A real estate broker agreement is a contract between a homeowner looking to sell and a broker who acts as an intermediary in the deal. The agreement will define the terms of the deal, including what actions the broker will perform. It will also detail the compensation the seller will pay to the broker, and the specific circumstances that will trigger the payment.
Generally a real estate broker agreement refers only to a deal between a broker and a seller. In some countries a broker may have a contract with a seller as well, for example to cover a credit check or arranging financing. In most cases though, this type of deal is restricted to rentals rather than sales.
The most fundamental part of a real estate broker agreement is defining the nature of the relationship between the broker and seller, specifically the level of exclusivity available to the broker. The most restrictive is an exclusive agency, in which the broker is the only person allowed to sell the property on behalf of the owner, and no other brokers can earn any money from the sale. A less restrictive variant is exclusive right to sell in which, although only the specific broker can sell the property, the broker is allowed to work with other firms to market the property and can pass on a share of the fee paid by the buyer. The least restrictive arrangement is the open listing, which allows multiple brokers to market a property, with only the one who arranges the actual sale getting compensation from the buyer.
The agreement will also spell out the compensation arrangements. Most commonly this involves the buyer paying an agreed and fixed percentage of the final sale price once the home is sold. The theory is that this system, as opposed to a fixed fee, encourages brokers to get the best possible price for the buyer. Some economic studies question this, concluding that brokers may be tempted to recommend settling for a lower price earlier on because the additional commission they would receive from a higher price isn't worth the additional waiting time.
A real estate broker agreement also needs to spell out how either side can cancel the agreement. With open listings, this usually isn't an issue as the buyer can usually simply withdraw the property from sale or turn down offers brought in by a particular broker. With exclusivity deals, there will often be a fixed time period before the seller regains the right to hire other brokers. Some buyers may be able to negotiate clauses that give them the right to end an exclusivity period earlier if they can show the broker has failed to adequately market the property.
