A representation agreement is an important document to take seriously, but it’s not to be feared. Understanding what you’re signing lets you move ahead confidently, knowing that you’re protected and have an agent who’s going to work hard to help you buy a new home. Let’s explore how to decode these representation agreements, and how you can make sure it’s wise to sign.
A buyer representation agreement establishes the nature of your working relationship with a real estate agent or broker who is helping you buy a home. It’s a legally binding written contract that both parties agree to and sign before putting in an offer on a home. Sometimes buyer representation agreements are casually used in reference to a handshake deal or spoken agreement, but your agent is legally obligated to offer this agreement in writing for both parties to sign.
A buyer representation agreement outlines commissions and expectations. It should include the following:
It’s important to completely understand any document you’re signing, and a buyer representation agreement is no different. A good agreement can protect both you and your real estate agent before you make an offer.
Your agent may ask you to sign an agreement but you’re never legally obligated to sign any agreement, or to buy a home if you sign. You can also negotiate or challenge parts of an agreement that you don’t agree with to see if a compromise can be reached.
You wouldn’t take a job unless you knew what you were getting paid or understood what the hours were. Take a buyer representation agreement in the same regard. Discuss all elements of the agreement in full and make sure you understand the language used.
Most contracts will include a clause on indemnification which protects the agent or brokerage from liability in case the home you buy has physical defects or issues. Make sure you do your due diligence in understanding the language and inspecting the home to make sure you are protected as well.
In addition, the contract will outline the responsibilities for paying the commissions. The buyer does not usually pay a commission because the seller will pay a fee to the buyer’s agent. However, make sure to review the real estate commission agreement portion of your agent’s contract to understand certain circumstances that will make the buyer responsible for the commissions, in case the seller does not pay the buyer’s agent fee.
Your agent isn’t a lawyer so they can’t offer you counsel or legal advice, but they should fully understand the contract and be able to explain what each part of it means for your relationship. You can also seek outside counsel to look at the agreement. If you’re agreeing to a spoken agreement, follow up in writing to ensure that everyone understood the conversation in the same way and so that there’s a clear record of it to refer back to. Ask about costs, services, and what each part of the agreement and process entails.
The terms of each agreement are different and will be outlined in writing. Most buyer representation agreements don’t exceed six months and are valid for around 90 days, but some are longer.
The easiest way to cancel a buyer representation agreement is if you and your agent or broker both agree to part ways. If your representative is not fulfilling the terms laid out in the contract, you have grounds to fire them because they haven’t performed the agreed upon tasks. When you sign your contract, ask about the terms and the consequences of ending a contract early, or if the agreement allows for any leniency in this regard.
Typically, the standard contract will not include an early termination clause, however, you can request to include it. If you want to cancel a contract, you can also try contacting the brokerage your agent works for directly, since they often have the legal authority to cancel a contract.
A holdover clause protects the brokerage and states that if you enter into an agreement of purchase within a specified time (the “holdover period”) after the expiration of the contract, you may still need to pay commission to the brokerage.
For buyers, the holdover clause applies to properties that you were introduced to while you were under an agreement. For example, you were shown a property but you did not enter a deal for that property before your contract expired. Then, you could choose to work with a different brokerage — but if you buy one of those properties during the holdover period, you could also owe commission to the original brokerage.
When you are introduced to the property matters, and while there isn’t a standard number of days for a holdover clause, it’s an important detail to pay attention to. Always ask questions about language you may not understand, and do not hesitate to ask a legal professional for further clarification.
When your working relationship is defined in writing, you can move ahead confidently without either side making assumptions or misunderstanding what the plan is.
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This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.
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