Exclusive Representation Agreement Explained for Commercial Real Estate Agents
By Joe Killinger
An exclusive Buyer/Tenant (“Client”) representation agreement…
is an agreement that says that a specific Broker/Agent will represent the Client for the purchase or lease of real estate. It can be for a designated duration of time, a specific geographical area, a particular type of property, one specific property or a combination of any of the above.
The Agreement creates no obligation on the part of the Client to purchase or lease real estate yet it assures that the Broker/Agent will be paid a commission in the event a transaction occurs for the Client. The fee may or may not be paid by the Client, many times the agreement specifies that any commission due by the Client is offset by any fee collected from the other side of a transaction (Such as a Seller offering a commission).
For the Broker/Agent it will spell out how they will perform their obligations under this agreement through the individual signing on behalf of the Broker, another real estate licensee assigned by Broker, who is either the Broker/Agent individually or an associate-licensee (an individual licensed as a real estate salesperson or Broker who works under Broker’s real estate license). This is of course subject to the Client’s approval, which shall not be unreasonably withheld or delayed. Broker and the Client will agree that the Broker’s duties are limited by the terms of this.
For the Client the agreement gives representations to the Broker/Agent…
that there are no other Broker/Agents that the Client may be working with for this proposed transaction. The Client further represents that the Client has disclosed to the Broker/Agent information about any properties that the Client has previously visited, or that the Client has been shown by any other real estate associate(s). When disclosing this, the Client can “carve out” exceptions to the exclusive representation agreement by disclosing that if they were to move forward on one of these properties, another agent would represent them, thus protecting the Client from claims arising from multiple Brokers/Agents and limiting the Client’s liability
As for the Broker/Agent, it goes without saying that a Broker/Agent who has a contractual relationship is going to be more committed to the job. Before they begin the often tedious task of searching for the right location, demographics and price range for your investment, they want to be assured that they are going to be compensated for their time and effort. Their time is just a valuable as any other professionals’ time after all, would you expect an attorney to give you free legal advice, or work on your case without an engagement letter/contract? By showing loyalty and trust, most people will work that much harder knowing they are protected for the work they do.
The Client should consider this agreement because there are equal and mutual protections to both parties with respect to their interests.
The Client can hold the Broker/Agent accountable for performing fiduciary services (some of which they would not be aware of without the contractual definition). Some Clients don’t want to feel they are being “tied down” to one agent, and mistakenly think that getting several Brokers/Agents to work for them will get them a better deal, this is not necessarily the case, as a key strength of the real estate industry and most successful agents is their communication network. The agents will talk to one another and if they find out their client is working with other agents, that client may soon not have any agents working for them, or just not be taken seriously.
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