What is the Buyer Tenant Representation Agreement (and why am I signing it)?

Home Hunters …

During our time in business, we have gotten enough questions from buyers to understand that the real estate process is not always immediately easy for first-time buyers to grasp. Some parts of the process can even seem downright confusing at first.

For example: If you have enlisted the help of a real estate agent to find a home to buy or rent in Houston, there is a good chance you were asked to sign a “Buyer/Tenant Representation Agreement” before you even found your new home. Having to sign purchasing documents before even taking a short sneak peek at a potential new home might have even left you feeling a bit put out.

However, if the real estate agent takes the time to walk you through the agreement of representation, the agreement can become a true asset in the purchasing process. The Buyer Tenant Representation Agreement can even strengthen the relationship between you and your agent. It is a two-sided agreement that defines the parameters in a fundamentally complex transaction, and a great opportunity for both parties to understand one another and what to expect during your home hunt.

The Buyer Tenant Representation Agreement was recently at the core of a controversial trial between real estate company Urban Inc and home buyer Chris Drummond (outlined here in the Houston Chronicle by Erin Mulvaney). The jury delivered a verdict in favor of Mr. Drummond because it deemed that Urban Living had not upheld their obligations outlined in the Agreement.

Given this trial case, now is the time to have a conversation about the Texas Association of Realtor’s Buyer Tenant Representation Agreement with the hope of shedding some light on what the document truly is. That way, real estate agents and clients can use it as a formal foundation for their relationship and avoid ever going to court.

Know this:

The Buyer Tenant Representation Agreement is intended to outline in a formal agreement the duties and obligations both a buyer and real estate agent owe one another. These are outlined in paragraphs 5 and 6 of the document. Here is the exact wording in the Texas Association of Realtors document (TAR-1501):

5. BROKER’S OBLIGATIONS: Broker will: (a) use Broker’s best efforts to assist Client in acquiring property
in the market area; (b) assist Client in negotiating the acquisition of property in the market area; and (c)
comply with other provisions of this agreement.
6. CLIENT’S OBLIGATIONS: Client will: (a) work exclusively through Broker in acquiring property in the
market area and negotiate the acquisition of property in the market area only through Broker; (b) inform
other brokers, salespersons, sellers, and landlords with whom Client may have contact that Broker
exclusively represents Client for the purpose of acquiring property in the market area and refer all such
persons to Broker; and (c) comply with other provisions of this agreement.

Without the formal agreement, the real estate agent is not lawfully appointed as an agent of the buyer and thus, does not owe the buyer the fiduciary duties an agent would. In fact, the real estate agent is working for the Seller up until he is appointed as an agent by the document.

What are fiduciary duties?

Fiduciary duties are best remembered by the acronym “OLD CAR,” taught to every real estate agent in their mandatory education. OLD CAR stands for Obedience, Loyalty, Disclosure, Confidentiality, Accountability, and Reasonable Care. I would argue that any buyer who wants to have a real estate agent help them in their purchase wants them to be bound by the OLD CAR fiduciary duties to the buyer.

In return for the real estate agent’s “best efforts” and fiduciary duty to the buyer, the buyer is to work exclusively with the agent and agree to compensation ( a commission) to be paid to the agent. The documents outlines more of the specifics as most legal documents do, but these are the principles at the core of it. Buyers and real estate agents should talk through the document so that everyone understands their part in the pursuit of a home. After all, buying a home isn’t as simple as buying a new sweater. It is a long transaction that can involve countless hours of house hunting, negotiation, and diligence.

If either party does not perform their side of the agreement then they are in breach of the agreement. However, the agreement is an opportunity to ensure everyone understands what duties are to be performed, offering the chance to prevent this from ever becoming an issue. Further, if a buyer is not happy with their real estate agent’s performance they can request to terminate their Buyer Tenant Representation Agreement by using TAR Form 1503 – Termination of Buyer/Tenant Representation Agreement. This document is a formal agreement to end the client – agent representation and buyer an seller can move forward separately.

In other words, there is a way to take on a new agent if the buyer is concerned the agent’s performance may affect them during the purchase.

There shouldn’t be anything “scary” about the Buyer/ Tenant Representation Agreement if you read through it and talk about it with your real estate agent. In fact, potential home buyers should embrace the document knowing that it offers protections for both parties. The verdict of the www.urban vs Drummond case is a worst-case scenario that demonstrates the importance of understanding how far that protection reaches and why. It isn’t just a document designed by Realtors to lock buyers into paying them a commission. It’s a mutually beneficial document that keeps both buyer and seller on the same page.


Disclaimer: Real Estate agents are not licensed attorneys and if you should seek counsel on any legal document, you should engage a licensed attorney.