Navigating the complexities of real estate transactions often involves various agreements, including brokerage agreements.

But who exactly closes on these agreements, and what do they entail? We’ve done the work and broken it down for you, so you can grasp what’s needed, when, and use PandaDoc for the rest.

What is a brokerage agreement?

Brokerage agreements are a type of legally binding contract for a broker and their client that specifies the terms and conditions of their working relationship.

The brokerage agreement is in place to clearly define to both parties the expectations, responsibilities, applicable laws, and obligations agreed to by both parties.

Having a broker agreement in place helps minimize the risk of misunderstandings that may result in legal action or the loss of business.

Types of brokerage agreements

There are two types of brokerage agreements. The most common industries to use brokerage agreements deal with insurance, stocks, or real estate.

For this example, we’ll use real estate. When a property buyer (residential or commercial) seeks the help of a professional, they will likely hire a brokerage firm.

The agreement will lay out the broker’s services, enforceability, and any disclaimers.

Exclusive agreement

An exclusive brokerage agreement allows the buys to work with a single broker.

This means they are not able to hire additional brokers during the duration of the contract.

These commonly last between one month to a year. This gives the broker more time and flexibility to find the buyer their perfect deal.

Non-exclusive agreement

A non-exclusive brokerage agreement is mainly used for short-term needs. These typically last two months or less, and allows the buyer to work with multiple brokers at once.

The buyer is also not financially obligated to pay the broker for their services, or a commission, with this type of agreement.

Key elements of brokerage agreements

A well-written contract will have the following key elements clearly in place for transparency on both ends.

  • Scope of services: Details of what the broker will do for the client, such as finding property and/or investments.
  • Confidentiality: Legally binding language for the broker to keep the client’s information confidential in line with laws and regulations.
  • Client responsibilities: Details of what the client needs to provide the broker, such as accurate information, and paying the proposed fees as scheduled.
  • Termination: Should either party wish to terminate the brokerage relationship, this clause will clearly detail if and how that can happen.
  • Payment terms: As most brokers are commission-based, this will detail how the payments will be received and when (typically the closing date).
  • Disclosure: Legal obligation of the broker to be clear with the client about the services they will perform and information related to fees, risks, and conflicts of interest where applicable.
  • Indemnification: This protects the broker against losses or damages that can occur as a result of the client not providing accurate or complete information.
  • Disputes: A proper brokerage agreement will clearly define the necessary actions to take should an issue arise between the parties, potentially resulting in mediation, arbitration, or taking a case to civil court when not resolved in the prior two scenarios.
  • Standards of care: Industry standards and regulations defining what the broker is doing for the client.

The role of buyer brokerage agreements in real estate

Brokerage agreements need to be compliant with both federal and state laws.

Laws will detail the regulations and licensing requirements to determine the appropriate certifications of the broker you’re seeking to work with as the buyer.

Whether it’s real estate, insurance, or finance, these people need to be legally certified to do the work they’re providing.

Laws will help restrict what types of goods and services a brokerage agreement can and can’t contain, and how the contract is interpreted and enforced.

Who closes on the cooperative brokerage agreement?

A cooperative brokerage agreement is a type of contract that involves the listing broker and selling broker, and potentially a title company.

In this case, the two brokers are splitting the commission from a property they both worked to sell.

For example, you’re a client looking for a new home. You enlist the help of a real estate broker to find properties within your criteria.

The broker finds a home that is listed under and exclusive agreement with another firm, and broker. You love the home and want to buy it.

Your broker, and the listing broker or real estate agent, both have a stake to claim in this transaction.

This is where the cooperative brokerage agreement comes into play to make sure both brokers are legally compensated in the case where the broker brings the potential buyer.

Why is it critical to have a brokerage agreement?

A brokerage agreement is vital to any legally sound working relationship. Without one, many risks are at play with finances, timelines, and professionalism.

Brokerage agreements are best used in the following situations:

  • A specific industry bringing buyers and sellers of goods and services together via commission.
  • Selling goods and services where a commission needs to be paid to a broker who brought the seller to your business (i.e. a home buyer in real estate).
  • A buyer needing professional helping finding certain goods and services, such as insurance, commercial property, residential property, financial investments, and more.

Common challenges and considerations with brokerage agreements

When entering into a brokerage agreement, there are a few key elements to look for.

If you’re unclear on any of these, seek legal advice to go over the entire agreement before singing, especially if this is your first time participating in a buyer broker agreement.

Brokerage agreements are important legal documents that protect both the buyer and the broker in respect to certain goods and services.

This is done through clarity, compliance, and cleanly detailed expectations.

When you’re ready to create and sign a contract, PandaDoc makes it quick and easy.

Request a demo today to see how we can help with your brokerage agreement needs and more.

Disclaimer

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