Understanding Texas Buyer Representation Agreements

What is a buyer representation agreement?

A Buyer Representation Agreement is a legally binding document signed by a buyer and a licensed real estate agent or broker in the state of Texas, representing an official agreement of which the buyer must comply. The buyer representation agreement gives the agent the authority to act on behalf of the buyer in negotiating a purchase contract with the seller. For a buyer , the buyer representation agreement and realtor services offer the buyer protection for their best interests during the negotiation and purchase of the property. A good realtor will be able to negotiate the best price for the home, prepare any necessary paperwork, and expedite the transaction from contract to closing.

Essentials of a Texas Buyer Representation Agreement

Every Texas buyer representation agreement contains several important elements:
Commission Fees. The amount of the fee that is commonly charged is established by the market. The amount may be negotiated between the agent and the client based on the agent’s experience and the work involved with the transaction to be completed. The fee is typically one percent (1%) of the purchase price. The fee is factored into the purchase price of the property whose seller pays the fee. The buyer’s representation agreement may establish the following fee schedule:

• 1% of the purchase price for properties under $300,000
• 2% of the purchase price for properties between $300,000 and $500,000
• 3% of the purchase price for properties over $500,000

Duration of the contract. The buyer representation agreement must have a specified period during which it will be in effect. Buyers may want to consider a one-year agreement if they plan to make many transactions within the next twelve months. If the buyer will be purchasing their first home, the contract should end no longer than one year from the date of its signing. Once you have purchased your first house and developed the relationship, the agreement could be renewed.
Duties include:

• The agent must use professional skill and care to be diligent and competent. This means that the agent must find a home that fits your needs and find the right deal and have all of the essentials that you are seeking in your new home or residential investment.
• The agent should communicate with you, the client, and the customer. The agent should contact you once a day during weekday mornings concerning the status of your home search.
• If the agent knows that the property you seek has already sold or may have gone under contract, the person helping you must inform you in a timely manner.
• The agent should have full accountability and provide you with any and all property information of the transactions within a mutually agreed timeframe. This includes contract deadlines, survey findings, and valuation appraisals.
• The agent must protect your confidentiality and respect your privacy and personal preferences concerning where you want to live.
• The agent should act honestly, and with good faith and fidelity.

Advantages of a buyer representation agreement for the purchaser

As you might be able to guess, the relationship between a real estate agent and a homebuyer is much different than the relationship between a homebuyer and an owner or seller of a property. This is where the existence of a Buyer Representation Agreement is very important to buyers and sellers as it bridges the gap between those two relationships. The Texas Real Estate License Act requires residential real estate brokerage companies, including Keller Williams Realty, to enter into either a Buyer’s Agent Agreement or a Representation Agreement for Services of an Associated License Holder with their buyer clients.
Once buyers enter into a Buyer Representation Agreement, they are entitled to the services and protection of a REALTOR®. These include but are not limited to: professionals who know how to best navigate a very complicated real estate process; the ability to have one person, your realtor, act as a go-between with all parties of the transaction; the assurance that guidance on pricing and negotiation strategies will be provided every step of the way; legal protection during one of the largest financial purchases most people will make in their lives and; the ability to have a fiduciary relationship with their realtor in which the realtor will work in the best interest of the buyer.
You have so many rights as a buyer. When represented by an agent with a signed Buyer Representation Agreement, you are assured that those rights will be protected before, during and after your purchase.

Legal duties of agents under Texas Law

While Texas law does not require a buyer and a licensed real estate agent to work under a written buyer representation agreement, if they do contract under one, the agent is bound by certain fiduciary obligations such as treating the buyer’s best interests as their own. Texas Occupations Code Chapter 1101.652 provides that the relationship between the buyer and the agent who has entered into a buyer representation agreement is deemed to be a consumer transaction for the benefit of the buyer.
Under Texas Occupations Code Chapter 1101 . 655, the duties associated with the relationship include:

• (1) inform the client of any material information known by the license holder that would reasonably be expected to relate to the client’s decision in a transaction;
• (2) advise the client to seek expert advice relating to matters about which the license holder knows is beyond the license holder’s expertise;
• (3) treat other participants to the transaction honestly; and
• (4) timely disclose the existence of any conflict of interest by the license holder.

In KCM Financial LLC v. Fort Bend County, 585 F.3d 310 (5th Cir. 2009), the 5th Circuit specifically noted that a real estate broker is not entitled to recover a commission if the broker made a false representation as to the buyer’s ability to close. KCM rendered its opinion noting that a material misrepresentation includes a broker’s false representation as to the buyer’s financial capabilities even if the buyer knew the representation was false.

How to terminate a buyer representation agreement in Texas

Buyer Representation Agreements can also be terminated by agreement between the parties. However, what happens when you and your agent become dissatisfied with each other? What happens if you become otherwise unable to work with each other? These contingencies are not always clearly defined in the Buyer Representation Agreement. Either scenario, however, could become the basis for a claim against either one of you.
The Texas Real Estate Commission promulgates the One to Four Family Residential Contract (Resale). The real estate forms are widely used in the State of Texas and are relied on by tens of thousands of transactions each year. In that contract is a paragraph identifying the buyer’s buyer’s agent. That representative is named with an identification, or serial number. The identification is exclusive to a specific agent. This gives rise to potential liability.
When entering into a contract, the buyer and the seller have certain rights and obligations. If the parties fail to comply with the contract, they can be held liable. The Agent has certain fiduciary duties to both the Buyer and Seller, and can be held liable to either party. A Buyer can sue his agent for fraud, breach of fiduciary duty, intentional infliction of emotional distress, negligent misrepresentation, and violations of the Deceptive Trade Practices – Consumer Protection Act which is codified in the Texas Business & Commercial Code, Section 17.41 et seq., known as the "DTPA".
Similarly , a buyer’s agent can sue the buyer under the above causes of action for negligent misrepresentation and a violation of the DTPA, as well as for breach of contract of the Buyer Representation Agreement. Allowing a contract listing both the buyer and buyer’s agent creates the potential for serious problems. It is possible the buyer’s agent did not keep the buyer informed on the progress of closing, for example. There is also the potential for delays in closing because the agent dropped the ball and didn’t execute certain forms, etc. If the Buyer suffers a delay in closing, and complains, the agent could face a lawsuit for intentional infliction of emotional distress amongst other claims.
To terminate a Buyer Representation Agreement, you need to write a letter to the agent explaining you no longer need their services and want them to remove their representation from the Sale Contract. Set forth the reason(s) why you have decided to no longer continue with that agent. This should be done as soon as you reach that decision.
If your agreement is a standard TREC Buyer Representation Agreement there is a provision for a buyer to revoke this agreement prior to the expiration date contained in the agreement. Just like any other contract, this "revocation" must be in writing. I would recommend an email, so you have a record of the revocation. The letter (email) should specifically state that you are revoking the buyer representation agreement as of a certain date. Keep a copy of the signed revocation.