When you become a client, you sign a representation agreement with the brokerage – a contract between you and the brokerage for real estate services and representation.
If you don’t want to sign an agreement, you should not expect the real estate agent to provide you with any services, like showing you homes.
Representation agreements can be called buyer representation agreements, or seller representation or listing agreements. Your agreement must be put in writing and presented to you as soon as possible.
Protect yourself by reviewing the agreement in detail. This will help to avoid any misunderstandings between you and your real estate agent.
Your representation agreement should describe the duties owed to you, the services you will receive, your rights and responsibilities, what you will pay, and specific terms of the agreement, including how long the agreement will last and whether you can cancel it.
Here are some key things to look for.
There are two kinds of representation agreements in Ontario:
Brokerage representation agreement
Designated representation agreement
The brokerage and all its agents represent you and must promote and protect your best interests, but one of the brokerage’s real estate agents may be your primary contact.
One (or more) of the brokerage’s real estate agents is your designated representative. The agent(s) represent(s) you and must promote and protect your best interests.
The brokerage and its other agents are required to treat you impartially and objectively.
An important aspect of designated representation is that it reduces the likelihood of multiple representation. You can read more about multiple representation.
Designated representation was introduced in Ontario on December 1, 2023. Ask the real estate agent what type of representation the brokerage offers.
If the contract is a designated representation agreement, the name of your designated representative will be included. More than one real estate agent working at the brokerage can be identified as your designated representative.
Your agreement should specify the scope of the engagement.
If you are a seller, this means the agreement will identify the specific property.
If you are a buyer, you should consider the scope of the agreement carefully. Your agreement might identify a specific property, a geographic area you are searching in, a type of property you are looking for, or other specific requirements. For example, if you are looking for both a house in a particular city, and a cottage property near a lake, and want to work with different real estate agents with local and property type expertise for each property, the scope should be clear in each of the agreements to avoid disputes about who you might have to pay if you buy a property.
The agreement must clearly set out the services you will receive. There is no standard set of services – brokerages offer a variety of service options. You choose the services you want that best meet your needs.
You might enter into an agreement with a brokerage for a specific purpose like, for example, having an agent prepare an offer on a property you want to buy, or viewing a specific property. Some sellers enter into an agreement solely for the purpose of having their property advertised on a local listing service.
Ask the real estate agent about the available services or combination of services that may be right for you and your situation. If there are specific services you need or expect to receive, make sure they are included in the agreement or as a schedule to the agreement. Don’t assume a particular service will be provided if it’s not included in the agreement.
You and the brokerage decide the amount you will pay for services. The amount is not fixed or approved by RECO, any government authority, or any real estate association or real estate board.
You can agree to pay a fixed dollar amount, a percentage of the sale price, or a combination of both. The representation agreement cannot specify an amount based on the difference between a property’s listing price and what it sells for.
Agreements must also identify circumstances in which the amounts agreed to might change and how they will change in each circumstance.
If you are a seller, your agreement needs to clearly indicate:
If you are a buyer, your agreement needs to clearly indicate:
Important note for buyers: A seller might not offer any amount to cover the fees you owe to your brokerage under your agreement. This could affect the amount you are able to offer for a property. Depending on your financial circumstances, you may not be able to afford to buy a property when the seller does not agree to pay your brokerage fees.
The agreement should list all circumstances when the agreement can be terminated. Review when the brokerage can terminate the agreement, and make sure you are aware of any penalties or costs that might apply in each case.
Two important circumstances to be aware of:
The agreement’s expiry date must appear prominently on the first page. There is no set time or standard term for a representation agreement: it can be in place for a day, a few weeks, or months. Consider how long you want the agreement to remain in place, and make sure you know when your agreement will expire. Keep in mind that a holdover clause could mean you owe money even after the expiry of the agreement.
Most representation agreements include what is often called a holdover clause. The clause may require you to pay the brokerage fees for a purchase or sale even when the transaction happens after your representation agreement expires. The clause will specify the time the holdover clause is in effect from the date the agreement expires.
A holdover clause is designed to protect the brokerage, and there is no minimum or set time for a holdover period. If your agreement includes a holdover clause, make sure you agree to the length of the holdover period before you sign it.
For example, let’s say you are a seller, and your agreement includes a 30-day holdover clause. This means that even if your agreement has expired, under certain conditions, you might be obligated to pay the brokerage commission if you sell your home during the 30-day holdover period.
Similarly, assume you enter into a buyer agreement that includes a 30-day holdover clause and the agent shows you a home before the expiry of the contract. If you buy the home after the expiry of the agreement, but during the holdover period, you might be obligated to pay the brokerage commission.