Call on a Broker with a referral agreement for optimizing your commercial approach

It’s interesting for a seller to hire a broker with a referral agreement in order to get better and faster business. It is important to understand what each party is and whether one is searching for a property, policy or seeking a partner in business. Where two parties come together, there can always be a broker. But, in some cases, a more direct approach may work better.

The Nuts and Bolts of a Referral Agreement

A referral agreement, in theory, is a contract between a party (or an individual) who relies on a “middleman” of sorts – i.e. the broker – to forge a deal. This means the broker is doing the searching, the negotiating and is responsible for bringing the two parties together. Obviously, there’s something in it for them: brokers usually rely on a commission from the party that first contracts them out. A referral agreement, then, should include clauses like what constitutes the broker’s authority (scope), covenants, what comes under broker billed policies and which are directly-billed policies, limitations of liabilities, termination of contract and arbitration. It should also have provisions that outline the actions of and protections for the contract-holder.

Cases Where a Commercial Contract is More Suitable

Whereas working with a referral agreement means, essentially, relying on an independent contractor to “broker” a deal, a commercial contract is a legally binding document between two parties. In this way, it’s more direct than a referral agreement since the representatives for each party come together to hammer out the details of the contract. Another thing to note is that a commercial contract is more about restraining and limiting certain actions or operations, via clauses, rather than actually forging a cooperation. Certainly, the contract can outline terms of intersection but, more generally speaking, a commercial contract will outline matters of competition and breaches that may constitute a termination of the contract.

The bottom line is this: who does the broker work for? This matters very much when deciding whether to enter into a direct commercial contract or to even bother liaising with a broker. The broker can afford a buyer (or a seller) great resources when searching for the right deal – be it property or policy. They’re motivated by the success of the deal because this spells a commission. But it pays to read the fine print carefully, to ensure the broker is not passing off a rotten egg as the next best thing.