What is a Buyer Agency Agreement?
Buyer Agency Agreements are mutual services contracts between a buyer and a licensed real estate broker which create an agency relationship where the broker has certain fiduciary duties to their clients in and through the sale and purchase of real property in Colorado. A Buyer Agency Agreement is specific in its terms and conditions regarding an appointed broker’s duties and obligations to their client for the purposes of purchasing a single family or multiple family residence. This agency relationship is governed by a number of Colorado statutes and Colorado case law , including Colorado Revised Statutes § 12-61-802 and § 24-72-304.1 (for financial disclosures), and Colorado Revised Statutes § 12-61-803 concerning representation, and criminal law under Colorado Revised Statutes § 18-8-302 (criminal fraud, deception). The key to remember in understanding Buyer Agency Agreements is that a Broker must be fully licensed in their field, know and adhere to their fiduciary responsibilities, under Colorado law, and if they do not, then may be liable for any damages sustained by aggrieved parties in a transaction.
Terms of a Colorado Buyer Agency Agreement
In their role, Colorado real estate buyer’s agents fulfill several essential duties to their clients. But the terms of these duties should be front and center in a written buyer agency agreement with the client. Not only should the details of such duties be listed, but the duties should also be described in typical terms, with a Colorado real estate flavor and the pervasiveness of these duties highlighted. By doing so, the agent is disclosing the minimum standards of care and fiduciary obligations they adhere to and are legally committed to if/when representing a buyer. Essentially, the agent is saying: "This is what I do." And to that end, real estate buyer agent’s duties include the following:
• Loyalty, an agent’s complete allegiance to the best interests of their buyer clients and not to their own or the seller’s.
• Disclosure of Material Facts, such as facts related to the real estate and the transaction that could significantly impact either one. Seller’s agents have the same responsibility to their buyer clients.
• Reasonable Skill, Care and Diligence, in representation of the buyer’s best interests.
• Confidentiality, to the buyer’s advantage. For example, the agent must keep an ace up his sleeve like how much ready cash the buyer has for a sizable down payment and/or how much they’re willing to pay. Sharing this information doesn’t serve the client’s best interest.
• Lawful Obedience, in cases where the agent is not asked to do something that breaks the law or otherwise violates industry standards of practice.
• Accounting for All Money, an agent’s responsibility to touch and keep secure any money received from the buyer (so-called earnest money) and not commingle it with their own personal funds.
• Preserving Confidential Information, usually in written agreements (a/k/a Non-Disclosure Agreements).
Additionally, once in a buyer agency agreement, a buyer promises to pay their agent’s fees and commissions and/or a quantum of not-yet-identified compensation at some future date, as long as such fees, etc., have been authorized by their DOR real estate licensees and adequately described in the buyer agency agreement.
Why Sign a Buyer Agency Agreement
Benefits to Buyers of Entering into Buyer Agency Agreement
When you sign an agency agreement with a real estate broker, you can expect long-term representation. It is the broker’s responsibility to obtain information that will benefit you throughout the home buying process. This benefits you in a number of ways.
Access to Information
Your agent is committed to getting you the information you need. Your agent will scour the computer listings and show you available properties. He or she can often find sales information on properties that have sold. The agent also can give you data, such as the average price per square foot by neighborhood, that gives you a better understanding of the current real estate market.
Neighborhood Data
You may have your heart set on a particular neighborhood, even if homes are selling for a premium. An agent benefits you in the search for hidden gems. For example, if your heart is set on the Cherry Creek North neighborhood, but you don’t need to reside on the 9th floor of your own high-rise apartment building, your broker can show you properties in the Hilltop neighborhood, which benefits your interests as well as your wallet.
Sense of Security
Knowing that you have a dedicated agent there to answer your questions and find information gives you peace of mind during the home search. Being able to communicate with your agent freely both in person and electronically will build trust and confidence that ultimately benefits you both.
Exclusive Representation
Many people fail to realize how exclusive the relationship is between buyer and agent with a signed agreement. Your agent exclusively serves you and no one else. This means you can look to your agent for support, without worrying if he or she is serving someone else’s interests. Your agent has a fiduciary duty under Colorado law to treat you with fairness, loyalty and provide you with competent and diligent care.
Rights and Responsibilities in Colorado
Buyer’s Rights and Responsibilities in Colorado
The seller gives their rights up by signing the listing agreement. The buyer picks up the rights by presenting a contract that has been accepted by the seller. The rights of the buyer are:
• the right to work with the designated broker, whether he or she is in their own office or in a different office (of the same brokerage or a different brokerage);
• the right to receive a clear marketable title to the property by means of a warranty deed or a trustee’s deed (which would be recorded and give the buyer good title);
• the right to have the appropriate closing documents reviewed by a legal professional;
• the right to receive earnest money in accordance with the contract;
• the right to receive a completed seller’s property disclosure or an exemption in the case of a bank-owned property; and
• the right to receive all documents related to the transaction at the time the contract is signed, which will include the hazard insurance policy and mortgage loan application, and an explanation of private mortgage insurance (PMI).
The responsibilities of the buyer are:
• provide any requested financial information;
• cooperate with the lender to obtain the loan;
• order the home inspection and do the due diligence;
• remove contingencies so that the buyer is prepared to close on the property;
• take possession of the property on the agreed on date;
• pay the down payment at closing;
• sign all closing documents at the time of closing; and
• pay for any extra costs such as title insurance and/or inspections or appraisals.
The rights of the buyer’s agent are to:
• receive cooperating compensation from the listing side;
• present the buyer’s offer for signature;
• review with the buyer the contract for the sale and;
• provide the buyer with the estimated closing costs;
• disclose all potential conflicts of interest;
• complete the administrative paperwork necessary to open an account;
• complete the reservation for an agent;
• communicate with the seller’s agent in an effort to set up a showing;
• negotiate the purchase of the property;
• provide the buyer with laws and rules that they need to follow;
• disclose anything the buyer may discover in the due diligence that could affect his/her decision to buy the property; and
• help the buyer understand all of his/her rights in the sale.
The buyer’s agent is responsible for all of the above rights and responsibilities of the buyer.
Legal Provisions and Compliance
In Colorado, there are specific laws and regulations that govern buyer agency agreements. One of the key legal provisions relating to buyer agency agreements is spelled out in the Colorado Real Estate Commission’s (CREC) Standardized Contract. This is the residential real estate contract form for which CREC provides legal authority for Colorado real estate licensees to use.
The Relationship checkbox option for a buyer-proposed offer section of the CREC form refer to the relationship of the buyer to the real estate licensee named on the contract. One option is a buyer agent relationship. However, before checking this box, the licensee must ensure that he or she has entered into an agency agreement with the buyer. This could be accomplished by using the CREC-approved Buyer Agency Agreement, which outlines the terms of the buyer’s hiring of the licensee as an agent .
Slightly different than a Pennsylvania buyer agency agreement, in Colorado, a buyer can be given only one buyer agent. In fact, a seller can have multiple sellers’ agents. In contrast, in Pennsylvania, there can be multiple listing agents who represent a property owner (although there can be confusion about whether there is a true agency relationship, especially with teams). For this reason, in Colorado, it is crucial for both the buyer agent and the buyer to review the term "Buyer Agent" to be certain that it is not checked when signing a CREC-approved contract. If that box is checked in error, it would be important to correct the signed contract in a manner acceptable to both parties. The CREC-approved process of accepting a correction to the contract is to initial the change on the bottom of the page where the change appears and print the initials of both parties next to it on the first page.
Choosing a Colorado Buyer Agent
When considering the selection of a real estate agent to represent you in a buyer agency agreement in Colorado, several factors should be taken into account to ensure a successful working relationship. Often the first task is choosing whether to work with a local or national firm. For example, some large firms have a name that echoes nationally and are well known but may have local offices that can provide adequate representation. Other national firms may contract out their representation, while some small to mid-sized firms have only local offices. It is truly a matter of preferences so consumers should consider all firms (both national brand and local representation) before making a decision.
Secondly, all representation is similar but not identical so one should interview several firms and ask questions such as how many homes go through the pipeline in a year. It is not a bad idea to select a firm that has handled other transactions of your type in the past, but never be afraid to try something new. The third most important factor is the personality match. Sometimes the gut feeling following that first meeting is the best indicator as to whether this relationship will be a good fit or not. If a consumer does not get that warm and comfortable feeling after the job interview, they may want to consider what it is about the candidate that is giving them pause. Do they feel the agent is out for the quick close regardless of whether the products are a good fit, or do they feel they would be just another cog in a larger corporate machine? If so, this is a mismatch that cannot be overlooked.
How to Terminate a Buyer Agency Agreement
If a buyer-client has signed a buyer agency agreement to be represented by one of our Denver real estate agents, we at Miller & Steiert like to have it in place for at least six months, and even longer than that if possible. Nothing is more frustrating than working hard to find a great property for a client, then having to watch them decide to work with another agent. If I haven’t done anything for you yet, it’s hard to prove you should be my client. However, it does cut both ways. Sometimes the relationship is just not good and we should part ways. Under Colorado law, a buyer agency agreement may be terminated on the terms contained in the agreement, or by mutual consent, or upon the completion of the term – which might be an open-ended agreement of indefinite term, such as an implied agreement formed by a series of emails or phone calls in close succession. In every state a real estate agent has a fiduciary duty to you, the buyer, to act in your best interests. In Colorado this fiduciary duty is described in sections 12-61-807 to -810 of the real estate license act, and nowhere is it more necessary than when a termination of services is involved, i.e., when the buyer wants to fire his agent . Of course, your agent has an interest too – the commission or fee they will earn once a property is under contract on your behalf. Accordingly, Colorado law now requires a mutually agreed termination if the agent has already begun acting in your behalf on a specific property. Although you can still terminate an agreement whenever you want, the important thing to understand is that you can’t just fire the agent who might have already done work on the property you were interested in, and then take him with you to another brokerage who might have even better MLS search capabilities, leading more quickly to the best deal imaginable. 12-61-811(4)(a). That would be a "windfall" to the new agent. Instead, the old broker expects a fair commission split on the windfall. Some buyer agreements now contain a penalty clause, stating expressly that if the buyers take their business to another realtor/brokerage the buyer agrees to pay the agent one-half of the commission received by the new agent. If the commission is less than what was in the agreement between the agent and the buyer, then the buyer will pay the difference. A one-month fee may also be built in after an agreed number of days, providing additional monetary motivation to continue the relationship.