In the short time my husband and I have been shopping for a house (or condo, or townhouse, god we’ll take anything we can actually afford in this ridiculous market!), we’ve learned a ton. For instance, never look at a place without a handy house hunting checklist. Another thing we learned is the importance of understanding what a buyer representation agreement (BRA) is.
What is a Buyer Representation Agreement (BRA)?
What the what you ask? Yeah, that’s what I said when I first found out about it. In a nutshell, it’s a contract a realtor will get their buyer to sign that locks the buyer into using their services for a set amount of time. If you want to get technical, here’s what the Toronto Real Estate Board says about it:
The Buyer Representation Agreement signifies that for a designated period of time, the buyer has engaged a specific REALTOR® firm to work exclusively on his or her behalf at finding a property. The agreement confirms the REALTOR®’s commitment to make his or her best efforts for the buyer.
On one side of the coin, it makes sense. A realtor wouldn’t want to spend a bunch of their time showing places to a buyer only for that buyer to go ahead and purchase a place with another realtor or buy it without a realtor entirely.
It’s a simple way for realtors to protect themselves and their business efforts. That being said, I’m still not quite sure how this protects the buyer? Quoting the real estate board once again:
It’s an agreement that works in favour of buyers, guaranteeing the very best in real estate service.
Uh, vague much? From the research I’ve been able to do, there isn’t a lot of good stuff floating around about buyer representation agreements. To explain what I mean, here’s a completely hypothetical example of some of its hindrances.
Say a couple is looking to a buy a place and finally find a property they want to bid on. Along with the offer paperwork, the realtor asks the buyers to sign the buyer representation agreement to guarantee that they (the realtor) will get the commission on that sale if it goes through. That’s fair, I don’t think anyone would disagree with that.
But here’s the thing, the realtor explains the contract to the couple, but doesn’t fully explain the time period portion of it all. Realtors can write in any time period they want on the contract, which, if you sign it, will essentially force you to use their services until that time is up.
Maybe that’s not such a bad thing. Maybe you really like your realtor and agreeing to stick with them for 3 months, 6 months or even a year is a fine idea by you. Hell, you probably won’t even need them for that long if you find a place to buy soon.
Yeah, that’s what I thought before I read Ellen Roseman’s article about some BRAs gone wrong. You see, if for some reason you want to get out of your agreement with your realtor and they refuse to release you from it, you’re pretty much screwed. What if you want to find another realtor you ask? Well, contractually you can’t use anybody except your first realtor, unless you’d like to get sued.
That of course is the worst case scenario. Hopefully your realtor isn’t dodgy and won’t hold you to a contract when the realtor-buyer relationship just isn’t working. But as I always say, better safe than sorry. Since the realtor can write in any time period into the agreement, you should make sure you are the one to choose the how long it’ll last for.
Personally, I’d say only go with a couple weeks in length, or better yet, have the time period apply only to one specific property (one that you’d obviously be making a bid on, so if you don’t get it, the time period portion of the agreement is nulled).
Besides being locked into one realtor, BRAs also stipulate the realtor’s commission. As a buyer, you normally don’t have to worry about paying your realtor. They are paid their commission by the seller and you get a home for practically free (minus the 30 years of debt of course).
But, as illustrated on Nick and Hilary’s blog, if your agreement says that your realtor will collect 2.5% commission on the sale, but the seller is only offering to pay 2%, you get stuck with the remaining 0.5%. Scary stuff!
So, before you start obsessing over MLS listings and go searching for a realtor, make sure you know the facts. If you have to sign a buyer representation agreement, make sure you are the one who decides on the time period and that the contract outlines clearly how the realtor’s commission will work (and if you can put a clause in there that protects you from paying any commission yourself too, all the better).
It would also be a good idea to ask for a termination clause to be added to the contract, so you can terminate the contract at any time if you are unhappy with your realtor’s services. And last but not least, if you really want to be safe, talk to a lawyer. It’s expensive, but not as expensive as being sued or having to pay your realtor an unexpected $25,000 in commission.
You May Also Like to Check Out:
- How I Dodged a Bullet By Not Buying a House in Toronto
- Another Week, Another Round of House Hunting in Toronto
- My First Bidding War: But Not My Last
- House Hunting Checklist: My Must-Dos When Checking Out a House
- House Hunting in Toronto: My Experience in a Seller’s Market