What You Need To Know About Buyer Broker Agreements In Arizona

What Is A Buyer Broker Agreement?

A buyer broker agreement is an agreement between the buyer and the realtor used to buy a home. In Arizona, it is the realtor’s duty to get the best possible price for the home, known as fiduciary duties. For the work that realtors do, they often get paid a commission. A buyer broker agreement is an agreement stating that the buyer will work with that specific realtor to find a home, and if the buyer does find a home, they will not work with any other realtors , so long as the realtor brings the house as a buyer broker to the buyer. If the buyer works with that realtor, then the buyer will pay the realtor 3% commission.
Buyer broker agreements are not required in Arizona, however, they are common. Buyers often sign buyer broker agreements so they can have some say about how much they have to pay a realtor. Also, if a buyer signs a buyer broker agreement in Arizona, they must only work with that realtor.

Arizona-Specific Requirements

Arizona law imposes specific obligations on brokers representing buyers of residential property. As is typically the case, these requirements are primarily found in the Arizona Administrative Code that governs the Department of Real Estate and its licensees.
The most important state-mandated provision is the requirement that for a broker to receive a commission from anyone other than the buyer, the broker must have a written agreement signed by the person who will be paying the commission that "contains at least the following:

• (1) An agreement with the person the broker represents, referred to as the client, which describes the terms of the representation agreement, including but not limited to the broker’s duties to the client;
• (2) A statement of the broker’s duties to the client if the client is a tenant;
• (3) The types of alleged damages that the client acknowledges that a broker may not recover from the client for nonperformance and that the client waives;
• (4) A description of how the broker will be compensated for services performed on the client’s behalf; and
• (5) A statement that the agreement is not required and confidentiality will be maintained regardless of whether the client enters into an agreement."

If the buyer is also a party to the contract, it — or the seller — would obviously have an objection to providing either of these documents to the broker. The seller will not want to provide its contract to a third party and the buyer would presumably be concerned about maintaining the confidentiality of its purchase offer prior to closing.

Benefits To A Buyer

In an exclusive buyer broker agreement, the buyer is represented by a qualified real estate professional as opposed to being represented by the seller’s agent. The benefits to the buyer include expert negotiation services, one-stop shopping for all potential properties (including pocket listings and properties that are on the MLS), full and detailed discussion of legal, financing and contract issues, and natural focus on the needs of the buyer. Not to mention the fact that with the advent of the MLS, all licensed agents have access to the same properties. So if your buyer’s agent is a lousy negotiator or isn’t knowledgeable about construction issues and financing, you should probably be talking to someone else.

Choosing The Right Broker

It is important for all buyers to choose a broker to represent their interests in a real estate transaction. There are several factors to consider when hiring a broker, such as the type of property you are purchasing, the purchase price, area of town, etc.
Are you looking for a residential or commercial broker? If you can’t find someone by word of mouth (local realtors are master networkers), search the the Arizona Department of Real Estate website for listings of brokers licensed to work in your area, or contact the Arizona Residential Real Estate Agency Task Force at 602-771-7766 for assistance.
Once you have identified 2 to 5 candidates, make a list of questions and set up appointments to interview them. The following is sample list of questions you might want to consider:

• How long have you been in the business?
• How many similar transactions have you handled? Have they resulted in good outcomes for your clients?
• How do you keep up with the current market in our area?
• Do you work independently or as part of a team? What resources will "team" members have available to provide services to us?
• How strongly do you believe that I am qualified for a loan/mortgage at this time? Are there documents you can help me with to secure a loan?
• Do you have a list of references (similar clients you have represented)?
• What are your fees and charges? For what services are you promising to provide?
• What information can you give us about the seller (if the property is currently completed)?

Common Terms To Think About

Most if not all buyer broker agreements, regardless of type, contain these common clauses.
Term. This clause states the duration of the agreement, typically six months to one year.
Termination. This clause delineates the circumstances under which the agreement can be terminated, including under what conditions either party may terminate the agreement.
Disclosure. This clause may require the broker to disclose his or her compensations; for example, if the fee comes from cooperative commissions or through an upfront retainer.
Cooperation with Broker. This clause describes how the parties intend to facilitate the process of finding a real estate property, including the buyer’s duties to cooperate.
Duties of Buyer. This clause outlines the buyer’s obligations to the broker under the agreement; for example, a specific obligation to "work exclusively" with the broker.
Listing Agreements. In these agreements, the buyer may be asked to agree to authorize the broker to enter listings on the buyer’s behalf .
Buyer’s Broker Compensation. This clause details the particulars of the broker’s compensation in a transaction, including if the broker will receive a percentage of the sale price, a flat fee paid directly by the buyer, or if the compensation will come from a selling broker. If a buyer’s broker is working with a real estate agent and opts to pay the broker on the side, the side payment may be a fee that the seller is not typically required to pay and that is deducted from the purchase price.
Integration. This clause may establish that the agreement is the exclusive agreement between the parties and supersedes any other agreements.
Managing Expectations. Some brokers include a managing expectations clause in their buyer broker agreements. This clause generally provides information regarding the duties and responsibilities of a buyer and helps buyers to manage their expectations as to what the agreement can and cannot do for them.

Terminating A Buyer Broker Agreement

Terminating a Buyer Broker Agreement can be done if you follow the rules. Arizona Buyer Broker Agreements are just another written employment contract between the buyer and the agent. In the agreement there is a beginning date and an end date. The agreement is automatically extended if there is mutual consent until another agreement is signed or terminated per the terms of the agreement.
If you have a buyer agent under contract, and you are unhappy with them for what ever reason, you need to know that you have a legal and financially binding agreement with the agent. To legally terminate the buyer broker agreement you need to review the grounds for termination and/or the several ways one can terminate the agreement.
The right to terminate occurs if the buyer takes an irrevocable position in a RE transaction and after that the broker is not entitled to a commission per the agreement. If the buyer changes their mind about the purchase and backs out of the deal, and/or defaults, the buyer may owe the agent a commission from the buyers assets.
A buyer can terminate the agreement at any time for any reason, unless the agreement specifically calls for advanced notice, specifically in writing. Many residential real estate agents don’t honor the time frames because they believe they work for free, so they wont return your earnest money and allow you to fully cancel the agreement. If there is a disagreement, then you should write them and send via certified mail return receipt requested your notice of cancellation and request a refund.
If the buyer and agent agree to terminate the agreement in writing, then I suggest they both sign the cancellation agreement that cancels any principal and interest obligations to each other and the buyer gets their earnest money back. Keep a copy for your records.
The parties can also terminate the agreement by sending written notice to the party you want to discontinue doing business with. Give the other party 2 days notice to respond. A reasonable time will be determined by the person suing as to whether they have met the 2 day notice period. Some courts will give the benefit of the doubt to the party suing saying that 2 full days means 48 hours. Count by actual hours. You can not give notice on a Friday and say it is good for Sunday. That does not count, as the weekend does not count.
The buyer can have alternate representation that allows them, in writing, notify the agent that the new agent will be taking up the relationship. This method protects the buyer from having to pay more commission. You may be liable to the new or old real estate agent for any damages that you may have caused by terminating the first agreement. If the two agents agreed to share the commission, then you may be safe. If you terminate the agreement when you have another, then they give up their right to commission.
Just get the other agent to agree to put it in writing. After all, if you are unhappy with the job the first agent is doing, why would you be happy the new agent you hire will be doing any better? In fact, most clients that do this, do not write the listing agreement effectively shutting the door on the old agent.
Standard of Practice 1-16 – When acting as a buyer’s representative, REALTORS® shall with the buyer’s written authorization disclose to the seller ALL EXISTING REPRESENTATIONS of record on behalf of any and all parties to the transaction.

Buyer Broker Agreement FAQs

1. What is a buyer broker agreement?

A buyer broker agreement, also sometimes known as a buyer agency agreement or a buyer representation agreement, is a written agreement between you and your real estate agent stating terms for the agent’s relationship with you as their client. These agreements, which are not required under Arizona law to be entered into, are increasingly popular with both buyers and real estate agents as they confer certain rights and protections on both parties.

2. How long do buyer broker agreements last?

In Arizona, the length of time a buyer broker agreement is considered valid is up to the individual parties’ agreement. In other words, you can have a buyer broker agreement that is for as little or as long as you want it to be, but keep in mind that with a longer term buyer broker agreement, you will not be able to request your agent to renegotiate their commission payment until the terms of the contract have lapsed. Since most buyers and agents would prefer to leave negotiations for the total commission open until the agent has performed the work they agreed to perform in return for their commission (or a portion thereof) , the practice has become more common to allow for a 6-month term with 6-month renewable options in order to give both the buyer and agent a reasonable amount of time to negotiate a payment for the work they performed for the sale/purchase of the property.

3. What should I expect my agent to do in return for their commission?

Your agent generally needs to commit to performing certain due diligence in the property search process for you. This includes such tasks as the following:

4. Do I have to enter into a buyer broker agreement to purchase a property from an agent?

You do not have to enter into an agreement with an agent to purchase a home. However, if you do not enter into the agreement, you will be considered a customer of the agent and their primary duties will be to perform basic tasks such as showing you properties and answering questions without representing your interests in the negotiations and purchase. It is simply more beneficial to you to have an agent represent your interests through entering into a buyer broker agreement than doing the opposite.