Broker Agreement

What is a broker agreement?

A broker agreement, also known as a finder's fee agreement or a referral agreement, sets forth the terms and conditions under which a broker will either find goods and/or services for a buyer to purchase or interested buyers for goods and/or services being sold by a seller. The broker's role may be limited to just introducing a buyer and a seller, or may be more involved in the transaction between the parties and may consist of assisting with the negotiation of the final deal. In either situation, the introduction and potential transaction stem directly from the broker's assistance, which entitles the broker to financial compensation. This agreement outlines the specifics of this relationship and the circumstances under which the broker will receive a fee for their services.

Parties should use a broker agreement if:

• A broker has knowledge and contacts in a particular field and is able to introduce a buyer or seller of goods and/or services to each other
• Someone running a business wishes to sell goods and/or services but is unable to reach out and market to find clients and customers, so would like to pay a broker to do that work instead
• Someone wants to purchase a good and/or service but does not know where to look or whom to speak with, so would like to pay a broker to find that good and/or service for them
  
  

What are the different types of broker agreements?

Broker agreements are used for two different situations. The first type of broker agreement is for a broker helping a buyer find goods and/or services to purchase that meet their specific requirements. The second type of broker agreement is for a broker aiding a seller in finding people to purchase their goods and/or services. This broker agreement can be used for either of these situations.

What is the difference between a broker agreement and a real estate agent agreement?

Though both of these documents involve a middle man helping a buyer and seller reach a deal, they are used in different situations. A broker agreement is used for the purchases or sale of goods and/or services. A real estate agent agreement is specifically for an agent who sells real property, such as a house or plot of land, to a buyer on behalf of a seller.

Is it mandatory to have a broker agreement?

No, it is not mandatory to have a broker agreement. A broker and client could have an informal understanding without creating a written contract. However, it is highly advisable as it makes sure that both the broker and client have a clear idea of the services that will be provided and the terms under which this will happen. It acts as protection for one or both of the parties in case there is a problem or future dispute related to the arrangement.

What is "exclusivity"?

In the context of a broker agreement, exclusivity means that the client is not free to hire any other brokers to arrange sales for them while this agreement is in place.

What must a broker agreement include?

A broker agreement must include at least the following mandatory clauses:

• Parties: The broker agreement should include the name and contact information for all the involved parties, including the broker and the client. This should also include the industry in which the broker works and whether the client is a buyer or a seller.
• Scope of services: The broker agreement outlines the scope of the services the broker will provide. This includes whether the broker will be finding goods, services, or both, and a description of the degree of involvement the broker will have in negotiating the final business deal.
• Payment terms: The broker agreement will include a description of when, how, and how much the broker will be paid for their services. This can include details such as a late fee policy.
• Start date and completion date: The broker agreement will state the date that the broker is expected to begin providing the service. It also includes the date when the broker will complete the services they will provide to the client. If this date is not known, the agreement will say that the agreement will end at some date in the future when the broker has finished rendering all the agreed upon services to the client.
  
  

Who may enter into a broker agreement?

Both individuals and businesses may enter into broker agreements. For individuals entering into broker agreements, they must be of legal age to enter into a contract, 18 years of age or older in most states. They must also be mentally competent to enter into a contract. Business entities entering into a broker agreement must have the legal authority to do so, usually outlined in the business' governing documents, such as bylaws or operating agreement.

What should be done once the broker agreement is finished?

When the broker agreement is written and all the relevant information has been included, each of the parties should sign and date the document. The parties should each keep a copy of the agreement for reference and in case of future dispute.

Which laws are applicable to broker agreements?

Broker agreements in the United States are subject to both Federal laws and specific state laws, which cover general contract principles like formation and mutual understanding. Federal laws may restrict what services can be contracted for (for example, you may not contract for a broker to do anything illegal) and certain broad categories, like contracting for something that looks more like a business partnership than a broker/client relationship. Individual state laws may govern the interpretation of the contract in case of a dispute. Further, state-specific and industry-specific laws govern licensing and qualification of brokers in particular specialized industries. For example, in the real estate industry, the overwhelming majority of states dictate that a licensed realtor may not pay a non-licensed realtor a finder's fee. In the insurance industry, some states do not allow finder's fees. It is important, in these specialized fields, to understand the requirements and laws around finder's fees. Consider consulting an expert if you are in one of these specialized industries.

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