Broker Agreement

When to Use a Broker Agreement?

I know how it might be hard sometimes to find the right person you can sell to or buy certain goods or services from. This is where a professional intermediary, known as a broker, may help you with. A broker is familiar with a specific market of goods and services and helps to connect the right people within it.

A brokerage agreement is a legal document for the cooperation between a broker and a client in selling or buying certain goods or services to third parties. A business broker agreement defines:

• parties’ rights and responsibilities,
• broker’s fees and payment terms,
• scope of brokerage services and other terms.

Broker agreements can be used in different situations:

• Seller Explores New Markets. If you are a seller and wish to sell your goods or services within the new market, find a broker. Exploring new markets might be difficult. A broker can help to make a client familiar with customers’ needs or recent trends.
• Seller Starts a Business. When you launch a business, a broker may help you to establish the market and find new customers or clients.
• Buyer needs goods or services. If you are a buyer, a broker may help you to find exactly what you need depending on your search criteria.
• Broker’s professional activity. If you are a broker, you may need to have a solid broker agreement template to operate. It helps to define the client’s expectations while selecting potential buyers and sellers. A written agreement gives legal guarantees for a buyer’s commission.

What Are the Different Types of Broker Agreements?

Broker agreements are also known as brokerage agreements or broker fee agreements. Despite the difference in titles, all of them are for the same purpose.

The broker agreements can be classified by the type of party whom a broker should represent:

• Buyers Brokerage Agreement; or
• Sellers Brokerage Agreement.

It is also common to classify broker agreements by exclusivity:

• Brokerage non-exclusive; or
• Brokerage exclusive agreement. I will elaborate a bit more about this classification below.

What Is an Exclusive Brokerage Contract?

Under an exclusive brokerage agreement, a broker becomes a client’s sole representative. Signing an exclusive brokerage agreement prevents a client from hiring another broker for the same job. The said limitation remains valid for the whole duration of the brokerage agreement.

If a client breaches that obligation, they may pay contractual penalties. At the same time, there are two minor exceptions to this rule:

• Exclusivity for subject. This is the case when a client signs an exclusive arrangement with a broker to find a buyer for laptops. Later on, the same client can contract another broker to find a buyer for washing machines. In that case there won’t be a violation of exclusivity. As for each particular type of goods, a client selects a separate exclusive broker.
• Exclusivity for relations. This is when a client appoints one broker for all business transactions. In that case a client cannot contract one more broker later on.

A non-exclusive broker agreement allows a client to hire several brokers for doing the same job.

What is the difference between a Buyer Broker Contract and an Agent Agreement?

It is very easy to confuse a brokerage agreement with an agent agreement. Indeed, both documents are aimed at engaging a business intermediary (a broker or agent). At the same time, there are a number of distinctive features; they are the following:

• Bargaining power. Under broker agreements, a broker acts under the supervision and directions of a client. At the same time, an agent works independently. It has a right to determine its own course of action to achieve the requested result.
• Parties to the agreement. A broker does not act as a party to a final contract. A final contract is between a client and a third party, who was primarily introduced by a broker. Under an agent agreement, an agent enters a contract with a third party on behalf of a client.

What is the difference between a Buyer Broker Contract and a Services Agreement?

A buyer broker service agreement can be easily confused with a services agreement.

Under a services agreement, a service provider receives a fee for delivering services to a client. A typical example of a services agreement can be accounting or legal services.

A buyer broker contract is different from a services agreement as follows:

• Contract’s Objectives. Under a buyer’s brokerage agreement, a broker helps a client to achieve certain goals. Those goals could be buying or selling certain goods or services. A client who enters a broker-buyer agreement does not wish to get brokerage services itself. While a client under a services agreement wishes to get services from a service provider.
• Payment. A broker receives their commission only upon a client entering a contract with a third party. In most cases, a broker is not paid for doing brokerage services itself. Under a services agreement, the situation is completely different. A service provider receives a payment in exchange for providing certain services.

Is It Mandatory to Have a Broker Agreement?

Neither federal nor state laws require you to create a written agreement. At the same time, having a written broker agreement template helps to:

• Prevents Misunderstanding. A written broker contract template helps to set up terms and conditions of cooperation. It also helps to leverage parties’ expectations.
• Define Cooperation Framework. A buyer broker agreement defines the duration of the engagement agreement, the client’s objectives, and many more.
• Give Solid Legal Protection. In case of a dispute, a broker-buyer agreement serves as legal proof of the parties’ initial arrangement. A written agreement can help to save thousands of dollars on the attorney fees.

How to Fill Out a Buyer Broker Agreement?

I imagine that creating a brokerage agreement from scratch might be challenging. A well-drafted brokerage agreement can help parties to achieve their goals efficiently.
Below, I made a list of mandatory elements. They have to be included in your broker-buyer agreement to make it legally valid.

What are key elements for a Broker Buyer Agreement?

A buyers brokers agreement’s content depends on the parties’ goals and expectations. Yes, it is possible to outline mandatory elements every business broker agreement should have:

Party Details

Parties to a buyer broker contract are a client and a buyer (agent). It means that those parties are signing a broker agreement.

Sometimes, a broker may assign their rights and duties to another broker. This possibility parties should discuss while creating a broker contract template.

Scope of Services

In simple words, this is a detailed description of a broker’s work. For instance, if a broker is a buyer’s agent, then a document should define the requirements for sellers to select from.

It is always recommended to set up milestones for a broker. Especially when broker agreements are being signed for a long period of time. A milestone is a measurable goal a broker should achieve in order to get a payment.

If a broker contract is focused on selling goods or services, a client should define a purchase price. It helps to avoid situations when a broker sells for a price lower than a client expects. When a client is a buyer, a buyer broker agreement template shall define parameters of goods to be purchased. This should not be a short description but detailed guidelines about quantity, quality, size, etc.

Broker’s commission

A buyer broker service agreement should always define the amount of a broker’s commission. This is a sum of money a client is obligated to pay to a broker once the deal is closed.

A broker’s commission can be of several types:

• Fixed commission. This is when a broker receives a lump sum upon closing the deal.
• Percentage of a purchase price. A certain percentage from a contract’s sale price between a third party and a client.
• Other variations, including a combination of a fixed commission and a percentage from a purchase price.

A buyer brokerage services agreement should also define payment terms. In particular, it should be stated when a payment should be released. Usually, a broker gets the payment on the date of signing the main deal between a client and a third party. However, parties may decide on another moment. It is also essential to define payment methods.

Duration

Every brokerage contract sample should have a term of validity. It can last for indefinite and definite periods of time. This depends on the industry and on the goals parties want to achieve.
If it is a definite period of time, it should be fixed in weeks, months, or years. A brokerage agreement can also last till a specific moment in the future. This is usually a moment when a broker finds a suitable buyer or a seller for a client.

Broker’s Duties

The broker’s duties depend on a contract type—i.e., to find a specific buyer or seller. However, every broker contract agreement template includes a number of other duties, including:

• Regular reporting and updating of a client;
• Adherence to industry good practices;
• Non-bribing policies and so on.

Client’s Obligations

A client has to pay the broker’s commission in full amount and in a timely manner. At the same time, a client should also be available to answer all the necessary questions a broker may have.

Termination

Relationships between a client and a broker are built on trust. If there is no trust, the cooperation could be quite hard. A good brokerage contract sample should define how the parties can end the contract.

Usually a broker contract template includes a list of situations when a broker or a client can end a contract unilaterally.

It is also worth mentioning that termination of the contract also depends on the timeline. For instance, a client cannot end a contract once a broker has already found a suitable candidate. Or once a deal between a third party and a client has been finalized.

Dispute Resolution

A broker contract agreement template should define how the conflicts should be managed. Parties can select in advance the laws of which state should apply to their dispute. It is also possible to select a mediation process instead of a normal court proceeding.

Final Checklist for General Broker Agreement

Check the clarity of provisions.

When signing a buyer broker agreement, parties have to avoid inclusion of unclear terms. For instance, if a broker’s compensation includes periodical payments, those periods should be defined (i.e., every week or every month).

Decide about exclusivity.

Parties have to decide between a non-exclusive or exclusive buyer broker agreement. An exclusive arrangement entails more obligations for both parties.
If a final contract does not say a word about exclusivity, it is a non-exclusive contract by default.

Extra expenses.

A process of finding a seller or a buyer for a client might take some time. A broker may need to use special equipment, travel a lot, or attend certain events to achieve a goal. All this may need extra financial expenses from a broker.

Thus, a broker fee agreement template should address the compensation for extra expenses. A client may cover a fixed amount of monthly expenses or only certain expenses in full.

If extra expenses are not regulated in the contract, it means they are a part of a broker’s final compensation.

How to Get Your Exclusive Buyer Broker Agreement at Faster Draft?

To get your customized buyer brokerage services agreement, follow those simple steps:

• Click on a button “Create Document.”
• Answer the question in a buyer broker agreement form. The more answers you give, the better the document will be tailored for your specific case.
• Select a document’s format—Word or PDF.
• Make a payment and download your customized document.