I'm looking to buy an apartment, and my broker just asked me to sign an agreement promising to work with her exclusively for three months. Is that normal? What are the pros and cons? What if I refuse to sign?
Exclusive buyer's contracts are not the norm in New York City, though they occasionally pop up, our experts say.
The specifics vary, but these contracts define “the obligations and responsibilities of each party, outlining whether more than one broker will be employed, the duration of the agreement, and the agent’s compensation,” says real estate broker Shirley Hackel of Warburg Realty. (Here's an example from South Dakota, though agreements differ from state to state and from party to party.)
Whether you'll be asked to sign one comes down to an individual broker’s preference. For example, Hackel says she’s never done one in 34 years, while Donald Brennan of Brennan Realty Services requires them. At Elika Real Estate, a brokerage that specializes in working with buyers, about 99 percent of their clients don't sign exclusives, estimates founder Gea Elika. ?
The upside: a bigger investment from your broker
If there's a benefit to the buyer, it's that your broker will have more reason to work hard (and quickly) for you, since she has it in writing that you'll be loyal.
“If I know the buyer is committed to using me then I will invest the appropriate amount of time to their market education and search,” Brennan explains. “The buy side entails much more risk than the sell side and usually takes a significantly longer period of time to get a deal done. If I am going to devote that amount of time to a buyer, I want to make sure they don’t disappear and do a deal with a different agent or by themselves after spending many hours with them.”
A written contract may also make sense if your broker is both helping you sell your current place and find a new one. In exchange, she may shave off part of her fee, says Deanna Kory, a real estate broker at the Corcoran Group, who does not sign exclusives with buyers.
The downside: less freedom as a buyer
However, if you sign with a single broker, you’ll more or less be stuck with her for the duration of the agreement, so you’ll want to make doubly sure she’s qualified, committed and skillful enough to find an apartment and hash out a deal.
Also, it's conceivable that some sellers will be less willing to work with you: since the seller typically pays the commission for both brokers, if an owner is selling her apartment herself or if the listing broker doesn't want to work with a buyer's broker, known as co-broking, then you'd be out of luck.
That's rare, though, especially at the high end where for-sale-by-owner properties are uncommon, Brennan says. Also, members of the state's biggest real estate trade group, the Real Estate Board of New York, are required to co-broke.
"We will not stand in the way of a client going [for a for-sale-by-owner] or helping them go after a non co-broker deal," Brennan says. "We make arrangements for these unlikely scenarios."
For example, Brennan would change the payment method to a sliding scale, which the buyer would be required to pay: "The longer and more time we spend with a buyer, the more we expect in compensation. We start at a minimum 0.5% and go up to a full commission on what might have been our co-brokered split of 3%."
Whether you can get out of a contract depends on the specific language of your agreement, as well as whether you’ve already submitted an offer, says Elika.
“Usually most buyer brokerage agreements allow for either termination with written notice or the ability to request to work with another buyer's agent within the company without actually breaking the contract,” he says.
Bottom line: think before you sign -- and talk to a lawyer
That said, you don’t need to use one of these agreements. Brokers are already required by state law to have buyers sign a disclosure form, which sets out the broker’s duty to represent the buyer’s interest, negotiate fairly, disclose important facts and maintain confidentiality, among other things, notes Hackel.
"If your agent is devoted, hardworking, and seems to be on the same wavelength as you, I'd highly recommend loyalty and exclusivity to that one agent, but a handshake should be sufficient," says real estate broker Gordon Roberts of Warburg Realty.
Regardless, before you sign, spend some time with your broker to know that you’re comfortable working together, suggests Roberta Axelrod, a real estate broker and asset manager at Time Equities. For his part, Brennan does a “test drive” with potential buyer clients. “I spend a Sunday or two with them so they can see the value I can add and if either of us feels the fit isn’t right then we don’t sign the agreement and go our separate ways,” Brennan says.
It’s also worth asking whether she’s a member of a trade group like REBNY or Manhattan MLS (or both) so she has access to the majority of the city’s listings, Axelrod says.
Lastly, before you sign anything, our experts say, get a real estate attorney to look over the contract. “When a situation like this arises, and you are asked to sign an agreement that looks like a contract and may have liability or financial implications, have your attorney review it first. Simple as that,” Roberts says.
Leigh Kamping-Carder is a senior editor at BrickUnderground.com, the online survival guide to finding a NYC apartment and living happily ever after. To see more expert answers or to ask a real estate question, click here.