Buyer representation agreements
Buying a house used to be a simpler proposition. You'd drive around the neighbourhood, see a 'For Sale' sign at a house you liked and then you'd call a real estate agent to say you'd like to check it out. Sometimes that was the selling agent; sometimes it was just a local Realtor whose name you'd seen around.
Things have changed. Today it's a competitive market for buyers in large and expensive Canadian cities. Scarcer listings, high prices and multiple offers have led buyers to consider contracting with an agent.
While these agreements go by different names depending on what province you're in -- for example, it's known as a Buyers Representation Agreement (BRA) in Ontario and an Exclusive Buyers Agency Agreement in B.C. -- these contracts can be lucrative for agents and a boon to buyers in finding the right house within a price range they can afford. Or not.
Recent reports in Toronto have focused on dissatisfied buyers stuck in agreements that can't get out of, or must to pay to cancel.
"There can be bad apples in every business," says lawyer and real estate author Mark Weisleder. "But I truly believe that if buyers take the time and do their homework in finding a really good agent, a BRA is a win-win."
While more agents are starting to request that buyers sign an exclusive BRA agreement with them, "no one is forced to sign an agreement," says Bill Johnston, president of the Toronto Real Estate Board. "And the agreement doesn't mean you have to buy."
Proponents of BRAs point out that signing a contract changes the nature of the buyer/agent relationship from that of a customer to a client. As a customer, you have the right to expect good service, but as a client your agent has what is called 'fiduciary obligation' to you. This includes such things as loyalty, obedience, confidentiality and due diligence in all matters, including financial.
Provincial real estate associations have standard contracts but buyers need to be aware that any item can be modified, included, excluded or negotiated.
Some of the standard clauses include:
- Length of time the contract is in effect
- Geographic area covered by the agreement
- Commission the agent will earn on a successful purchase
- How information may be collected and used
- Process for handling conflicts or discrepancies
Weisleder says that if you find a Realtor worthy of signing on with, one of the main benefits is the negotiating skill the agent brings to the process.
"Even though I'm a lawyer and have skill in negotiating, I benefit from having a representative in a transaction where emotions are involved, such as buying a home," he says.
Agents will be motivated to work on your behalf knowing that they will earn commission on any purchase, no matter how you discovered the property.
"The days of buyers running around to open houses and calling 10 different agents to view a house are a dog-eat-dog world," says Rick Valouche, president of the British Columbia Real Estate Association. "Having a contract makes sense."
When acting under a BRA, the agent is bound by confidentiality, so information that could undermine your bargaining position won't be passed on to the seller.
A real estate agent may be representing other potential buyers or even the seller themselves. A BRA contract should require full disclosure and clearly state how the agent must act under such circumstances to avoid conflict of interest.
While you can benefit from contracting with an agent, it may not cost you anything since their commission is typically covered by receiving a shared portion of the fee paid by the seller.
It's unwise to sign on for any lengthy period of time without a trial run. Experts advise to contract for a short period, such as two weeks, to ensure things are working well, and then sign on for 30 day periods.
When you contract with an agent, you're buying their expertise, so consider just what that represents in terms of geographic area. If you find an agent's sales record is based in a particular part of town, limit your agreement to that area.
The bottom line
Approach the selection of a buyer agent just as seriously as you would when hiring an employee or any trusted adviser. Get references and check them. Ask questions about their past sales, local knowledge and other professionals they work with, such as home inspectors or mortgage brokers.
Remember that you can modify and change clauses in a standard agreement upon signing and after.
"If you object to something, don't agree to it," advises Weisleder.
But for young and inexperienced buyers such as Toronto-based Darren Smith, 32, and his partner, signing a BRA has given them peace of mind.
"Our agent has been considerate of our financial situation. We knew conditions were negotiable, but we went with 90 days and unlimited territory because we wanted to give our agent the chance to find us a place," he says.
Diana McLaren is a writer in Toronto.