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What Should Be in Every Realtor Contract?

Updated February 27, 2016
signing a contract
Before you sign a contract with a real estate agent, make sure it covers a few key points. (Photo by Ray Black III)

Take time to review the contract when hiring a real estate agent.

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When you hire a Realtor, it’s important that you’re comfortable working with that individual. It’s equally critical that you understand the terms of the contract, which can differ depending on if you’re a buyer or a seller.

If you’re listing your house with a real estate agent, the contract should be a standard form that complies with your state and local real estate laws. If you’re buying a house and working with a buyer’s agent, the real estate brokerage may or may not require you to sign an agreement or contract.

“It’s essential to have an agency agreement with the broker,” says Michael Winslow of Blue Picket Realty in Colorado Springs, Colorado. “It creates a commitment between both parties. The major difference in the two types of contracts [buyer vs. seller] is the details of the service performed.”

Regardless of the type of agreement or contract, there are some items that it should include.

Length of the contract

In addition to determining the duration of the contract, find out if there’s an option to cancel the contract if you aren't happy.

“Most (Realtor) contracts vary from three months to two years on average,” says Erick Monzo of Keller Williams — The Monzo Group in St. Clair Shores, Michigan. “If you have a bad agent, you cannot get rid of them till the contract is expired.”

Also understand what you, as the seller, might owe your Realtor if you do decide to part ways.

“If you sell your home within the timeframe of the contract, [in this market] you have to pay your agent regardless if you’ve fired him or not.” Monzo says.

Amount of commission

The seller is responsible for paying commission to both the listing agent and the buyer’s agent. The amount of commission (6 percent of the final sale price is typical), how much each agent receives, as well as when payment is due, should all be spelled out in the contract.

Keep in mind, real estate agents work for a real estate broker or brokerage, who likely takes a cut of their paycheck. If you’re thinking about negotiating commission rates, working directly with a broker as your agent might afford you more success.

The real estate agent’s duties

Detailing your expectations and what your Realtor will do in order to get your house sold or find your dream property is a key point in any contract.

“How the property will be marketed is very important to document,” says Colleen Malone of Moxie Realty in Portland, Oregon. “In our market, it’s usually in the seller’s best interest to have the home listed in the MLS for exposure to all local agents and their buyers, no matter what company they work with.”

You also want to establish whether or not your agent is working for you exclusively as either the buyer or the seller.

“Never hire a Realtor who will act in a capacity of dual representation,” says Realtor Jonathan D. Reed of Fairfax Realty in Fairfax, Virginia. “The foremost obligation of any Realtor is loyalty to their client. Even with the best intentions, it is often hard for a buyer or seller to distinguish the efforts of the Realtor when acting in a dual capacity.”

Protection clause

If the contract ends, and the house is sold to a buyer who was introduced to the property while the contract was in force, a commission is still due for a certain period of time.

“Make sure your contract states that if you relist with another real estate company, then no commission is due to the first listing office,” says Deb Agliano of Re/Max Andrew Realty in Medford, Massachusetts. “This protects you from having to pay twice the amount of the commission.”

Have you signed a contract with a Realtor? Tell us about your experience in the comments section below.

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