What is a buyer representation agreement, and what do I need to know before I sign one?
A buyer representation agreement (BRA) is a contract that binds you to work exclusively with one real estate brokerage for an agreed-upon period of time when you’re in the market to buy a home. You don’t have to sign a BRA, and if you do, you’re under no obligation to actually purchase a home during the term of the agreement.
A BRA outlines the property types and geographic areas for your potential new home, lists the services that will be provided by the brokerage, determines the commission that will be paid to the brokerage, and sets a time commitment.
Signing a BRA is a commitment that comes with rights and responsibilities, so think carefully about your needs. Suppose you sign a one-year BRA with a Toronto-based brokerage in order to purchase a condo, but you accept a job in North Bay soon afterwards. The BRA would remain in effect unless the Toronto brokerage allows you to terminate it.
A BRA can be any length of time, but if it’s more than six months, you will be asked to initial the expiry date, in addition to your signature on the document. That’s to ensure that you understand the length of the agreement. In addition, a holdover clause can bind you to the brokerage for a length of time even after the BRA formally expires. If you purchase a house that was shown to you by the brokerage when the BRA was in effect, you may still owe the brokerage a commission, depending on when you make the purchase. The term of the holdover clause must be clearly stated, and agreed upon by you and the brokerage.
You can expect the BRA to include a commission clause. Though real estate brokerage commissions are often paid by the seller after a deal closes, if the BRA has a commission clause that states a minimum compensation (hypothetically: a certain percentage of the purchase price or a specific amount), and the seller pays your salesperson’s brokerage less than that amount, you may be required to pay the difference out of your own pocket. This is something you should understand and discuss with your brokerage to make sure it is clear what you will owe under different circumstances.
Every year, RECO hears from consumers who signed either a BRA or a listing agreement, and realized later they had agreed to terms they didn’t want. That’s why it’s important to read any document your brokerage asks you to sign, request that your salesperson walk you through it, and show it to a lawyer.
If you have a question for Joe about the home buying or selling process, please email firstname.lastname@example.org.
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.