What are the key terms I should know before I sign an agreement with a real estate rep to buy a home?
There are several terms and concepts you will come across throughout the process of buying or selling a home, so it is wise that you are doing some homework before you begin your search.
Buyer Representation Agreement: After you’ve interviewed a few candidates and selected one to work with, you may be asked to sign a buyer representation agreement, or BRA. This document is a legal contract that sets out the relationship between you and the real estate brokerage working on your behalf. It’s a good idea to consider your options before signing it.
A BRA identifies the type of property you want to buy, the area where you want to purchase, the services the brokerage will provide you and the amount of commission the brokerage will be entitled to. It also states how long your agreement with the brokerage will be in effect. It’s important to know that when you sign a BRA, you are committing to working with only that brokerage from the time it takes effect to when it expires.
Before you sign on the dotted line, your salesperson is required to inform you about the types of service alternatives that may be available from the brokerage, the services that the brokerage will provide under the agreement, the fact that the brokerage may end up representing the seller or another buyer as well (and how the brokerage would deal with that scenario), and the consequences you may face for breaking an agreement early.
For example, if you work with your salesperson to put an offer on a property and that offer is accepted, you may end up owing the brokerage commission, or damages in lieu of commission if you ultimately decide to walk away from the deal.
It’s also important to note that a BRA binds you to an exclusive relationship with your salesperson’s brokerage. Last week, I talked about what would happen if you can no longer work with your selected representative, and how you may be obligated to work with another representative of the brokerage for the specified period of time that’s stated in your BRA.
Above all, under a BRA, the brokerage has a special responsibility to follow your instructions, protect your confidential information and promote and protect your best interests. In return, you agree to work exclusively with a certain brokerage for an agreed-upon length of time.
Holdover clause: These are often included in agreements, such as representation and listing agreements. These clauses typically state that you will — for a specific period of time — owe commission to a brokerage if, within a certain time after the agreement ends (either the term ends or the agreement is cancelled prematurely), you end up buying a property that the brokerage introduced to you when the representation agreement was still in effect.
You should speak to your real estate professional to confirm whether there is a holdover clause in your BRA, how it works and how long they propose it will last.
These are just a couple of the terms you will come across when you become involved in a real estate transaction. For more information, go to our website, reco.on.ca.
Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.