales associate will not provide the level of service that the prospect expects and, therefore, the prospect will not want to be bound to use any one sales associate.

• A prospect may be uncomfortable signing the buyer representation agreement until the prospect has had an opportunity to know the sales associate. The prospect may be afraid to commit to a potentially long relationship with the sales associate.

• Many sales associates perceive that prospects do not want to sign the agreement or do not want to take the time to review the agreement. Many prospects just want to look. Some are not sure they want to buy.

• A sales associate may be uncomfortable asking a prospect, especially a prospect who is a friend, to sign a written buyer representation agreement.

• Many sales associates are not comfortable with the buyer representation agreement. They simply have not read it nor studied it. Many sales associates do not know how to make an effective presentation for the buyer representation agreement.

• A prospect may not want to be obligated to one agent and may be afraid of being obligated to pay the sales associate (even potentially).

• A prospect may have had a bad experience with another broker. A prospect may want the ability to "walk" to another broker.

• Some prospects do not want to (or are told not to) sign anything.

How to get it signed
While these are all legitimate concerns that prospective buyers may have when using the services of a real estate broker, many REALTORS® also told the task force that prospects rarely object to signing a written buyer representation agreement with a sales associate who is well versed about buyer representation and the agreement. These REALTORS® reported that they had developed effective ways to present the buyer representation agreement to prospects.

Furthermore, they reported that the prospects were better informed as to the role of the sales associate, the level of services the prospect could expect to receive, and the advantages of representation. REALTORS® who routinely entered into written buyer representation agreements early in the relationship with a prospect offered the following suggestions or tips:

• Don’t scare the prospect with a six- or 12-month buyer representation agreement. It does not take that long for a serious buyer to decide which property to purchase. Consider something more realistic such as 30, 15, or five days.

Entitlement to compensation in most buyer representation agreements is determined by the date that the buyer signs a contract to buy, not by the closing date. Do you really want to work with a buyer who will take six months to decide which property to purchase? Keep in mind that you do not have to obligate the prospect for more than one day. Although you might like to believe that all prospects will become good buyers, there are times when it can be to your benefit to evaluate the prospect, too.

• Limit the term (even to a single day) or the market area (even to a single address). Consider a one-day agreement where the associate will look to the seller or seller’s agent for compensation. At the end of the day, suggest that if you are going to continue to invest time and effort showing the prospect properties, both parties should extend the written agreement.

• If the prospect is afraid of a commitment, explain to the prospect that you will invest a lot of time and resources into showing properties and providing information.

• Suggest that the prospect agree to use your services if the prospect decides to purchase a property that you show to the prospect. The prospect is then free to use any other broker or agent with regard to any other property. To accomplish this, simply define the market area to be the specific properties you show to the prospect.

• Go over the Information About Brokerage Services form and provide a blank representation agreement highlighting the responsibilities of each party for the prospect to take home. Call the prospect later to answer any questions. When sending out an information packet in response to a request by e-mail or phone, include the Information About Brokerage Services form and the buyer representation agreement, and highlight the responsibilities of the parties.

• Study and learn the Information About Brokerage Services form. Always present this form first (the law requires this at the first face-to-face meeting), and discuss the advantages of representation. The form clearly encourages the buyer to enter into a written agreement with the broker (last paragraph). This is the perfect opportunity to present the written buyer representation agreement. You might suggest that the prospect take the agreement home, review it, and call with any questions. Once a good rapport is established, the prospect usually has no objection to signing the agreement.

• Create, practice, and perfect a professional presentation for prospective buyers, just like you prepare listing presentations. When you spend the same hour up front with a prospect (just as a listing agent does in a listing presentation), the prospect understands the advantages of a buyer representative.

• Many sales associates fear the buyer representation agreement solely because of a lack of knowledge of how to represent buyers. Such sales associates need more education on the topic.

• Explain to the prospect that you will be bound to represent the prospect’s interest before they ever step foot onto a property or search for properties.

• If a prospect wants to be able to "walk" at any time, write in special provisions that the prospect may terminate at any time before the expiration date. Compensation for your time and effort can also be addressed. The agreement might provide for a certain termination fee. It could even provide for no obligation to pay, but at least many other items–required by law or otherwise–have been addressed in writing.

• Keep in mind that most buyers are or were also recently sellers. Explain that representation–as well as the written agreement–is equally important on the buying side as it is on the selling side.

Editor’s note: The TAR Agency Task Force was charged with reviewing many issues related to agency practices in Texas. This article focused only on one of the issues the task force reviewed.

Photo by Dennis Fagan.

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Buyers & sellers, visit www.texasrealestate.com.
REALTORS®, visit www.tar.org.

Members of the TAR Agency Task Force were: Gene Taylor, Chair (Dallas), Jan Brand (Dallas), Jane Caskey (San Antonio), Jeanne Conger (San Angelo), Sue Darby (Denton/Wise County), Tom DeWitt (Tyler), Amy Hughes (Amarillo), Marty Martinez (Wichita Falls), Brian Peterson (Fort Worth), Nelson Schiller (Williamson County).

For a complete copy of the task force’s report on its findings and recommendations, visit the Governmental Affairs section of TAR’s member-only Web site, www.tar.org.