Is a broker agreement better than a commercial contract?

There are cases in which certain kinds of agreements are more beneficial than others. 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 Broker Agreement

A broker 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 broker 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 broker 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 broker 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.