Exclusively Yours: Realtor Contract Pros and Cons

VOLUME 4R

By Jonathan Pressman

When prospective tenants are looking for a new rental, they may be asked about more than just their preferences for the number of bedrooms and the neighborhood. In some cases, Realtors may ask them to sign an exclusive representation contract (also known as a tenant representation agreement).

The Realtor contract indicates a renter is committed to working exclusively with that Realtor (or that Realtor’s broker). This signed contract formalizes the professional relationship and outlines the terms of their agreement. But is it a good idea for renters to sign on the dotted line? Yes and no. Here’s why.

Pros

Clarifies Competitor Relationships

Many Realtors make their money solely on commission. While all Realtors should follow the National Association of REALTORS “Code of Ethics & Standards of Practice” to avoid being competitors and taking away a client, tenants who don’t know this may innocently ask other Realtors to help in their search. Alternatively, they may reach out to a property owner who the Realtor is not already working with. Both of these requests are in direct competition with the original Realtor.

With a signed representation agreement in place, the tenant and Realtor are confirming that they’re working as a team. Additionally, Realtors will have the comfort of knowing they’re more likely to get paid for their efforts by earning a commission. Although Realtors should answer in a timely manner and try to find adequate housing for each client—with or without a contract—this legal document adds further confirmation.

Sets Expectations and Avoids Misunderstandings

The contract can reduce the likelihood of misunderstandings. For example, renters may not be clear about when payment is due for a background check until after the Realtor has already charged them for it. Or, if Realtors require tenants to use application software such as Listed2Leased or lease guarantor options like RentSURETY, this allows tenants the option to decide whether they’re willing to opt in. These arrangements, if required by the Realtor, should be spelled out in the contract beforehand.

Cons

Risk of Being Stuck With an Undesirable Realtor

Once a tenant representation agreement is fully executed, the terms of that contract are legally binding. That means tenants are required to work with the Realtor and the Realtor’s broker until the contract’s end date. If tenants decide they aren’t happy with the level of service or just prefer to enlist the help of a different Realtor, little recourse exists outside of breaching the contract. The only exception is if both parties mutually agree in writing to terminate the agreement early.

Held Responsible for Fees or Commissions for Contract Breach

The exact terms of each contract can differ. However, many contracts include a cancellation fee that tenants will have to pay if they want to cancel their agreement with their Realtor. Renters who violate the terms of the representation agreement can still be held responsible for the full amount of the Realtor’s commission, even if they don’t find a home to rent.

Making It Official Can Sometimes Be Beneficial

Choosing whether or not to sign a contract with a Realtor is a personal choice with both benefits and drawbacks. A signed contract can help set expectations for both renters and Realtors, ensuring everyone understands their responsibilities, and that renters are getting the expected quality of service and professionalism from their Realtor.

While renters who already know and trust their Realtor may find that the work relationship doesn’t change with or without a contract, this legally binding agreement is riskier with prospective renters working with unknown Realtors. The latter group should think carefully before signing an exclusive representation agreement, bearing in mind it’s tougher to part ways, along with a mandatory fine for the Realtor’s commission whether a home is found or not. Before signing anything, inquire about the Realtor’s work references and niche area beforehand, along with checking online reviews, to make sure this new partnership makes sense in the long run.

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